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.
Ok, commenters here don’t understand how businesses work. So, let me explain it real quick.
If a company doesn’t trade publicly, then making profit doesn’t make any sense. Companies must pay taxes from profits, so if you make any profit, you will lose money.
Small example with made up numbers (as taxes are different in different countries). Your company makes £100 in profit in year X. Corporate tax is 10%. That means that you have to give £10 to the tax man and you’re left with £90 instead of £100. You just wasted £10 for no reason.
So what do you do instead? There are multiple options to get rid of profit and turn your hard earned £100 into something useful. And usually multiple things are done throughout the year. You can pay dividends to your private investors and yourself. You can invest money back into business and buy something useful like a new coffee machine, a laptop, some patents, etc. You can pay bonuses to your workers. And there are many other things to do.
Now you might ask why do taxes work this way? It’s actually a genius solution to an old problem no one has experienced in centuries - money hoarding. Current tax system forces companies to reinvest money into economy one way or another through natural greed of their owners. Because otherwise they would just hoard money and destroy the economy.
And here’s some fun trivia: if you own a private company and you have profit - you’re dumb. Well, it’s not fun actually, you should hire a professional accountant who will help you out.
Tbh it depends. Usually it is like you say, but it depends on the goals of the owner. Steam is private for years and they make profits. Also if you have smaller business and you treat it like your business, you just want to get sallary for what you do. “Dumb” is too strong word as it depends on your position and goals
First of all, Steam being profitable doesn’t mean anything, because Steam is not a company. Company is Valve Corporation. Also please don’t confuse profit with revenue. Valve Corporation has a very high revenue, but their profit is not disclosed anywhere. I don’t live in the US, so I don’t know how to check what their tax man knows about them, but I don’t think they have much profit and pay much taxes.
Also if you actually have a small business, then you would know, that you don’t want salary or anything that incures taxes. You will buy yourself a car without VAT from company profit, you will fill it up with petrol from company profit, you will buy yourself new laptop from company profit, etc. But you’ll keep your salary as low as possible and you’ll avoid paying any taxes, including VAT. Everything that can bought through your company legally will be bought through your company and then some.
It is stupid to buy something just to avoid taxes. If it helps you grow a business - sure. But not to avoid paying taxes. As I said it depends on your goal. If you want your business to grow, have the best seed round or in general company valuation - yeah, reinvest. But if it is business that you do to make a living, it is stupid to spend everything just to not pay taxes
No, wasting money on taxes is stupid. That’s how you end up bankrupt in a few years later.
Wasting money is not a good way to avoid taxes.
Deciding to host images and especially video really didn’t help, those are expensive.
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.
