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Comment by kristoff_it | Hacker News Reader

Reddit never seemed to behave in a way that made any business sense. VC money has distorted its business model since the beginning, and now it seems that Reddit is willing to burn itself to the ground to put up a barrier for preventing new players from accessing the data that OpenAI and other big tech companies have already used to train their LLMs. I guess that since it never turned a profit this is the only way VCs can get their money back.

Honestly, I find this a very repugnant way of dealing with the user base. A business that never tried to earnestly generate enough value to be sustainable can only be classified as a scam in my book.

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I know it will be as popluar as rabies around here ... but that is litterally the entire business model of Silicon Valley, including YC (https://www.ycombinator.com/companies?batch=S05).

Absolutely agree with this. Everything that is wrong with modern tech business models has to do with VCs and chasing funding or valuation.

No, it’s the business model of YC and “New Silicon Valley.” The original companies that caused people to start calling this entire region Silicon Valley were making—and, in a few cases, are still making—real things intended to make their users’ lives better.

It was the dot-com bubble and its couple of resurgences that really fucked things up here and made everything off-kilter. The finance bros were drawn like vultures to “easy profit,” and brought with them attitudes like treating Google’s chef getting rich too as a “problem” to be “solved” rather than the system working as designed.

Wait, I thought it was called Silly Con Valley because of this exact model?

Yes to both of you. Silicon Valley became Silly Con Valley after the dot-com bubble.

As usual the financial sector is responsible for basically all the financial problems.

Well when everything is based on unsound money, and a literal ponzi scheme the entire financial sector is the largest con ever created

I am not sure how civilization was dupped into the mass delusion of our current economic systems but I do believe we are seeing them unwind right now... the Fed and other controllers have been attempting to catch a falling knife for at least 15 years if not longer... at some point they will loose that battle

It starts with interest on a loan, then slowly snowballs as everything is gradually cleaved away from reality.

I think a traditional venture capital model makes sense for some businesses, but not others. There are many cases where you might need initial investment to reach escape velocity, and you probably won't be very profitable in the first few years.

Something like Spotify is a good example of this working as intended. It's not without its problems, especially their blatant rent-seeking within the podcast sphere, but at the core it's VC working well.

That's not what Reddit and indeed many other VC funded enterprises are doing. Reddit was never going to make a profit without upending its entire value proposition. They may or may not successfully cash out, but what's in store for them if they don't flame out immediate is essentially turning into Facebook. Not cool 2008 facebook, but lame minions memes and grandmas Facebook.

> There are many cases where you might need initial investment to reach escape velocity, and you probably won't be very profitable in the first few years.

>Something like Spotify is a good example of this working as intended.

Spotify is a 26 year old business with zero moat. It’s most valuable to the 3 major record labels as a negotiating tool against Apple, Alphabet, and Amazon. That means the 3 record labels need to price their music just low enough to keep Spotify limping along, resulting in a cap on the profit margin Spotify can earn.

Spotify’s only move is to try to become a record label themselves, but due to excessively long copyright terms and cultural longevity of music, they basically have to keep buying from the 3 major record labels.

I had to look that up - you probably just mistyped, it's 16 years old.

Yes, sorry, thanks for the correction.

Spotify's moat is the byzantine legal maze of negotiating music rights with the record labels which needs to happen in a by-country basis.

Their profit cap is mostly the result of actual competition. That's a healthy market, which is fundamentally a good thing for the consumers since it means they need to innovate and provide a good service.

Wall Street felt they had lightning in a bottle with Silicon Valley in the 1970s. This turned business plans from making money at scale to IPO machines. The fundamentals of financial exchange have been distorted to take the form a rent seeking sine that is what VCs want to buy.

> but lame minions memes

I feel like there's irony to be found in Facebook holdovers posting minions memes amongst themselves, but I'm going to hold off on explicitly trying to find it in fear that I don't actually know what irony means.

Aomngst all the dicsussion of reddit's flawed business model, I haven't seen much conjecture into how they _should have done it_. Clearly they need to make money at some point -- I'm curious if they ever had a route to do this that wouldn't alienate their userbase?

