Tech Leaders, here's why you should care about the Reddit Blackouts[Finance Fridays]
The social media background is more impactful to business and tech than you'd think.
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By now, some of you have probably heard about the Reddit shutdown. The social media giant Reddit is currently at odds with its own users and community (which is never a good look) over some unpopular pricing changes.
There is a lot of noise around the situation, with many people trying to figure out how this situation will play out. However, there are many lessons that we can already take from how things have played out. This situation is a very interesting case study of evolving user consciousness, the state of advertising-based social media, and a clear gap in intellectual property laws. Make sure you get ready to take lots of notes because this situation has the potential to impact industries that will be worth trillions. I’m not exaggerating (y’all know we keep it real over here).
Did that get your attention? Let’s get right into it-
Understanding the Reddit Blackout
The background: Redditors are protesting the new API pricing changes that might destroy third-party apps built around Reddit. The increasing prices to access Reddit Data, make building and running third-party apps on Reddit more expensive. Take one of the most notable 3rd party apps, Apollo. They would have to pay $20 million per year to keep the operations running after these price changes. This has led the Apollo team to declare that the app will shut down on June 30th.
What are Third-Party Apps and why do they Matter: Simply put, third-party apps make interacting with a primary app much easier. These apps are built around the main social media platform and typically come with a few features that make interacting with one aspect of the app easier. You can understand why these apps would be popular with regular social media users. They make the user experience better. Being smaller organizations, they can also integrate feedback much quicker. All of this makes them very popular with certain active social media platforms.
I only use Apollo for Reddit because it cuts back the chaos. I like to browse particular subreddits that have good communities; I don’t want to be spammed with all the stuff that the algorithm has flagged as controversial in a desperate attempt to get me to engage
The relationship b/w Third-Party Apps and Main Platform- Traditionally platforms have encouraged third-party apps since the third-party platforms still provide the main platform with user data (which is all that matters). However, this dynamic is changing. Earlier this year, Twitter pushed out many third-party platforms through high API prices (and their lil beef with Substack with we covered here). Reddit seems to be following suit. These changes are very unpopular with user bases. So why do companies do this?
Why Companies are turning heel- There are three major reasons that we see companies turning to this kill-switch-
Costs and Benefits- When Reddit/Twitter give data to third-party apps-they essentially bear all the costs of storage and data sharing while also not getting any direct benefits from these platforms. This is a terrible tradeoff. This becomes worse with LLMs like ChatGPT and Bard, which took all their data for free with no kickbacks to the platforms. This has got the leadership at these companies a wee bit miffed.
Market Saturation- The social media ad space is extremely crowded right now. This is why we see multiple companies trying various strategies. YouTube and Instagram have been pushing ads more aggressively, which has been lambasted by their users. Meta and Apple are now pushing into AR/VR in order to get access to a new set of devices and thus integrate other revenue streams. This is a long-term plan, however (similar to Google’s Moonshot Factory). Companies like Reddit and Twitter don’t have billions to burn on experimental strategies. So these platforms are trying to offset the costs by pushing some operational costs to the third-party platforms. Public companies are under the sword to show growth every quarter, and if they have no winning plays to improve revenues, cutting costs is always an easy go-to. This is an example of that.
Out-of-Touch Management- This should come as no shock if you follow the social media space, but most big social media management is extremely out of touch with their user base. We have seen several big changes with social media platforms as they bend over backward to accommodate institutional users over traditional individual creators. This is another example of out-of-touch management making calls without understanding their user base. Read this article to understand why so many companies elect incompetent management.
Additional Readings- I have covered two of these ideas in more detail in older articles. To read about the saturation of the Tech Industry, read this piece on the big tech war. On the other hand, if you want to look more into the Metaverse and why Meta (and now Apple) is betting big on it, read this article on Why the Metaverse is a good idea. It will help you gain some perspective on why ad-supported platforms are hitting stagnation and one way out of it.
Why you should care- Simply put, this should show you one thing- big companies are desperate for monetization streams. Since these companies have all become the kings of their little wells, there isn’t much growth left there. This is why we see billions being thrown around to hype GPT etc. These companies need to show growth, otherwise the investors lose interest. Now more than ever, developers should seek to understand business and basic finance + economics. Studying these concepts will prepare you to spot winning opportunities and avoid the losers. There is a large market that is yours for the taking, if you’re willing to conquer it.
Other notes- I had a few other observations, that were interesting but didn’t have enough substance to stand on their own. Here they are-
User Awareness is changing- Redditors knew how to hit the platform where is hurt. We have seen a growing emphasis placed by users on their data privacy and the value of their data. Expect to see this trend continue. We’re passing the days when unsuspecting users would happily pass over all their data for a free service.
We need laws around the internet- This shouldn’t come as a shocker, but many of the laws around the internet and IP are seriously outdated. LLMs were able to take a lot of data for free because of loopholes in copyright law. If you’re a technologist- working on improving regulations might be a very impactful and lucrative avenue for the future. I would suggest that you consider it strongly.
Hopefully, this helps you see this event in a different light. This event is a good window into the future of ad-based social media platforms and the hurdles they all hit. How would you tackle this issue? Let me know your thoughts by replying to this email or reaching out through my links below.
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