Fidelity deepens valuation cut for Reddit and Discord
techcrunch.com
techcrunch.com
Reddit has never really had a competent CEO and that has never been more apparent than with Steve Huffman who has no background or skill as a leader. He also was never the one responsible for building and fostering the community side of things, that was Alexis’ department. One could argue that even as a developer he was second fiddle to Aaron. “What would you say you do here, Steve?” - The Bobs
I wouldn’t be sad if OpenAi or Google acquired Reddit as a source for training future models. Don’t try to optimize it for advertising, the value is in the human-created content.
A google ad that appears when someone searches "car insurance" is very different from an ad in a car insurance subreddit. It's also different from Facebook where you could target based on demographics.
In addition to ads they have Reddit Gold (or whatever their membership program is called, it's bad that I've been on the platform for a decade and I have no idea). They made the same mistake Twitter did with Twitter Blue: "Why would I subscribe?". At least Reddit gives you "No ads", Twitter gives you "Less ads". Ok, so no ads but the UI/UX of the official app is trash, it's messy and inconsistent. If they had said "Buy our subscription to keep using 3rd party apps" I would have paid in a heartbeat.
If you want a successful internet ad business you need to do one of those, but preferably both.
That being said, it's wild to me that Twitter never managed to build a DR (i.e. selling clicks/conversions) business, so maybe Reddit is equally as badly managed (which again, is really surprising to me).
These are very bold claims to make, considering that Reddit is at the bottom of every advertiser's priority list, despite being a lot cheaper.
Have you considered that Reddit users simply do not like being advertised to? Asking for a product recommendation on a message board is fundamentally different from seeing an ad for a product on said board.
Does anyone like being advertised to?
Incompetence. Pure and simple. It was clear before Huffman really decided to go full-Elon and it's crystal clear now. He has no business running a company. The revenue that Reddit brough it in 2021 ($350M) should be able to cover the staff and servers for Reddit easily. Of course they got VC money which means you overhire and spend like no tomorrow which is partly to blame (bad leadership being the other). Reddit is just not that complicated and they only things they've put time/resources into in the last few years are gimmicks that no one uses (Chat) and/or gross cash grabs (NFTs) that also lie abandoned all while ignoring what users were asking for until it directly affected them (things like being able to wrest control of a sub from a mod). Also "better mod tools" is pretty much the same as "infrastructure week" to the last US administration.
But yeah, I have zero doubt they could be profitable but they can't be profitable-enough for investors so instead we get this shit.
I bet investors wish he went full Elon.
https://www.bloomberg.com/news/articles/2023-05-30/twitter-i...
https://techcrunch.com/2023/06/30/fidelity-deepens-valuation...
According to NASDAQ, pre-purchase it was around $13B. And Elon claims it’s at $20B. So supposedly he has improved the net worth, but yes obviously he’s still $20B in the hole.
Spez's claim that "the app" is "generating" API calls is nonsense. It's users like you and me that generate API calls using an https client that, in this case, speaks API. Reddit Premium users are their highest ARPU class, over 10x what they claim they can get from advertisers.
It therefore seems obvious to partner with premium app devs, to allow the apps to support Reddit Premium users as a perk of Reddit Premium. Subscribing to both Reddit Premium (paying for ad free access) and app (supporting the app developer) is not a problem for these users.
The Venn Diagram for these two premium spends is clear -- and Reddit is attacking it to no possible gain. There is no alternative business model on the table better for them (and their IPO price) than a premium user remaining a premium user.
By killing my ability to pay for Apollo, they will not gain a single ad view from me, because I pay to not see the ads already.
Further, they will now also lose 10 users worth of ad views, because I will no longer pay for Reddit Premium.
Instead, let Premium accounts access through API, Reddit's Premium user count will balloon, and quality apps will gain a new audience of ready-to-spend subscribers, all with no impact on Reddit's ability to sell ads which make strictly less money than Premium accounts.
(I am confused why this obvious solve is never discussed. News reporting is accepting the premise apps issue API calls instead of users, Spez's AMA is terrible, and community threads are missing this. Apollo dev also fails to help the press understand the framing that Apollo is a user agent and "the web" was intended for use by user-agents. None of this is coming up.)