They could accept that "reddit the product" (in its current form) is a 2-5bn market cap business with solid 0.5bn revenue; run the business on that basis (all values in today $$'s).

Not every product / market is a trillion dollar business. Trees dont grow to the sky.

This isnt to say dont innovate. If they invented a new product; the VR Meta TikTok Shorts iPhone Satellite Headset Watch (TM), then one can reevaluate what "reddit the product" means, but charging for your API or introducing a paid verified badge isnt changing that definition.

The revenue doesn't matter though if their expenses exceed it. Reddit is not a profitable company. So the parent poster's question remains valid: was there ever going to be a way to "make money" (i.e. profit) without alienating the user base?

Why is Reddit not already profitable? They don't pay their moderators, they don't pay for their content, it's mostly text- and image based, very little video, they have a userbase which buys meaningless awards for real money, they should have "native advertising" deals to no end, and very high CPR for their ads since the userbase tells them about their interests.

Sounds to me like they're just bad at running a business.

I don't know. I can only guess that it's because it was created by two college students with the intent of allowing people to share interesting content with each other (a pet project), and then became more popular than they could ever have imagined.

Server costs went up in order to keep the site alive, and investors saw the potential and subsidized those costs, and everything ticked along swimmingly until the investors became impatient. Again, this is just speculation.

You are wrong in that they DO host videos and images and quite a lot at that. Originally they only allowed text posts but that changed a while ago and now a lot content is hosted on reddit itself. I personally think that was a huge mistake. If where is one thing you have to know on the internet is that you should stay away from being a hosting site, it almost never works out.

Imgur was profitably hosting images until reddit brought image hosting in house.

It’s kind of silly, to be honest. They basically had free video and image hosting, and Reddit decided to say screw that, lets increase our server fees dramatically. I still don’t really understand what motivated that decision. Did they really gain so much by self-hosting content?

I do understand that business decision though. You don't want your business model to depend on a dominant supplier who then can extort high API fees from you... does that sound familiar, somehow?

Ha, that’s a great point!

Imgur also became a community of its own. I don’t remember when it happened, but perhaps Reddit thought they were becoming a true competitor and opted to pull away.

But if the supplier depends entirely on content created by your userbase for its survival, how much leverage does it really even have?

But those suppliers would be extorting fees from users, not reddit. You could say the same thing about any paywalled content. Reddit doesn't scrape and host web content, why do they feel the need to do so for images/video?

I think there is a point to be made about a smoother user experience, but youtube is a great example where their embeds can still be monetized.

Reddit not pushing ads through the API is like if youtube didn't give you ads on embedded videos.

"but reddit is extorting fees from users, not google. why would google care if reddit wants to self-immolate and keep content inside their platform?"

my brother in christ, no man is an island; every man is a piece of the continent, a part of the main. If a clod be washed away by the sea, Europe is the less, as well as if a promentory were.

nobody wants their website to be a linkfarm to content that's all 404'd, it's not that complex. How do you keep that from happening? Host it yourself.

I believe they are trying to protect themselves from imgur or YouTube deciding they don’t like being an unpaid data store.

It’s stupid and premature in my opinion; they should have bought Imgur instead.

And the Reddit video player:host was notoriously crappy.

> they should have bought Imgur instead

In that case, wouldn't they still be paying for the hosting?

YouTube and Twitch even pay the creators, and are apparently (at least sort-of) profitable, and they don't even get a share of the brand deals that are baked into the video. Sure, they are backed by huge cloud operators, but still. The hosting costs for Reddit should not be that high.

I wonder if they perform image/video deduplication at scale (or if it is even possible). So many images are just reposts or slight variations on the same thing.

Couldn't agree more. A web site who's content is freely provided, moderated for free and pretty much just linked to other content and they still can't make money without charging extortionate amounts of money.

So many suitable options were voiced for the 3pa such as profit shares or just reasonable priced API fees.

It baffles me that Reddit didn't already turn a profit. So over bloated and the shit they have actually paid people for such as the official app and desktop site, is just sub standard

Trim the workforce. How many engineers, UI/UX, product and QA do you need to run a reddit.com? Likely, 200-300, not 2000! Focus on the core product and the profit will come.

