How is a company like Reddit “not profitable” yet?
How is a company like Reddit “not profitable” yet?
Beyond spez (and the fact that he is a greedy little pig boy), I’m curious about the corporate dynamics that prevent a company like Reddit from being profitable. From an outside perspective, they make hundreds of millions per year via advertising, their product is a relatively simple (compared to industries that need a lot of capital to build their product), and their content is created and moderated for free by users. Could any offer some insights or educated guesses? Additionally, I’m curious how this all ties into the larger culture of Silicon Valley tech companies in the 2010s.
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Software engineer here, of the kind who works for companies similar to Reddit.
I don’t know more than anyone else about their financials, and I can surely believe that Reddit has been wasteful in a lot of ways in the past financial climates, since they didn’t have to optimize for profitability. But I can tell this firsthand: people tend to drastically under-estimate how much constant innovation is required to get past bottleneck after bottleneck just to keep the lights on, on very high-scale services.
Reddit’s scale is humongous, so I can see how it would require hundreds of employees just to keep it up and going.
I recall from past discussions on the site about its finances that theres a few major obstacles they hit;
Huge staffing costs. Not even necessarily bloat - though there is reportedly some of that - but just that they require a shitton of staff with expensive credentials to maintain and develop the site and its' backend. As the site grows, issues with code or algorithm or features require more and more resources to scale sustainably, so development snowballs similarly. It's expensive to maintain a stable of coders or developers capable of working in that scale. And not just code - their community or sales teams are also needing a lot of bodies and competitive compensation, especially up the food chain.
Hosting costs. As more and more of reddit's content is hosted in-house, their cost to deliver content has skyrocketed. There's very good business arguments to be made for keeping that content internally hosted, but those are all long-term payoff, while the costs of hosting are all much more immediate. In a prior conversation a former employee said that reddit's hosting costs have effectively kept pace with its growth in revenue.
Poor monetization, lack of vision, poor understanding of their own community.
Reddit launched without a monetization model, the plans was to build a VC darling and sell it so that monetization was someone else's problem. Now that the platform is trying to get cash positive, they've effectively failed to come up with a Plan A and gone for Plan B: ads. It's a particularly weak option, but a 'safe' fallback option used by shitty blogs and newsreels around the world. Reddit isn't offering particularly great value, it's not offering particularly great targeting, it's not even able to offer prominent placement or assured attention. Reddit is in a very poor position to sell ads when compared to Google or Facebook.
Reddit has struggled to make ads relevant, and has struggled to discover alternative revenue streams. The most major alternate revenue option has been awards / gold, but Reddit's commitment to that space has been half-assed at best, and resented or used toxically by the community at its worst. To the users or the outside world, we've never seen any attempts to make their niche more relevant to outsiders, or to make money from site users. Instead, they've waffled somewhat noncommittally in both spaces, while not excelling in either, or in walking a balance. I think it's safe to say from the Third Party Apps that there was huge willingness from Reddit's userbase to pay money in order to engage with the site in specific ways, and willingness to spend money on the community as a part of the community. Reddit never meaningfully figured out how to tap into the enthusiasm their own site inspired in its userbase.
Which I think is in large part because Reddit never really understood their own community. Reddit started with this wild anti-commercial, anti-adweb, mentality and attracted the technologically literate and internet-savvy demographic as it's core userbase, which went on to inform sitewide culture up to today. They launched a platform with anti-ad sentiment, attracted ad-opposed userbase demographics ... and then went ad-supported. This could have been something that reddit pitched successfully to the site at the time - they could have acknowledged that folks don't like ads and made a point of framing advertisers as entities choosing to support reddit and keep it free & functional - Reddit likes supporting "it's own". They could have facilitated and supported connections between advertisers and targeted communities in ways that bypass Reddit's hostility towards ads and appeals to advertisers. Instead they just started serving ads. Likewise with awards, premium, and similar: they could have done far more to play into the gamification and the willingness to support the platform - they just failed to. And today ... site Admin, Reddit Inc, have burned all of the community goodwill that could have made those programs successful by instead forcing corporate-feeling monetization and advertising upon the community.
More than wasting money directly, they've wasted opportunities and advantages. I think one huge long-term learning from Reddit's current struggle is the importance of soft skills and social acumen in managing a tech platform whose masthead product is its "communities" - they desperately needed people on staff who understood community and who understood their userbase's values and culture.
That is a brilliantly thoughtful take, thanks a lot for taking the time!
The one thing I would temper, is that we don’t know for sure if there would have been better ways to monetize. I’m hopeful that there have been smart people at Reddit who looked into it and gathered good insights about it; maybe some approaches that feel right to us laymen actually crumble under closer scrutiny, with those insights we don’t have. Maybe there is a different leadership team out there who would have figured it out; but I don’t want to rule out the possibility that there isn’t, and that it just couldn’t get figured out. Maybe Reddit was just a terrible investment that had no way to get anywhere good, and that’s just how it is with startups sometimes.
Having worked at startups, there almost certainly were better ideas floating around that couldn't get the political capital to get adopted.
Better ideas, most definitely. But good enough to make Reddit profitable? I guess my point is: it’s very possible that yes, but it’s also very possible that there wasn’t really anything to be found.
This could have been something that reddit pitched successfully to the site at the time - they could have acknowledged that folks don’t like ads and made a point of framing advertisers as entities choosing to support reddit and keep it free & functional - Reddit likes supporting “it’s own”. They could have facilitated and supported connections between advertisers and targeted communities in ways that bypass Reddit’s hostility towards ads and appeals to advertisers. Instead they just started serving ads.
And they didn't just start serving ads, they started serving ads like the HeGetsUs campaign that were so poorly targeted that the community they'd built absolutely hated them.