(Photo illustration Rafael Heinrich/SOPA Images/LightRocket via Getty Images)
key takeaways
- Over 7,000 subreddits shut down in protest of Reddit’s new API charges
- CEO Steve Huffman has defended the move, saying that generative AI apps have forced Reddit to survive as a company.
- It’s another eyebrow raise for investors ahead of Reddit’s rumored IPO later this year
If you go to Reddit right now, many of your favorite subreddits will be closed. The so-called Reddit blackout has hit the popular platform, which often refers to itself as ‘the front page of the internet’, in reaction to the company’s decision to charge for access to its API.
The move is controversial, resulting in the shutdown of several third-party apps, but the Reddit CEO has his reasons and doesn’t seem to be backing down anytime soon. For the long-awaited IPO, this latest moderated rebellion could further delay the offering. We have got the details below.
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Why are Reddit moderators unhappy?
Reddit launched a free API in 2016, but it’s making some big changes. Starting July 1, Reddit intends to charge 24 cents for every 1,000 API calls made to third-party developers that require high usage. The plans were first announced in April, with third-party developers trying to plead their case ever since.
Reddit says that 90% of third-party apps will still have free access. But for some large third-party apps, the new API cost will be in the millions of dollars: App Apollo confirmed that it will cost $20 million per year to access the API under the new price point.
As a result, Apollo and other third-party Reddit apps such as RIF, RedPlanet, and Sync have confirmed that they will be shutting down on June 30 due to prohibitive costs. RIF’s developer wrote in a Reddit post that the company has “unfortunately shown a consistent reluctance to compromise on all points”.
Over 7,000 subreddits have now gone dark for 48 hours in protest against Reddit’s new API rules. Several of the most prominent subreddits are part of the rebellion, including r/Stocks, r/Music, and r/Science. Most are sticking with the two-day protest, but some subdivisions have said they will remain closed indefinitely until an agreement is reached.
Reddit’s API and its role in Generative AI
But Huffman has a good reason for taking the controversial step: generative AI. Reddit is a treasure trove of information and posts featuring humanity, making it a prime target for training generative AI. And Huffman recognizes the value of that data.
In April, Huffman did an interview with The New York Times.
NYT
He also tried to allay concerns last week with a dramatic AMA on Friday, where he acknowledged the developer community’s response, but said “Reddit needs to be a self-sustaining business, and to do that, we no longer want to be commercial.” Can’t subsidize institutions that have a great need.” -scale data usage”. He also confirmed that there are no plans to replace the new API charges.
This is also a precedent decision. One of the early decisions that came from billionaire Elon Musk’s rollercoaster acquisition of Twitter was to charge for access to its API in March this year. There was an immediate outcry from developers, researchers and academics accessing the data, with initial reports giving $42,000 monthly access for the largest companies.
There are now three paid tiers for developers to access Twitter’s API, with the start-up level costing $5,000 a month (the enterprise plan is priced on the application). It’s possible that Reddit will reach a similar agreement with the developer community.
What’s Up With Reddit’s IPO?
The ongoing war with its user base could spell trouble for investors who are bracing for news on a Reddit IPO slated for the second half of 2023. The company first filed for its IPO in 2021, but at the time, it said the listing would be “subject to market and other conditions”. Since then, the IPO market has declined due to the economic downturn.
But Reddit has a somewhat unique position where it sometimes clashes with its users and moderators — and adding Wall Street investors to the mix could cause further antagonism to the moderators in charge of the website.
Investors are fed up. Fidelity, which led Reddit’s $700 million funding round with a $10 billion valuation in 2021, has cut its Reddit company valuation by 41% since making the investment. This could fuel Reddit’s plans to eventually go public with a reported valuation of $15 billion.
Reddit also isn’t immune to the issues other tech companies are facing. It announced last week that it was laying off 5% of its workforce, about 90 employees, and scaling back its future hiring plans. It has also worked hard to develop its digital advertising base, which was first introduced in 2009, including announcing two new advertising tools for brands to draw in advertising revenue ahead of its IPO. .
Bottom-line
Reddit has always been considered a bastion of free speech, with a combative user base that loves to protest when it feels it has been wronged. Reddit faces a battle on several fronts if it is to manage generative AI companies using its data for training, an angry developer community and investors hammering its valuation.
Now we’re faced with a game of chicken between CEO Steve Huffman and Reddit users. But it’s unlikely that Huffman will back down, given the potential opportunity for the company to capitalize on a new revenue stream away from advertising as generative AI scales up. Investors will get out the popcorn and watch the drama ahead of Reddit’s rumored public listing later this year.
Reddit’s CEO cites generative AI as one of the reasons for the API change — and it’s just the latest technology to change the way we do business. This is why the tech industry has done so well in the stock market, which you can take advantage of with Q.ai Emerging Tech Kit,
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