Someone pointed out that 90% of that 2000 is probably ad sales teams. Their actual software and UI people are likely appropriately sized.

I don’t think that’s true. I remember, for several years now, how after each VC capital, they boast how they are to “double in size”. That’s not just ad sales.

I would also think, the numbers could be reduced - but then I never run a plattform of that size.

And they are operating worldwide, processing take down notes, handling court orders alone, is a big deal.

I am sure that this part of the business is a tiny, tiny fraction of the current bloated workforce. Know what, agree, it’s a hard job, keep all those people in. I think they are mostly relying on the volunteer mod force, rather than internal people, but whatever. Keep them all. Still 200-300 is more than enough.

Fraction of that if we just run old.reddit.com instead, you know the good version of the site that actually loads and works.

old.reddit.com is what most people want anyway, maybe with the added gallery controls they added.

> run the business on that basis

How do people live on only 500k a year.... They dont buy a private jet and a $50million house.

Reddit does not have to spend half a billion dollars every year to satisfy their users (which is what its entire valuation was in 2014).

The point was this: Reddit should have held costs down to be profitable. Growing at all costs is not a great way towards profitability, believe it or not.

Growing at all costs is not a great way towards profitability, believe it or not.

Depends on whose profits you care about. Growing WeWork at all costs was wildly more profitable for Adam Neumann than trying to slowly grow a sustainable commercial real estate company ever would have been.

The core problem is that no one in charge at Reddit HQ 'wins' if reddit where to become a much smaller, but profitable, company.

If Reddit's goal is " is a 2-5bn market cap business with solid 0.5bn revenue", then do they need an order of magnitude more staff than say, 5 years ago? My understanding is their, rather dramatic, scale up was to chase Twitter/Instagram/TikTok. If they're going to drown in expenses before achieving it, then it seems pursuing that was a poor business decision driven by investor expectations of hyper scale (never mind its effects on the product for users).

Reddit isn't profitable because its management runs it in an unprofitable way, because they're chasing even bigger profits. They have way too many employees, namely.

Their infrastructure costs can't be much different than archive.org, but archive.org doesn't try to get huge profits and doesn't have many employees.

Discords monetization is lightyears ahead of Reddit. There are alternate clients and a rich ecosystem of plugins.

There's zero value in Reddit Gold. It's such a meme. Access to a private subreddit.

Give posts badges? Who cares. They're ephemeral. Up today gone tomorrow.

They need to rethink this bullshit instead of just selling more ads.

If Reddit was a business I wanted to give money to, then Reddit Gold would be a perfectly fine way to do so. Ephemeral is just fine when all you want to say is: hey, poster, I liked your words. Hey, website, I liked how you enabled me to read those words.

The trouble is, Reddit is not such a business.

> If Reddit was a business I wanted to give money to, then Reddit Gold would be a perfectly fine way to do so

I think people underestimate this. I'm always much happier for my cash to go to a business that I like. Where "like" includes both quality of product and their ethics/attitude.

If you voluntarily give money to a buisness, and this should be the buisness modell, wouldn't that buisness be better a non profit in the first place?

Good comment! Have some hackernews gold on me!

Users who use alternative clients are banned the moment Discord finds out about them, not a great example.

Discord Nitro's perks seem just as valueless as Reddit Gold to me. The top listed features are ephemeral stuff like custom emojis and stickers and super reactions. You could argue stuff like 50+ MB uploads and HD streaming is more valuable but few users would really use those features often.

Like Discord, Reddit is a community, there's limitations to what you can charge for because you don't want to raise the barrier to entry. I suspect Reddit Gold and custom emojis actually earns Reddit and Discord quite a fair bit, I think a key difference is that Discord has 750 employees to feed while Reddit has 2000.

3rs party clients users are banned the moment they find out about them because for them to find out, they must be doing API abuse. Otherwise, they could just go in the betterDiscord server and ban everyone there.

I think discords model is fundamentally better because however useless the paid features are,2 there actually are features to speak of. HD streaming, higher upload limits and global emojis are fundamentally not that important, but you do get something out of paying. You also feel like you're sponsoring several free users, while paying for reddit gold just puts a shiny badge on a post, gives you access to a useless private club that has no direction (which is by design) and removes ads for a month.