- there's a vanishingly small minority who pay for apps
- Apollo volunteered to be the asserter of what 3Ps thought and they were extremely aggro
- It's a Solomon's baby situation, it's a worse outcome from all sides: 3P would be _more_ irate, their customer base gets slashed to nothing. Reddit needs to be able to charge for the API without having elaborate carve-outs for monetization schemes from years ago that didn't work
- People aren't thinking straight and are extremely aggressive in discounting others. Sure, the user generates API calls. That doesn't mean the app doesn't make API calls
I also have to assume they're fine with it all, or they'd take their skills elsewhere.
Imagine it from the perspective of a user who is new to Reddit and downloads one of those apps off the app store (possibly paying money to do so). After they fire it up they'll discover that they can't even use it until they subscribe to Reddit Premium. Due to app store policies the app can't offer the opportunity to subscribe from within the app, so the best they can do (on Android, at least, Apple doesn't even allow this) is to direct the user to sign up for an account and buy a premium subscription on Reddit itself first. Assume they get past this hurdle and then discover after a week or two that in order to continue using that app they have to sign up for a new, separate subscription through the app store so that the developer can get paid. I imagine a not insubstantial number of users would get extremely frustrated by all of this and take their frustration out on either the app developers or Reddit.
Except that's already how it works, so no change. And users are not confused.
That's why Digg 2.0 happened (and destroyed Digg) and why Reddit is hell bent on getting rid of Old Reddit and all 3rd parties that have any experience like it.
You need something like Facebook or Instagram to successfully sell a TON of ads (in social), which is the opposite of what Reddit is.
Either Reddit needs to realize they're not going to make FB money (spoiler, they're not going to accept that) or they're going to try to completely change their product to make FB money (spoiler, it's probably not going to work - if people wanted FB, they'd just use FB, not Reddit).
My crystal ball doesn't work. Who knows what will happen. That's just all my uncreative brain can imagine.
Shockingly, the average Redditor doesn’t have (or isn’t willing to part with their) disposable income.
I'm not sure why you would think being banned should prompt self-reflection? It's not like any of my reasons for believing the things I do has changed, and it's not like being banned from Reddit really has any negative consequences for me.
I've also been shadow banned for sharing large lists of on topic youtube links.
I believe I am running into some sort of spam prevention system, even though I see other users posting similar content. So my theory is that there is some sort of whitelist for this activity (i changed my username often when i used reddit), or I am running afoul with a certain moderator or admin.
Hard to tell when you're not even banned so there isn't a reason given to me. Wonderful system.
Back to imgur's user-sub I guess. Also I appreciate yall having me here as well.
I got IP banned across my older unused accounts, and my newer ones for mass editing, then deleting my comments to a message that was basically "reddit killed itself due to this API change".
There's also this, from the article:
> Worth noting that the vast majority of markdown in the value of Reddit and Discord holdings by Fidelity predominantly occurred last year.
Apollo is a for-profit app. They are using reddits technology, servers, and users for free to make money off their own advertisements.
Reddit isn't "losing" any money by losing apollo users, since it wasn't making any money in the first place.
This seems like a billing dispute between two companies, not a user issue. Reddit also announced that modtools will be allowed to use the API free of charge.
At the end of the day, most people log in to reddit once or twice a month. Those are the users that are being targetted by advertisers anyways. The power users and terminally online moderating staff are more of a headache for reddit than a benefit.
You have this exactly backwards.
Ads work on repeat exposure, aka impressions. Social media companies have no other reason to optimize for user session length.
Also, someone who uses Reddit once/twice a month would not need to have an account to begin with. Even if they did, their lack of activity would be a negative for ad targeting.
The original article writes:
> giving a preview into how one of the world’s largest asset manager sees the impact of the ongoing slowdown in the public market on privately-held startups
This is correct, this news is showing us what's happening in the market in general, not specific changes in reddit.
Despite only owning a point or two of multi-billion dollar companies, they implicitly get pricing power over the entire cap table.
>> The founding Johnson family, individually and through various trusts, owns stock representing a 49% voting interest in FMR, and have signed agreements pledging to vote all their shares as a bloc.
>> Most of the remaining 51% of the company is held by various Fidelity employees and ex-employees, including fund managers and ex-managers...
In reality, at this scale, I'm not sure if there's an alternative though. Syndicated investment is required to amass the capital levels needed.
https://www.investopedia.com/terms/l/listedsecurity.asp
Fidelity is not listed.
This isn't an edge case: they're privately owned and not publicly traded.
Depends on the impact on the bank account of the decision maker.
