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IF Insights: Has Reddit pressed the ‘self-destruct button’ with its API pricing?

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Reddit is community-driven, where people create forums called subreddits

On June 12, 2023, American social news and content aggregation company Reddit’s CEO Steve Huffman issued an internal memo to his company staff, remarking, “I am sorry to say this, but please be mindful of wearing Reddit gear in public. Some folks are really upset, and we don’t want you to be the object of their frustrations.”

Steve Huffman made the above observation while stating that the ongoing blackout of thousands of subreddits would eventually pass.

So what is going on in the social media company?

Knowing The Crisis In Detail

Reddit is community-driven, where people create forums called subreddits. Here, you can open your accounts with pseudo names and posts, and share engaging stuff like memes. These subreddits have categories like economy and politics, where suitable content can be posted. Based on audience engagement, Reddit’s front page shows the most popular posts from each default subreddits.

As per Finshots, there are over 130,000 such active communities, along with more than 400 million monthly active users.

Journalist Christine Lagorio-Chafkin, during an interview with the business journal ‘Knowledge at Wharton’, said that over 50,000 words are typed into Reddit forums every minute. The award-winning scribe also suggested that Reddit can very much be the information goldmine for generative AI tools like ChatGPT, with the chatbot getting most of its information from the subreddits’ conversations.

Coming back to the crisis, the blackout mentioned by Steve Huffman has seen over 7,000 subreddits, setting themselves private to protest Reddit’s API pricing changes.

Developers of third-party apps wouldn’t be able to afford Reddit’s updated API pricing. The developers for Apollo for Reddit and others announced the shutdown of their apps on June 30.

While some subreddits went private from June 12th to June 14th, some are planning not to become public until things change.

Let’s Talk About The Bone Of Contention

Reddit API policy changes will see its content being used to train artificial intelligence tools, and this content will be put under a paywall from now on.

Be it ChatGPT or Google Bard, generative AI tools are using Reddit sources to train their Large Language Models to provide credible responses to human prompts. While Reddit’s API will help tech companies to access and package useful data easily, the content aggregation company is now using the opportunity as a moneymaking one.

Reddit’s API, available since 2008, used to be open for developers to do activities like building moderation tools for subreddits, creating Reddit browsing clients, and making the content site a user-friendly one.

While the Steve Huffman-led venture will keep the API free for those building moderation tools or creating educational and research environments on Reddit, the company’s new terms will be applied for developers using the APIs in ways that require “broader usage rights”. Also, the new policy won’t grant automatic licenses for anyone needing to modify user content.

Training AI language models will now require interested parties “to enter into a separate agreement with Reddit.”

The ‘Data API Terms’ have also empowered the company to enforce limits on how many API requests can be made. The charges required for making the API requests will also be high for clients (developers), since the latter generally use OAuth tokens for Reddit user authentications.

Reddit is also planning for an Initial Public Offering in 2023. With generative AI being the talk of the town in 2023, analysts believe that the venture wants to build its financial health around its user-generated content, which will be used for training for LLMs.

Users and moderators here use third-party apps like ‘Apollo’ or ‘Rif is fun’ to access Reddit, as these tools reportedly provide better user experiences.

These apps were built using Reddit’s APIs. If they need to show Reddit’s content now on their portals, they will have to pay for it. Apollo has said the API fees alone would amount to a staggering yearly amount of USD 20 million, something which is not feasible for them.

This development has now riled up Reddit’s users. The community members and moderators are now showing solidarity with these third-party apps by taking the subreddits ‘dark’ or private.

The article titled ‘Is Reddit digging its own grave?’ by Finshots remarks, “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,” the article stated further.

Reddit Sticking By Its Plans

“So the vast majority of the uses of the API — not [third-party apps like Apollo for Reddit] — the other 98% of them, make tools, bots, enhancements to Reddit. That’s what the API is for. It was never designed to support third-party apps. Let it exist. I should take the blame for that because I was the guy arguing for that for a long time,” CEO Steve Huffman told The Verge on the API issue.

The Reddit boss thinks that these third-party apps have made their own business models at the expense of his company. However, Apollo’s statement against the new API pricing suggests otherwise.

Reddit has now informed the subreddits moderators that it has plans to replace ‘resistant moderation teams’ to keep its spaces “open and accessible to users.”

A comment shared by r/Apple moderator @aaronp613 shows the social media platform citing its ‘Moderator Code of Conduct’ and warning its detractors that it has a duty to keep communities “relied upon by thousands or even millions of users” operational.

“Mods who do not agree to reopen subreddits that have gone private will be removed,” the company stated, while CEO Steve Huffman stated that the 48-hour blackouts hardly caused “any significant revenue impact so far”.

The Final Verdict

Reddit’s goal is to become a public company, by getting listed on the stock markets. The content aggregation company is eyeing a USD 15 billion valuation. So, the new API policy is part of Steve Huffman’s bigger monetisation goals.

However, analysts believe that these plans may end up killing Reddit, as the third-party apps, which Steve Huffman accused of building their ‘own businesses at the expense of Reddit’, have actually been the company’s support system.

Experts now fear a scenario where community members will start ditching the platform and in the worst case, may end up joining an alternative one (if it pops up).

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