It seems like discord tolerates alternative clients, so long as they are not used for abuse, but this is indeed not a good situation. Discord is very far from a paragon of user choice and privacy, but it'll take a fair few screwups from them to disrupt the network effect now.

And I agree on the company size: it is hard for me to understand what those employees are doing to make reddit run, considering the nature of the platform.

I recall reading that their engineers tolerate alternative clients, but they said that when they ban bad actors the alternative clients have a chance of getting scooped up due to detection heuristics.

Discord officially does not allow 3rd party clients. In theory your account can be banned for using them.

The Craigslist model?

After all, it's a list of links and for years Reddit operated exactly like that - a skeleton crew running bare bones infrastructure to serve up basic pages full of links. Yeah, you need more now because of regulation and more sophisticated bots etc. But not that much more.

Here's my thoughts for some different options that would've maybe ruffled some feathers but not to the same extent

1. Same thing, but with 80% lower API pricing, keeping "NSFW" content, and 3 months notice

2. Start serving ads via the API and don't charge for API calls, revoke keys for apps that strip out ads

3. Limit API usage to premium accounts (beyond some nominal threshold of calls per day to let people play with the API)

These all sounds great and if nothing else would be great starting points. And most importantly would be a basis for win/win solution.

I’ve listened to the Apollo guy on a Vergecast interview and he went out of his way to compliment the Reddit CEO and never took any of the opportunities given to fuel the fire. Maybe this Canadian thing is real? =)

Thinking out loud… or my latest random thought…

Reddit Premium users can use 3rd party apps effectively unrestricted and with no ads. In turn, Reddit would pay the 3rd apps say 25 to 35% of the premium fees they collect to the 3rd party app.

Non-premium users can use 3rd party apps but ads must be pushed through and NSFW related material is blocked.

Why gate NSFW content?

You'd have to be nuts to use a credit card and your real identity to pay for that ... And then in effect consent to being tracked around their website with a key

Your bank and all their friends will have a record of that till the end of time

Some people don’t care, others think with their dick and ignore it, when they urgently want to access something - which is the reason MANY people pay for porn with credit cards.

But I would think, the majority of reddit users would not.

In theory you could offer anonymous payment, paysafe and co. but more and more governments implement age restriction for porn anyway. No one cares for small sites (yet), but reddit could be pressured to not accept anonymous payments as the are big.

Yeah, any of those 3 would be fine. Except that in all cases it needs 6 months notice to reduce the hit on app developers that have year long contracts with users.

Ideally yes. But I got the impression the Apollo guy asked for an absolute minimum of three months’ notice

But the developers didn't make any contracts with Reddit, prior to making contracts with their customers. Which is egregious, since the developers had no way of guaranteeing that they could actually fulfil those contracts.

Charge for commercial usage. The goal would be to re-capture value from commercial entities that use plain reddit posts (not paid reddit advertising) for commercial gain. A prime example would be a publicity firm hosting an AMA with actors to promote the release of an upcoming movie.

Update the standard user ToS to allow for only non-commercial use. Introduce paid plans for commercial usage. Introduce terms that allow for legal remedies to prevent companies from opening accounts only for the one month they want to host an AMA. Just like mods can decide whether or not a particular post is wearing a "mod hat", let commercial accounts decide whether or not users can wear the "commercial hat". Etc.

Price the plans such that the revenue reddit generates scales alongside the value that the commercial entity gets from the account.

That would block every small business owner, independent artist, indie game developer, twitch streamer, open source developer with a donation link, etc. from the platform. The legal hassle alone would make them not want to deal with it.

When you run out of ideas in your B2C business the answer is always pigeonhole some B2B model on top of it whether it fits or not.

Reddit is an ad business. Increasingly a mobile ad business. 3rd party apps do not fit that business model and never has. Everyone is blowing it out of proportion because Spez didn't want to be honest about it.

AI/LLM is just a sweetner on top but probably not a billion dollar API business.

What Reddit should be doing is making a better mobile app (and web app at that). Design and software dev in general has not their strong suit and hasn't been for the last decade.