Marking down Discord as well. Not sure any of this can be attributed to the blackout. But I wonder if Spez has been slowly feeling the IPO money bleed out and panicked early this year. Maybe that's why he had such a sudden 180 on policies.
Given that Discord and Reddit have an overlapping user base it could be realization that that's not an user base that's either no especially desirable for advertisers or one simply hard to monetize for other reasons.
And i suspect a reason for the entire debacle is that a lot of the user base weren't seeing ads at all due to ad-blockers or the use of 3rd party apps.
It's a problem that also seems to plague twitch in that they simply aren't generating the revenue that's expected from the amount of traffic generated.
Neither of which would be a problem for them if they didn’t remake and destroy the default UX on their desktop and made a functional app.
By pushing users to third party solutions they also pushed them off of the ads. Because if you want a web extension to redirect to “old.reddit.com”, why not throw an adblocker on top?
Oh but that isn't interesting.
Plus with marriage on the decline, they are more free to spend their own money.
> They definitely love Steam sales though!
Steam does not dictate what socio-political views should be.
Now they’re facing competition in the fediverse, with apps that remove a lot of the barriers to entry (two iOS apps are currently in test flight and both look VERY promising)
I don’t feel bad for them. Reddit is such a huge wasted opportunity to begin with. And they never seem to learn lessons other people make.
It's fine for steady state / going concern financing.
But no public or pre-IPO company wants to look like that.
Advertising and engineered products allow you to create new revenue streams from your existing userbase, and because your customer isn't your users (B2B) price increases can be invisible.
Any sort of significant change to Reddit by any CEO, whether it be Huffman or Santa Claus, was going to illicit a significant toxic response.
What has put me off Reddit more than anything is the level of uncalled vitriol and mean spirited comments by not only the users but the temper tantrums and petulant behaviour by a number of the mods. And when push came to shove most of these mods crumbled like my grandmother's hip after her fall down the stairs.
This would've also created an internal competition for Reddit to improve their app.
The profit sharing didn't need to be that large either. 5-10% would've been huge.
Reddit's model was kind of novel in that they did it in directly by expecting the 3rd party apps to collect the payment from their users but they did essentially just ask people to pay for 3rd party app access.
I cant recall any instance where a social media company successfully extracted actual cash directly from their users that ended well.
if you look at what reddit was asking it kind of evened out to less then $5,- a month pr user which seems to have been so much more then what the 3rd party apps was able/willing to charge that they had to fold.
So the authors did the only thing they could, that is returning all of recently billed money and closing their apps down.
Because they're making the apps have to pay this fee with absolutely 0 notice.
They're putting the burden onto the apps. The solution here was to put the burden on Reddit (Where it would've made sense)
They should have improved their platform and lock useful features behind a paywall, like video and image hosting. They could have made money on their core appeal - hosting communities for people.
Instead, they've bloated their site into an adware riddled clusterfuck, ignored useful features that people actually wanted, and just turned into a hilariously useless company in general, making their site worse with every change instead of better.
We desperately need regulation that kills the network effect that feeds these companies, because it's clear their users aren't the priority.
Reddit has consistently been incredibly slow to fix bugs and implement new features, so I was wondering how dysfunctional their dev teams are.
Still though yeah I'd imagine a minority of that number are devs.
But not everything has to be worth a lot of money. You could just keep being a great community and double digit employees.
My rule of thumb is that it's the difference between "we provide a service or make a product, and if we do it well, then we make money" and "we make money, as much as possible, however possible, and if we have to provide a service or make a product to do it, that's a necessary evil".
If your company is bringing in $100M in profit and you own 10% of the company, it will take you 100 years to make $1B. If you IPO at a $10B valuation and own 10% of the company...
Thanks for the laugh.
So if all the engineering team that made those NFT's did was get that revenue, then financially at least, it was well worth the investment for reddit.
Regardless, it seems like they managed quite okay with 65x less staff. I guess doing image/video hosting and running a mobile app drastically increased their cloud cost.
It's insane that they couldn't turn a profit ten years ago. They have a small moat and a well segmented user base. Advertisers should have been coming in droves even before the enshitification of the site.
Reverse the API bullshit, remove all the pressures about IPO'ing, and win some positive PR among users.
Not sure that would be good for humanity, but it would probably be good for Reddit users.
