2y ago

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.

You're viewing a single thread.

75 comments

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.
  
  The one thing I would temper, is that we don’t know for sure if there would have been better ways to monetize.
  This is a fair point, and I do want to avoid the Armchair QB issue, where it's easy to make something The Team didn't do sound like it would have been successful, once matters are already decided and whatever was picked clearly failed.
  That said, I think that over their lifespan, especially their time at peak, there must have been opportunities and options for monetizing that Reddit failed to fully exploit or embrace. I think that so many other people have made so much money off of Reddit over the years that Reddit Inc not getting their share feels like it must have involved missed opportunities.
  At the very least, I don't think that the existence and community of Reddit is inherently impossible for Reddit to profit from.
  I apologize in advance, this train of thought ran long and late; it's a really unique situation that touches on some stuff I think is super interesting.
  Monetizing reddit required some very unconventional thinking compared to typical approaches at tech startups. Which kind of does loop back to how I closed above - I think that some of what has slowly gone wrong with Reddit over the past decade is rooted in tech startup culture itself, and that tech startup culture very highly values founders, tech people, software solutions, metric-able sales tactics ... and can massively undervalue soft/social skills and knowledge more aligned with Humanities' fields.
  Starting off trying to go user-supported on somewhere between a donation basis and a soft-gamified award system is very tech startup - build a good software product users like to interact with, then ask the users to support the company, but make it fun. That their next option was then to transition to ad sales using things like in-community placement to "target" is a fairly equivalent model of creativity - the users aren't donating enough, so lets serve a couple ads just to cover the gap.
  Now, fully: I have biases here. I'm from a branding and communications background and my academics was 'community'. With that starting point, I don't think Reddit ever truly understood how significant and how impressive what they had built, from a community perspective, really was. Or how massive a commercial opportunity many of those communities represent if approached correctly.
  As a very surface example, I think something like 90% of niche hobbies are fundamentally based around goods or services of some sort, and have companies competing to access the hobbyists as a targeted market. Reddit has hosted the dominant communities for many of those hobbies for a decade or more. Yet Reddit has never visibly attempted to leverage that.
  Something I'm sure has been suggested and I strongly suspect has been rejected because it's complicated and has a long payoff scale would be selling abstract 'community membership' to companies buying ads. Not just placing the ads, but a much more comprehensive, but less strictly tangible, package of traditional ads, product placement, community management, and communications coaching. Redditors really like supporting "their own" and they tend to value even corporate entities that can engage on their level and participate in community membership; companies that can proverbially "take off the suit and shitpost" can Fellow Kids their way to financially valuable relationships with communities. Reddit being able to offer an advertiser a package similar to the level of support Victoria provided AMA celebrities during her time with the community - meets the successes that a company like Ghost Ship sees in their level of community engagement around Deep Rock Galactic.
  It definitely is more complicated than just that and that model has other separate sales barriers, especially as a starting program. Equally, it cannot offer the concrete outcomes many large companies currently look for, while being a challenge to price accurately for smaller companies etc - I absolutely acknowledge that it would be hard. At the same time, I'm also wanting to note that this approach would be playing into an existing model for many companies' engagement with relevant consumer groups on Reddit already, and when done well the approach has a massively proven track record and clear payoff. Without necessarily following the exact model I'm speculating about above, but using it as an example of ways that Reddit could have been working to add value and and support to a space that already exists with proven (advertising) marketplace demand.
  TLDR; at the very least, there absolutely were ways Reddit could have monetized its strengths rather than just its traffic.
  
  No need to apologize!
  Yes, I agree there is something to this. I’m thinking monetizing the strengths would have been an unproven path for stakeholders, compared to the usual ways they worked elsewhere, and thereby was considered too risky? I’m not sure what went down.
  
  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.
  
  Great breakdown. Appreciate the info. Love the part about ads as well. It's also inherently difficult for ads to get impressions when users can just submit a veiled post about something in a community for free.
  
  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.
  
  If there was a c/ThreadKillers community this deserves to be posted there
- This might be a stupid question, but how much waste (if any) is there typically in corporations like this? Useless HR cruft and the like.
  
  Definitely not a stupid question, it’s a big topic, and there are people whose entire job is dedicated to removing that cruft as much as possible.
  At a micro level, for instance if you only look at the people I directly know and work with, there’s actually little cruft at all. We sometimes get stupid wasteful mandates from execs, and they waste a bit of everybody’s time, but it’s rare, and typically very small amounts of time. Other than that, I can tell you what every single person is useful for, and I can’t think of a single person who isn’t pulling their weight.
  But at a macro level is the hard part, and I don’t think anyone can really know. An organization can’t scale if it doesn’t get seriously decentralized. As a worker, you need to make bold decisions for yourself and the teams around you, without having to know what the hundreds of other teams are up to. That means I can’t tell you for sure that there isn’t another team far from mine (for instance, from an acquisition or something), who is doing 95% the same thing my team does, but that we don’t know about.
  Execs are constantly trying to identify those possible collaborations and introduce relevant teams with each other, but even they can’t know what everybody is doing.
  I worked at Apple for a while, and since it’s a very secretive company, they had a very odd way of embracing it completely, which I’ve never seen elsewhere. I worked part-time 3 months on a project, before finding out that a team under the same VP had already solved the problem years ago. I whined about how inefficient it is to my director and he basically told me that unlike other companies, at Apple it’s by design. Basically, they’d rather have duplicate efforts, in order to maintain the project secrecy for the goal of “surprising and delighting” customers, and also in order to find always new and innovative ways to solve problems if the new solution turns out to be better. (Mine definitely was not. 😂) Apple really has an unusual innovation culture in general, I liked some of it, but definitely not that part.
  
  Thank you for such s measured response. Many developers would want to see any manager burn in hell as they tend to feel like they always know better. And while on a technical level that might be and if is true, on other levels a good manager can have a massive impact.
  
  Sure! I think I used to be a bit more annoyed by managers in general, before I got myself in the crazy situation where I actually was an engineer manager myself for a few years! I went back to an IC role since, and I don’t miss it, but now I feel that while there are incompetent managers (and incompetent people in all positions), most are just doing their best. It’s a tough job, it’s made of a lot of navigating between one rock-and-a-hard-place situation to the next.
  
  On one level I definitely see the appeal of that way of innovating though. At the early stages of solving a problem, one solution might appear superior, but then unforseen problems come up further down the pipeline. Having completely disconnected groups work on the same problem in one way reduces the chances that everyone falls into the same trap.
  In a sense, that's how we work in the scientific community: You have different, more or less disconnected research groups researching the same problems, and even when someone publishes a solution, another group may realise that they are on the track of a better solution that they can publish a year later. We still collaborate quite a lot, but a lot of what a research group does is quite disconnected from the rest of the world until someone publishes.
  
  Oh yeah, absolutely, I’m not saying it doesn’t make sense; particularly if you’re called Apple, which was the most valuable company in the world at the time, and therefore had insanely deep pockets. It absolutely makes sense that they would prioritize augmenting the odds of serendipitous events over cutting costs, because they’re far more likely to die of lack of innovation, than lack of funds. Really only saying that I didn’t like that part of it much for myself. But I agree, it did make a lot of sense for their situation.
  Also, to be comprehensive, there are more things that I liked about the Apple culture, than things I didn’t like. They had an very extreme approach to individual ownership, which was very empowering, and which I’ve been missing since.
  
  This is probably the best summary for how tech business works
  
  Thank you!

75 comments