What Is Reddit Thinking?
No, Really
Reddit recently announced its API pricing changes, which has caused an uproar. Reddit’s APIs were free till now but will incur a fee starting next month. Third party app Apollo, which is not paying a dime currently, will have to pay $20 Million/year just to support its current user base. As a result, Apollo has been forced to shut down. Another popular app, Reddit Is Fun, has met a similar fate.
In protest of these changes, multiple subreddits have staged a blackout. Some lasted only a couple of days, while others are still ongoing. This has garnered wide media attention, and Reddit CEO is in hot water for killing third-party apps.
As a loyal Apollo user, I certainly feel the frustration of having to switch to the official Reddit app, which is objectively terrible. As a user, there is nothing I gain from this change. However, let’s switch caps here and try to view this from Reddit’s perspective.
Reddit has 2 goals —
- Short term — to become profitable in the run-up to its IPO.
- Long-term — to take back control.
The first one is obvious. Reddit recently laid off 5% of its workforce in an effort to cut costs. The API changes are part of the same broad strategy to cut costs and grow revenue. This is especially important now when interest rates are rising, and Reddit is eyeing an IPO.
The APIs are not free for Reddit. It costs them in infrastructure and developer bandwidth. It is reasonable for Reddit to want to cover its costs. However, there is no way that Apollo’s traffic is costing Reddit $20M per year. Reddit’s pricing has made it clear that they want to wipe out third-party apps completely. This brings us to the second reason — Taking back control.
The API broadly supports 5 use cases -
- Bots, which perform a myriad of useful or entertaining tasks such as converting units, setting reminders, reversing GIFs, etc.
- Moderation tools, used by moderators to police their subreddits.
- Third-party apps, like Apollo and RIF.
- LLMs such as ChatGPT and Google Bard to train their models.
- Researchers using Reddit data for academic purposes.
Out of these, only 1 and 2 actually create value for Reddit. They contribute to the quality of content on the platform.
3, 4 and 5 allow others to use Reddit data without any benefit to Reddit. Third party apps were valuable to Reddit when it did not have its own app. But now that it does, they are competition. And Reddit does not like that. Reddit could have introduced reasonable pricing and kept everyone happy, but by driving off third-party apps completely, Reddit gets to own both — the data and its consumption.
One could argue that the data is created and moderated by users, so they should own it. But as the platform, Reddit owns the distribution. This is a reasonable business strategy. And Reddit is a business, just like Facebook or Twitter. The risk is angering (and losing) its users and moderators. Where other social networks spend millions on moderation, Reddit relies heavily on volunteers. But the site enjoys high user loyalty and is betting that everything will be fine in a few months. As it likely will be. However, there is no doubt that the execution could have been much better.
This episode will be remembered as a case study in what not to do when introducing unpopular changes. Reddit only gave 30 days of notice for apps to comply. They also tried to accuse Apollo founder Christian Selig of blackmail but forgot that the calls were recorded. Their messaging is all over the place. It is a whole dumpster fire. Now we can only wait to see how long it lasts.
