Reddit could require serving their ads as a requirement for API access. Right now there is no way for Apollo to serve reddit ads even if they wanted to.
Reddit could choose to include the ads they sell within the API calls and say that anyone who uses the API has to display the reddit ads as well.
Maybe they could even share the ad revenue with the third party apps when someone clicks on the ads in the third party app.
They could then charge for the API calls that don't have the ads in them - e.g. the LLM that are consuming the data.
But the point is really that there are plenty of options, and instead of attempting any of those Cs just went with api euthanasia.
Apollo can offer a better experience because they don't have to constantly push recommendations and test new features to boost engagement metrics. If every 10th post on Apollo was an ad it would still be an improvement over the Reddit app.
Apollo could pass this on to their users as the fee for ads free Reddit experience.
This way their incentives are aligned with Apollo’s.
Both earn money and are incentivized to grow their user base.
That assumes that Apollo is sufficiently profitable to host the necessary backend systems to support a reddit clone. This also means that they need to have moderators (and if they're volunteer moderates where back at the "reddit takes advantage of volunteer moderators" square). It also means that this instance would have the appropriate legal staff to be able to handle trademark disputes, DMCA claims, and assorted challenges to maintain itself in the face of trolls, unsavory content, and such.
The moat that Reddit has from such upstarts isn't that its hard to build an instance, or stand one up, or even maintaining a community there - but rather making sure that it stays up by following the assorted laws (GDPR, CDA, trademark, copyright, etc...) out while maintaining a sufficient income stream to pay the staff (and maintain advertisers if you're not going full subscription only).