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I don't have any inside knowledge, but I believe it was a mix of wanting to simplify things for users, and to keep users within their system.

I suspect that the rise of imgur as it's own community was seen as a threat, or at least competition, and the question "why are we basically helping our competitors" was asked at least once.

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That was my impression from having lived through it as well. Imgur built it's own little community and figured they could make a go of it on their own instead of being purely a reddit image host. They still do host a fair amount of content but gone are the days when you could got to imgur.com/r/aww and see all the cute animal pics because imgur was the default host of all of reddit so they had the integration to show subreddit specific albums.

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