Key takeaways
- Over 7,000 subreddits have closed in protest of Reddit’s new API charges
- CEO Steve Huffman has defended the move, saying generative AI apps have forced the move for Reddit to survive as a company
- It’s another raised eyebrow from investors ahead of Reddit’s rumored IPO later this year
If you headed over to Reddit right now, many of your favorite subreddits would be closed. The so-called Reddit blackout has taken hold of the popular forum, which often refers to itself as the ‘front page of the internet’, in a backlash against the company’s decision to charge for access to its API.
The move is controversial, with many third-party apps having to shut down as a result, but the Reddit CEO has his reasons and doesn’t appear to be backing down anytime soon. As for the long-awaited IPO, this latest moderator revolt could further delay the offering. We’ve 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. From July 1st, Reddit intends to charge third-party developers with higher usage needs 24 cents for every 1,000 API calls. The plans were first announced in April, with third-party developers trying to plead their case ever since.
Reddit says 90% of third-party apps will still have free access. But for some of the bigger third-party apps, the new API costs will run into millions of dollars: app Apollo has confirmed it will cost $20 million a year for it to access the API under the new price point.
As a result, Apollo and other third-party Reddit apps like RIF, ReddPlanet and Sync have all confirmed they’ll shut down on June 30 due to the prohibitive costs. RIF’s developer wrote in a Reddit post that the company has “unfortunately shown a consistent unwillingness to compromise on all points”.
Over 7,000 subreddits have now gone dark for 48 hours to protest against Reddit’s new API rules. Several of the most prominent subreddits, including r/stocks, r/music and r/science, are part of the revolt. Most are sticking with the two-day protest, but some subreddits have said they’ll close indefinitely until an agreement is reached.
Reddit’s API and its role in generative AI
But Huffman has a good reason for making the controversial move: generative AI. Reddit is a treasure trove of information and posts reflecting humanity itself, making it a prime target for generative AI training. And Huffman recognizes the value of that data.
In April, Huffman did an interview with the New York Times where he said the “Reddit corpus of data is really valuable” and he doesn’t “need to give all of that value to some of the largest companies in the world for free”.
He also tried to quell concerns with a dramatic AMA on Friday last week, where he recognized the developer community backlash but that “Reddit needs to be a self-sustaining business, and to do that, we can no longer subsidize commercial entities that require large-scale data use”. He also confirmed there are no plans to change the new API charges.
It’s also a decision with precedent. One of the early decisions that came from billionaire Elon Musk’s rollercoaster takeover of Twitter was to charge for access to its API in March this year. There was an immediate outcry from developers, researchers and academics that accessed the data, given initial reports put monthly access at $42,000 monthly for the biggest 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 price on application). It’s possible Reddit could reach a similar agreement with the developer community.
What’s happening with Reddit’s IPO?
An ongoing war with its user base may cause consternation for investors holding out for news on the fabled Reddit IPO, which is 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 dropped off a cliff as the economic downturn took hold.
But Reddit has a somewhat unique situation where it occasionally clashes with its users and moderators – and adding Wall Street investors into the mix could further antagonize the moderators in charge of the website.
Investors are fed up. Fidelity, which led Reddit’s $700 million funding round in 2021 with a $10 billion valuation, has cut its Reddit company valuation by 41% since it invested. This could scupper 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 it was laying off 5% of its workforce, totaling around 90 employees, and scaling back its future hiring plans. It also had to work hard to grow its digital advertising base, first introduced in 2009, including announcing two new advertising tools for brands in a bid to draw in ad revenue ahead of its IPO.
The bottom line
Reddit has always been considered a bastion of free speech, with a combative user base that likes to protest when it feels it’s been wronged. Reddit faces battles on many fronts if it’s to manage generative AI companies using its data for training, an angry developer community and investors downgrading its valuation.
Now we’re facing a game of chicken between CEO Steve Huffman and Reddit users. But it’s unlikely 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 unfold ahead of Reddit’s rumored public listing later this year.
Reddit’s CEO cites generative AI as one of the reasons for the API changes – and it’s the latest tech to transform how we do business. It’s why the tech industry has done so well on the stock market, which you can take advantage of with Q.ai’s Emerging Tech Kit.
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