Finally found a decent analysis of why Reddit should care very much about the blackout. Reddit CEO forgot how much money those pesky tire party apps saved him in free labor by mods and redditors. Time to go somewhere no one is looking just for his own pockets.
I like the analogy with Goodwill.
Yeah, that was an excellent way to frame reddit’s business model for people who aren’t familiar with the labor of modding and who probably also don’t comment.
The most frustrating part is I’m sure they are well aware of what will happen to the site but why care when you can make so so so much money at the expense of others ? 🥲
I’m convinced spez is almost in too deep at this point. No doubt he has extreme VC pressure on him for a successful IPO, and the worst thing that can happen to him if reddit suffers is a few million dollars and some extra free time.
Meanwhile, there could be actual money he misses out on making if he admits he’s screwing over his users. Money like that is difficult to resist, especially with the kind of executive power over reddit’s direction he has.
He is running on ego at this point. And he let things get to the point of no return. People are moving away from Reddit, and even if the Spez guy undoes everything, third party apps won’t return, because they know they are one hissy fit, one stock offering, one bad CEO away from having to shut down again.
It may have started this way, but now we’ll have o see what Reddit will become. I have my Lemmy account and my popcorn ready.
He said it himself. Reddit isn’t profitable. If the VC funding dries up, the company is done. Just goes to show the importance of finding an alternative way of funding the operating costs of online communities. Maybe we’ve got a good one here.
How does it actually work? Does the instance owner pay for the hosting or is it funded by donations?
It comes down to whoever is paying to host the software. Most seem to be funded by donations.
I like that, it’s better than ad.
Yep. But here is the snag: even though regular users generate traffic, power users (such as mods, people who want to have a better user experience through third party apps, people who engage in fights about usability) are those who generate and moderate content.
So driving them away will drive revenue away in short, medium and long term.
Tons of marketing sites have already recommended advertisers to stop advertising on Reddit, at least until this whole thing has settled.
The best part is the Spez guy never thought open source alternatives already existed, so he will actually speed up the end of his platform. I would bet that there won’t be an IPO any time soon, and the Spez guy is the main culprit.
Account Wall
Something fascinating is happening at Reddit: The social media site’s moderators have essentially gone on strike. On Monday, they took thousands of the site’s forums private, creating an effective blackout of some of its most popular discussion boards.
I won’t dwell on why they’ve done this, because it involves no dispute of general interest such as steamy affairs, wild financial shenanigans or hot-button culture-war beefs. Instead, the fight is over whether (and how much) third-party app developers should be charged to hook into Reddit’s back end. Unlike sex scandals and culture-war battles, this question is absolutely central to Reddit’s business model, and things are not going well.
The dispute has escalated past the leaked-internal-memo phase of the corporate crisis cycle and into the backlash-to-the-memo phase — in which the problem worsens as some of the Reddit moderators, outraged by the chief executive’s dismissive tone, extend their strike. In corporate America, the next stop on this train is often the groveling public apology, followed by defenestration of some senior executive, quite possibly the CEO.
But unless you’re an avid Redditor, the reason for the fight is probably less interesting than who is waging it — because Reddit relies on volunteer moderators who are estimated to provide millions of dollars’ worth of free labor. By withholding that labor, they are not just protesting corporate overreach but also vividly demonstrating the risky strategy at the core of every social media business.
You can imagine Reddit’s business model as a kind of giant digital Goodwill store. Citizens with surplus time, ideas or complaints about the state of the world periodically stop by to donate things. At Reddit, volunteers sort through them, toss out the stuff that’s truly gross and put the rest on display for customers to browse. If all goes well, this activity generates funds — Goodwill literally sells the goods, while Reddit sells advertising, subscriptions and virtual goods — enough to cover operating costs and then some.
And this is a great business — the cost of goods sold is literally nothing! Even if the quality is, ahem, variable. Besides, large groups of people beavering away in their spare time can do a lot of things that traditional media can’t, from creating deep, supportive communities to hosting insanely detailed expert debates.
The only problem with being in the virtual Goodwill business is that you are so dependent on actual goodwill. We give charities our stuff because it gives us a tax deduction, sure, but even more because it gives us a warm feeling of having contributed to others. And, of course, the volunteers who sort and stack and sell are entirely interested in doing some good for the world. (Goodwill employs paid workers as well as volunteers.)
All of which makes this kind of business uniquely vulnerable to negativity. Every company faces the risk that their workers will organize a work stoppage or their customers will desert them. But if you try the Goodwill gambit, you face an additional threat: make people mad, and your product may go on strike. Which will, of course, make it harder to retain your customers and all the rest.
Reddit faces an extreme version of this problem, because it relies on community moderation as well as user-generated content. But every social media company is in the business of selling donated goods, which means they also face some risk that their power users will revolt.
One way to manage this risk is to grow goodwill by encouraging people to think of you as closer to an actual Goodwill store — a public service rather than a grubby profit machine. Talk about “community” and “digital town squares” and “building relationships” and “creators,” not customers and revenue and content. But that might only make the problem bigger if users come to expect you to actually operate like a charity.
Last week, CEO Steve Huffman tried to contain the damage by taking questions from Redditors. It became another chapter in what Barron’s recently called the company’s long struggle “with user backlash in efforts to monetize its reach.”
“How do you address the concerns of users who feel that Reddit has become increasingly profit-driven and less focused on community engagement?” asked one of the less fiery questions.
Huffman mildly replied, “We’ll continue to be profit-driven until profits arrive.”
Though Huffman’s critics make some good points, so does he: In the long run, adequate revenue is a prerequisite for Reddit. Unfortunately, Reddit’s user base has never needed to face this reality, because for a long time venture capital money was flowing so freely that a lot of their beneficiaries practically were charities. Reddit sopped up some $1.3 billion of that easy money over 10 rounds.
This game was too good to last, and it didn’t. Now Huffman, like many other chief executives, has to figure out how to guide the company to profitability — without destroying the goodwill goods that are his only real asset.
