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Reddit Is About To Go Public, So They're Pushing Their Users Away (And Killing Third-Party Apps)

Reddit SadReddit filed it’s first IPO way back in 2021 for $15 billion… they just never followed through.

Flash forward to 2023, Reddit is again trying to go public. Problem is it isn’t a great time to go public. Pretty much all stocks are down and people just aren’t feeling too bullish.

That’s not even considering the valuation of Reddit has gone down since with Fidelity putting Reddit’s value right around $6.6 billion… instead of the $15 billion they originally desired.

So, the question is:

What do all companies want to do before going public?

Optimize the business so they look great on a spreadsheet. Green charts. Everything is going perfect. We’re bringing in so much money, etc. You get the point.

Recently, one of the popular things to do in the tech world thanks to Musk (because everything ties back into Elon Musk somehow) is start charging for API access. Which, if you’re not familiar, is essentially stripping developers’ ability to well… develop. They can’t access the backend of the site without paying.

Reddit just recently announced they’re going to start charging for their API, too. Funny timing.

Here’s why:

They want to lock down their ecosystem. Simply stated, they make more money if you stay on their app that has several ads and a better ability to harvest and monetize your data.

There’s quite a large percentage of the Reddit user base that relies on custom third-party apps and the API to improve their experience too, and well…

They were definitely NOT happy about it.

There’s huge apps centered around Reddit like Apollo, for instance.

Which is what I use on my iPhone for Reddit and to be honest, I’m not sure how I could ever go back to Vanilla Reddit.

Anyways, Apollo isn’t remotely a small app at all. If anyone could afford to pay Reddit’s API fees…. it’d be Apollo.

The founder of Apollo had this to say about the situation:

I’ll cut to the chase: 50 million requests costs $12,000, a figure far more than I ever could have imagined.

Apollo made 7 billion requests last month, which would put it at about 1.7 million dollars per month, or 20 million US dollars per year. Even if I only kept subscription users, the average Apollo user uses 344 requests per day, which would cost $2.50 per month, which is over double what the subscription currently costs, so I’d be in the red every month.

I’m deeply disappointed in this price. Reddit iterated that the price would be A) reasonable and based in reality, and B) they would not operate like Twitter. Twitter’s pricing was publicly ridiculed for its obscene price of $42,000 for 50 million tweets. Reddit’s is still $12,000. For reference, I pay Imgur (a site similar to Reddit in user base and media) $166 for the same 50 million API calls.

As for the pricing, despite claims that it would be based in reality, it seems anything but. Less than 2 years ago they said they crossed $100M in quarterly revenue for the first time ever, if we assume despite the economic downturn that they’ve managed to do that every single quarter now, and for your best quarter, you’ve doubled it to $200M. Let’s also be generous and go far, far above industry estimates and say you made another $50M in Reddit Premium subscriptions. That’s $550M in revenue per year, let’s say an even $600M. In 2019, they said they hit 430 million monthly active users, and to also be generous, let’s say they haven’t added a single active user since then (if we do revenue-per-user calculations, the more users, the less revenue each user would contribute). So at generous estimates of $600M and 430M monthly active users, that’s $1.40 per user per year, or $0.12 monthly. These own numbers they’ve given are also seemingly inline with industry estimates as well.

So, nope. They can’t afford it and most third-party apps likely won’t be able to either.

Of course you need to take everything with a grain of salt… but if he is correct with his estimate of Reddit trying to milk $1.40 per user per year, that’d definitely fall in line with what a company would want to do that’s trying to go public.

As a social media site your userbase is the product — and without a product you have nothing to sell.  If your product starts leaving because they don’t like you anymore? It’s definitely bad for business.

I think everyone loved Reddit because it was the social media site that didn’t have a traditional userbase AND it didn’t feel, look, or act like other social media sites.

Reddit definitely has to tread carefully as they try to transition from being the cool startup into a boring money sucking corporate entity… because, clearly, the userbase has spoken.

Sir Foxy

1 Comment

  1. but if he is correct with his estimate of Reddit trying to milk $1.40 per user per year

    You’ve misinterpreted this. $1.40/user/year is their current revenue. (which, by the way, is far lower than all other major social media sites)

    Reddit want around $20 million per year for Apollo’s API traffic. Apollo has around 1.5 million active users, so that’d equate to around $13/user/year. One of the points the Apollo dev is making is that it doesn’t make sense to charge them 10x the ARPU (average revenue per user) for the user’s API calls.

    Reddit’s pricing is clearly designed to kill third party apps. They don’t expect people to actually pay for it.

    June 9, 2023 @ 3:04 am | Reply

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