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The original was posted on /r/neutralpolitics by /u/nosecohn on 2023-06-05 18:42:51+00:00.
The mods acknowledge that this is not exactly a political question per Rule A. There have been a couple times in the past when we've attempted to leverage this subreddit's combination of strict rules, established culture, and moderation style to host productive discussions about Reddit-specific incidents. In light of the current conflict around API access costs and third-party apps on Reddit, this is another one of those times.
Background and description
Third-party software that interfaces with Reddit relies on the company's "application programming interface" (API) to communicate with the site. Back in April, Reddit said it would begin charging for access to its API, and on May 31st, the company announced to developers that it would be adding an Enterprise-level tier for API access, though it did not publish the pricing.
That same day, Christian Selig, developer of the popular Apollo app, said Reddit is proposing to charge $12,000 for 50 million requests, which he estimates would cost him $20 million a year, an amount that could easily cause him and others to shut down their apps.
For comparison, Selig cites the photo site Imgur as a more reasonable pricing scheme, "I pay Imgur (a site similar to Reddit in user base and media) $166 for the same 50 million API calls." Twitter recently announced a three-tier API pricing scheme. The highest tier, which is aimed at commercial-level access, is estimated to cost as much as $42,000 per month. Some Twitter developers said the new pricing would kill their projects.
If Selig's reported numbers are correct, Apollo and many other third-party apps could be priced out of access to Reddit. Many users say the official Reddit app is inferior and the loss of all third-party apps would have a dramatically negative effect on the site and their participation. This has led to petitions, protests, and widespread calls for a boycott.
Reddit history and financial information
Reddit admins have been notably quiet in all this. As of this posting, they haven't issued a statement or commented on Selig's post. Until they do, we can only infer the company's reasoning by examining the public information.
Reddit began as a website, but like most social media, has experienced a notable shift towards mobile access, such that now over two thirds of visits are from mobile devices. In most cases, Reddit cannot serve ads to users browsing through third-party apps. I think we can also infer that users of those apps are more likely to pay premium subscription fees to the app developer than to Reddit itself.
This means those apps incurs costs to Reddit of serving the API calls without any corresponding revenue stream. The third-party apps probably also steal some users who would otherwise be using Reddit's native app where the company could serve ads, although many of those users say they'd just leave Reddit rather than use the native app.
Reddit's main revenue streams are from advertising and premium subscriptions. The company reportedly took in $350 million of gross revenue for 2021, which pales in comparison to Meta’s 2022 ad revenue of $113 billion. Even Twitter, despite its many controversies, raked in nearly $7 billion last year.
Although Reddit ranks as the 9th-most-visited website in the world and 6th most-visited website in the US, its users are the least valuable of any major social media network, with estimated average revenue per user (ARPU) of about $0.30. For the sake of comparison, Facebook and Pinterest have estimated ARPUs of $7.37 and $2.80 respectively.
Since 2006, Reddit has been majority owned by Advance Publications, the parent company of Conde Nast. Other significant investors are various venture capital firms. Because it's privately held, Reddit isn't subject to any of the financial reporting requirements for public companies, so we don't know if it is profitable or to what degree.
It has been widely reported that Reddit is preparing for a potential initial public offering (IPO) sometime later this year. In such cases, it's common for investors to be looking for growth in — or entirely new streams of — revenue.
Companies are also legally required to enter a quiet period before an IPO, limiting their public statements. It's not clear if we may be in that period, but beyond the legal requirements, it's also in the interest of a company planning for an IPO to be careful not to communicate anything that could diminish its perceived value. The 2012 JOBS Act eliminated many disclosure requirements for "emerging growth companies" (which Reddit qualifies as) for a period of five years from their date of filing to go public. "What that means from a communications perspective is that – apart from rumor and speculation – the general public has no knowledge of the EGC’s IPO plans until the finalized registration statement is publicly filed which, in most cases, is about one month before the company complete[s] the IPO and goes public." So, unfortunately, the financial motivations behind of Reddit's move on API pricing remain obscured from the users.
In the broader market, though, funding for tech companies has dried up and layoffs abound. High interest rates have also taken their toll, because potential investors can get better returns elsewhere. Increasing revenue and a successful IPO may be Reddit's only avenues to profitability.
What's notable behind all the numbers is that users and moderators are key elements for the company. A loss of users would directly lead to a drop in revenue and valuation. Meanwhile, moderators provide an enormous amount of free labor in the form of content moderation on the platform, without which Reddit would be at risk of severe reputational harm. A policy shift that results in an exodus of both mods and users cannot be good for the company's bottom line. At the same time, running out of cash or provoking an exodus of investors and/or employees could also be very detrimental to the site's future.
Questions
- Acknowledging there's a lot of presumption here due to the lack of information from Reddit itself, if a decision for a public media company comes down to open access versus survival, how do they balance those forces?
- Are there other public/social media companies that do a good job of this, and if so, how?
- If a company like Reddit determines it needs to raise revenue in order to continue to provide a platform for public discourse, are there ways to do it that maintain the relative freedom of access (from different apps) such discourse requires?
- And even if the platform is not at risk of extinction, are there ways for a social media company to ensure a reasonable return for investors while also balancing the interests of free and open discussion from all devices?
Statement from the moderators
The mods of r/NeutralPolitics appreciate the time and effort of ...
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