Back to the main subject. For me the obvious buyers in terms of makes most sense are Meta -> OpenAI -> Shady data broker. Sam Altman is also one of the investors in Reddit
For Meta it goes beyond the data, which is a plus. There are a ton of similarities between FB groups and Reddit. FB groups is even more popular in terms of DAU, and some communities are bigger there than on Reddit. Plus they also utilize free moderation without any uprisings. Owning both communities would be huge for Meta in generating ad $'s
That said, how come I'm only seeing this recently? Did something recently change about how Fidelity or other investors publish their info? Or maybe the only thing that has changed is that a lot of companies are losing value, so we're discussing it more.
I think the Reddit utility was substantially reduced for that use case (too often landing on a closed subreddit) and that damage could last far beyond when this protest ends/is ended.
I sure won’t be adding “reddit” to the end of my search queries for a while!
It's what I used as a undelete viewer, with power tripping mods and admins. I'm guessing it'll quit working tomorrow.
The following Ublock Origin rules aren't perfect, but they mostly blocked the Reddit main page, which was what muscle memory would go to. While permitting search hits, links from HN, etc.
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For people who care about anything else, the quality has dropped off a cliff.
A lot of the cool people have left. Many more will be leaving today once Apollo and RIF are finally murdered. I don't think they'll be coming back very often.
Interacting with other mod teams we've learned that this mod scarcity is apparently universal.
None of this matters to reddit because in all honesty they would probably be happier and more profitable by converting the website into a read only feed of memes and kittens.
The irony being chatGPT wouldn't exist without Reddit data and supposedly the cause of the API updates, even this Sam Altman is on the board of Reddit.
I'd like to build a DAO with a centralized hub which basically models taxonomies for things like channels or tags etc as well as being a central source of truth for usernames and authentications. It'd be fully open source and could be splintered if there's some conflict in the community. For instance racists can get bent and start their own centralized server and be defederated from the core.
What would be funny is if a meme started that Reddit is now hiring moderators, payment is fame and glory. Nazis, Bigots, Hypocrites, Cult leaders welcome, apply within. You know it'd happen. Reddit is about to become voat or worse 4chan 2.0 electric boogaloo.
It also made me notice that I haven't seen content from any valuable sub in a while, and the entire home was cheap jokes.
Prior to dropping Reddit recently, I certainly spent more than two orders more time there than on Twitter.
How can the Reddit CEO not be fired?
if reddit cannot monetize their users, either as a product to sell to advertisers or by converting them to paying customers it's might not be viable as a profitable business.
These write downs are likely a byproduct of the macro environment. The cheap money has run out and the stock market is taking a hit as interest rates have climbed. Fidelity's valuations reflect what they believe they can sell their share for, and now they believe they'd sell it for less.
If anything, my bet is Spez has been seeing that writing on the wall for a while (either because he read the tea leaves or because of signalling from Reddit's investors) and the API pricing changes are part of a desperate strategy to boost cashflow and hopefully goose their valuation in advance of a hoped-for IPO.
Every single move they have made regarding this change has been the wrong one. Incompetence is reddit's lifeblood, from an outside perspective.
I can't think of a good reason to want to put 3PAs out of business given, based on what we know, those users represent a small minority of total Reddit users (and therefore a small fraction of ad impressions).
So the only logical conclusion, to me, is that they see revenue potential on monetizing API access, and 3PAs just happen to be in the blast radius.
I'm not saying they'll ultimately be right. All I'm saying is, on its face, it does make sense.
So, no, the blackout did not cause this drop in valuation. I'd urge you to read the article before shooting from the hip. From the article:
>Fidelity Blue Chip Growth Fund valued its holdings in Reddit at $15.4 million as of May 31, according to the fund’s monthly disclosure released Friday. That’s down 7.36% from $16.6 million mark at April’s closure and altogether a slide of 45.4% since its investment in August 2021.
Followed by:
>(Worth noting that the vast majority of markdown in the value of Reddit and Discord holdings by Fidelity predominantly occurred last year.)
So, May 31st is when they dropped the value of Reddit. That's prior to the blackout chaos, which occurred in June. Apollo didn't receive notice of the cost changes until the 31st, and didn't announce it was shutting down until the 8th. The blackout occurred after those dates.
Also considering the Reddit brand which IMHO rightfully was way better than the rest of social media (at least until recent events), has now started to make Facebook look good.
The CEO is acting like a Musk fanboy who drank the Kool aid, and is modeling his social media company after a company ran by a guy who's worked administering a social media company for less than a year. I mean, verdict is out on if Twitter will go up or down in value. Why hitch yourself to that train?