Reddit's blunder was disregarding its core users

Following a multiday protest by moderators that caused numerous forums to go offline, Reddit has mostly returned to normalcy. However, it remains uncertain whether the underlying tensions within the company have been adequately addressed.

The protest arose when Reddit decided to impose costly conditions on third-party app creators, impacting over 8,000 subreddits and upsetting power users who rely on these apps for a more convenient Reddit experience. This conflict brings to light the inherent challenges Reddit faces as it moves closer to its long-awaited initial public offering (IPO), anticipated to take place later this year.

Reddit has managed to retain its non-corporate and free-spirited identity, setting it apart from larger tech peers like Meta and Twitter that have undergone shifts in priorities. While the platform has incorporated some advertising, it has largely remained unchanged since its inception in 2005. The true value of Reddit lies in its community and platform, as app developer Christian Selig explains.

Selig, the creator of the popular Apollo app for Reddit, highlights the predicament faced by app developers who rely on Reddit's application programming interface (API). While API access is currently free, it will soon be subject to fees. Selig estimates that covering these expenses for Apollo's 1.5 million users would cost approximately $20 million per year, making it financially unfeasible for him to continue operating the app.

The introduction of these fees triggered discontent among Reddit enthusiasts. CEO Steve Huffman dismissed the protest as "noise," further aggravating dedicated users who believe their contributions are vital to the collaborative atmosphere of the site.

Moderators play a crucial role in maintaining Reddit's functionality, actively moderating comments and upholding community standards. In 2022 alone, moderators removed 56.9 million pieces of content, highlighting their indispensable contributions. Maintaining a positive relationship with moderators is essential for Huffman if he intends to steer Reddit towards a successful IPO, as any further dissent could diminish the platform's value for investors.

While Reddit's valuation was $10 billion during its last funding round in August 2021, recent developments have put pressure on its perceived worth. Major investor Fidelity reduced its valuation by 41 percent in April, reflecting the challenges faced by Reddit and other tech companies in terms of IPO prospects.

Reddit's advertising potential remains limited compared to its larger social network counterparts. Innovation efforts have also been hindered by the fear of disrupting the unique dynamics of Reddit's community. However, the recent surge of interest in artificial intelligence presents new opportunities for Reddit as a valuable data resource. Harnessing the wealth of data generated by human conversations on the platform can provide significant value, prompting Huffman to explore ways to monetize Reddit's data through developer fees.

Users generally understand the need for changes as Reddit approaches its IPO. Charging higher fees for apps and systems that extract data from Reddit while distinguishing them from those that enable content addition has been suggested as a viable approach.

Reddit's leadership has often managed to frustrate its most dedicated users, determined to move forward with their plans regardless of dissent. However, this approach may prove ineffective for Reddit, as its reliance on user goodwill and free labor sets it apart. The risk of user revolt now becomes a significant factor to be addressed in Reddit's description of potential risks for investors, already extensive in nature.