this post was submitted on 16 Jun 2023
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Already, Reddit’s perceived worth is under pressure. According to Pitchbook, the company has raised more than $1 billion and was valued at $10 billion at the time of its last funding round in August 2021. No more: Fidelity, a major investor, in April slashed its valuation by 41 percent.
Reddit hasn’t been the only tech company to see its IPO prospects diminish. Last year was the softest in nearly 15 years for IPOs, and there are few major listings planned for this year. But Reddit has additional vulnerabilities: It has never managed to become an advertising powerhouse like its bigger social-network peers. Other ideas to turn things profitable have been in short supply. Fear of upsetting the delicate vibes of Reddit’s community have led to a kind of innovation paralysis.
But there is new opportunity thanks to recent explosion of interest in artificial intelligence. Reddit, it turns out, is a fantastic resource for those looking for the mountains of data — human conversations — needed to create powerful tools like ChatGPT. And while billions of dollars of value have been created by using Reddit’s data, Reddit itself hasn’t directly benefited. Huffman is right to want that to change. The new developer fees are part of the process of making the most of Reddit. Next time a company wants to scrape Reddit’s data, it might need to pay.
Users get that. Even Selig, the app developer, is sympathetic. “Going into an IPO, giving these things away for free is not a tenable, long-term solution,” he said. He suggested charging larger fees for apps and systems that lift data from Reddit as opposed to those that enable content to be added to Reddit. That seems to me like a workable distinction.
Not for the first time, Reddit’s leadership has managed to infuriate those who love the site the most, vowing to press ahead with plans come what may. That approach may have worked for other companies that don’t rely on users’ goodwill and free labor. It won’t work for Reddit. The real risk of user revolt will now need to make up a significant part of the “risk factors” Reddit must describe to potential investors — a list that is already long enough as it is.
Dave Lee is Bloomberg Opinion's US technology columnist. Views are personal and do not represent the stand of this publication.
Credit: Bloomberg