I think you nailed it. In reality from a business standpoint, Reddit should have taken Selig's offer and bought out Apollo and built the main app around it and injected ads, maybe offered an overpriced subscription to minimize ads for premium users. I think nobody would have complained a bit.

Reddit balked at Selig's offer that he based on their API pricing (and he even halved it!). They poisoned the well before walking into that discussion, hence it was effectively off the table from the start. Negotiating for a lower buy-out would have been conceeding the point that the API price is severly inflated beyond the actual value of the users Selig served (and the cost to serve them).

They could still do a Jimmy Wales: go open source nonprofit.

Wikipedia has a big pile of money in the bank, probably more than $100M by now while still nagging me to donate more.

Would you take this decision if you invested in Reddit yourself?

Yes, because I'm not motivated by money. That's why I'm not in the position invest in the first place ;-)

I'm pretty sure just giving app developers more time to prepare for price increases would've been enough. If they'd given Apollo and RIF 6 months notice of the new pricing instead of 30 days, the devs would probably have adapted to a paid model and moved on. There would still have been plenty of grumbling, but not nearly as much outrage.

All of this is happening because Reddit Coins is a meme of a paid tier.

Discord understands its not about comments, its about communities. Give users a way to boost/upgrade the subreddits they love, so users have a better experience on those subreddits.

I don’t know munch about business but it sounds from all parties concerned like they could easily (i) introduce API pricing at 20% of what they want to charge now, (ii) give a three-month runway so app developers could turn up prices and generate revenue flow ahead of sudden outlays, and if they really wanted to milk it (iii) serve ads alongside content in the API. That has the benefit of generating revenue higher than the cost of running Reddit, reduce the opportunity cost of not having people on their own platform but still generate a neat profit. People would complain a little about the cost and a little about the ads but it would be fine.

I heard a lot of people say their main app is trash and lacks many of the basic features you see in third party apps.

They could have focused on fixing their app and only charging a fair amount to api access so they had a slight advantage over their data. It reminds me of iPhones to be honest. All the best jailbroken apps and features were slowly added to the iPhone over time. Reddit could have been following the same route and slowly killed off their competitors. There are many ways they could have added value to their app and thus get ad revenue and data but ignored it this entire time.

> preventing new players from accessing the data that OpenAI and other ...

Sam Altman is a Reddit investor and was until recently a board member.

Reddit is OpenAI’s moat - https://news.ycombinator.com/item?id=36325958

It's not a and never has been a traditional company. Lots of people have said it should be a trust like Wikipedia. It was was always a republic in a world full of Kingdoms.

i loved the idea of reddit gold. if they did a dontation drive like wikipedia i would have donated.

The training data argument is a red herring. It's not difficult to scrape all of that via web for training purposes.

It's a legitimacy issue. If you get the data through the API, you don't have to hide that you used it. Which might be a big advantage if you want to publish/sell what you've been doing.

But isn't it the case that all that could be scrapped from Reddit before ChatGPT came on-line already has been scrapped, and is publicly available? Anything post-ChatGPT is going to be increasingly worthless, as there's an unknown amount of LLM-generated content mixed in it, which is going to be wasteful, and potentially poisonous when used in training next-gen LLMs (some early studies already indicate that training LLMs on LLM output leads to visible degradation very quickly).

Yes, there is a publicly available 2TB dump containing every post/comment until Feb 2023.

Astonishing that it's only 2 TB…

I thick Reddit management believes they’re able to close this barn door and that additional horses will appear because Reddit content will continue to remain high quality and LLM-free.

Wow that sentence was hard to write with a straight face.

It's unlikely that the legal landscape will be such that you would need to hide this at all. It would require a reversal of precedent on the legality of scraping and that training data is ruled to not be fair use.

There are data you cant scrap. e.g. you dont know what posts they feed to each individual user(assuming they use personalized recommendation like other social platforms), you dont know which post is shown to a user and is not clicked on, you dont know the subreddits a user subscribes to, you dont know which user upvotes/downvotes which comments, you dont know the users' browsing pattern(which subs they check first, when does a user open reddit during the day)

These

None of this is available in the Reddit API (at least the one used by 3rd party apps).

Yep. And if I remember correctly, data upto some recent year is also available on Google’s big query?

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