Dear Reader,

The Reddit blackout is big in the news as I write this column. As you read it, you will probably know more than I know now, but for now, the disruption is starting to look significant, even though the company says it will all blow over in time.

A recap: Reddit, which is actually a company, although it has many features that make it seem more like a collection of community groups, announced that it would start charging for applications that access its API [1]. This news is significant because there are several companies that derive their revenue from apps that provide an interface with Reddit, and some of these vendors have declared that paying to access the Reddit API will drive them out of business. Apollo, makers of a Reddit client for Apple products, has already announced that the change will cost them $20 million per year.

Reddit has been chugging along for 17 years. Why rock the boat now? It is no secret that the company is gearing up to go public with an IPO later this year [2]. The whole scenario fits with the usual story for how these tech ventures go. Venture capitalists invest in a private company to build it up (with an emphasis on growth, rather than profit), then at some point, they go public with an IPO, and everyone makes a lot of money. But the IPO only works if Wall Street likes what it is buying, and Wall Street likes profits. So if Reddit wants to make a splash, they need to transition from a company that emphasizes growth (i.e., maximum access to the API) to a company that emphasizes profit (i.e., no access unless it brings in revenue).

Reddit is reportedly the 10th busiest website in the world, and the sixth busiest in the US, with 57 million daily users, so a boycott is big news. The company maintains that the boycott has only shut down a small percentage of its forums. Out of a total of 100,000 active subreddits, 6,000 went dark initially, with others following to a maximum of 9,000, and some coming back later in the week. As of this writing, around 3,500 are still dark. But the actual numbers might not be as important as the attention it brings to Reddit at a critical time.

It is true that some of this attention could be positive attention from investors because Reddit executives are being "tough" and demanding profits. But it is also worth remembering that Reddit is in a peculiar situation that most companies will never face. Their whole business model depends on them looking and behaving like a community. Most of the moderators on Reddit volunteer their time. According to a recent study by researchers at Northwestern University [3], volunteers save Reddit $3.4 million per year in labor costs. Of course, Reddit is a big company ($3.4 million was equivalent to 2.8% of revenue at the time of the 2019 study). But the line between red and black ink is quite tenuous in the Internet economy, and $3.4 million can make a difference. Most volunteers are happy to donate their time to a worthy cause, but a corporate titan dialing up its profits to impress Wall Street might not be a cause that many of these volunteers consider worthy.

I have some sympathy for Reddit. Are they supposed to go on forever giving free access to companies that don't contribute anything to pay for the infrastructure? And yet, if they operate on free labor and talk the talk of community spirit, should they not be held to a different standard from other profit-screaming ventures? The company says it is negotiating with several of the client companies in hopes that they will continue, although two of the largest, Apollo and Reddit is Fun (RIF), have already said they will close their doors.

Reddit CEO Steve Huffman was recently asked if he thought the real answer is that the profit model for building a massive company on Internet advertising just doesn't work. His answer was, "Are you saying Facebook doesn't work?" [4].

That's the whole point, though. Companies like Google and Facebook work very well, but not just by selling ads. They also spy on people, strong-arm their customers, and play corporate hardball when necessary to protect their interests. So yes, Reddit can be just like Google and Facebook, but when that happens, they might not look like the Reddit we all remember.

Joe Casad, Editor in Chief