The biggest news out there today is a 4-word headline — “Reddit is going dark”. So in today’s Finshots, we explain what exactly is happening.

The Story

For the uninitiated, Reddit is a social media platform. And quite a unique one at that. It’s community driven. People create niche forums called subreddits where pseudonymous folks can come in and share stuff. So if you have a meme to share, you’d post it on r/memes. Or if you have something on the economy, it has to go out on r/economy.  There are over 130,000 such active communities. And there are over 400 million monthly active users.

Yup, Reddit’s quite the popular place to hang out.

But earlier this week, users suddenly found that they couldn’t access many popular subreddits. They were locked out because the communities had turned ‘private’.

What’s going on, you ask?

Well, the story begins a couple of months ago when Reddit decided to tweak its API (Application Programming Interface) pricing policy. In simple terms, an API is just a way in which websites and apps talk to each other. For instance, if you see a ‘Sign up with Facebook/Google’ button on websites, it’s because the tech companies have allowed the website to gather information from Facebook and Google using APIs. And Reddit has made its APIs available to people who want to scrape information from its websites. Many companies rely on this data too.

For instance, consider the generative AI companies — ones like OpenAI.

According to journalist Christine Lagorio-Chafkin, more than 50,000 words are typed into Reddit forums every minute. She called it the last textual engine of the internet. And that means Reddit is a veritable goldmine of information for ChatGPT. The AI machine  thrives on the information it gets by trawling through billions of things on the internet. That includes stuff and conversations that happen on the niche and interesting subreddits.

And the folks at Reddit realised, probably a little too late, that it was giving away all this for literally nothing.

So it ramped up the API fees to make money for itself too.

But there’s something you should know about Reddit. Reddit is driven by communities. The moderators of these communities aren’t on Reddit’s payroll. They’re doing it because they like it. Because they enjoy it. Not because Reddit threw money at them and asked them to  do it. And many users and moderators actually use third-party apps like Apollo or Rif is fun (formerly Reddit Is Fun) to access Reddit.

But why not use Reddit’s own app, you wonder?

Well, Reddit didn’t even have its own app till 2016. And some of these popular third-party apps that people use today to browse Reddit have been around for longer than Reddit’s own app. And people still prefer these third-party apps simply because they offer a better user experience. They call Reddit’s app ‘clunky’.

And here’s the thing. Apollo, Rif and other such apps were all built using Reddit’s APIs. That’s how they were able to display all the Reddit content on their apps too.

Now you can imagine that the new API rules will hurt them as well, right?

If they need to mirror Reddit’s content, they will now need to pay through their nose. In fact, Reddit’s pricing is so high that most of these third-party app developers have publicly stated that they won’t be able to afford it. Apollo, a very popular app took some time to crunch the numbers and said API fees alone would amount to a staggering $20 million  a year. It just wasn’t feasible to keep running the app and it said it would have to shut down by the end of June.

Anyway, all this talk about API pricing and third-party apps shutting down riled up Reddit’s users. They couldn’t believe that Reddit was trying to kill the support system that actually helped the social media platform become a huge deal. And since Reddit is largely driven by communities, they decided to show solidarity with these third-party apps. The moderators took the subreddits ‘dark’ or private. They must’ve thought, “Hey, if we take our popular channels private, users won’t flock to Reddit anymore. And without users, advertisers will disappear and Reddit won’t be able to make money.”

That was their bargaining chip.

But at the moment, it doesn’t seem like Reddit is going to play ball. It’s sticking with its decision despite all the hue and cry. It believes that ‘this too shall pass’. And there might just well be another reason why Reddit believes it should wait out this ruckus.

Apparently, third-party Reddit apps don’t display advertisements. That means if most of Reddit’s users actually prefer these non-native apps, Reddit can’t go to advertisers and claim a higher user number. It will have to discount this. And advertisers will pay less.

So the only way to change that is to kill these third-party apps and get people on board the Reddit app. Then it can bombard them with ads and get advertisers to pay more as well.

And these additional revenue sources could turn out to be quite crucial for Reddit.

It wants to become a public company and list on the stock markets. It thinks it should be able to command at least a $15 billion valuation. But it could be feeling the jitters now that one of its lead investors has marked down its valuation by 40%.

It needs to show everyone its big plans for monetisation.

But the question is — will this plan end up killing Reddit altogether?

Because if the communities do stay ‘private’ users will disappear eventually. And who knows, maybe some rival might pop up (as hard as it is). It’s not implausible to imagine.

For now, we don’t have the answers. And we’ll just have to wait and see where all this takes Reddit.

Until then…

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