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Software engineer here, of the kind who works for companies similar to Reddit.
I don’t know more than anyone else about their financials, and I can surely believe that Reddit has been wasteful in a lot of ways in the past financial climates, since they didn’t have to optimize for profitability. But I can tell this firsthand: people tend to drastically under-estimate how much constant innovation is required to get past bottleneck after bottleneck just to keep the lights on, on very high-scale services.
Reddit’s scale is humongous, so I can see how it would require hundreds of employees just to keep it up and going.
I recall from past discussions on the site about its finances that theres a few major obstacles they hit;
Huge staffing costs. Not even necessarily bloat - though there is reportedly some of that - but just that they require a shitton of staff with expensive credentials to maintain and develop the site and its' backend. As the site grows, issues with code or algorithm or features require more and more resources to scale sustainably, so development snowballs similarly. It's expensive to maintain a stable of coders or developers capable of working in that scale. And not just code - their community or sales teams are also needing a lot of bodies and competitive compensation, especially up the food chain.
Hosting costs. As more and more of reddit's content is hosted in-house, their cost to deliver content has skyrocketed. There's very good business arguments to be made for keeping that content internally hosted, but those are all long-term payoff, while the costs of hosting are all much more immediate. In a prior conversation a former employee said that reddit's hosting costs have effectively kept pace with its growth in revenue.
Poor monetization, lack of vision, poor understanding of their own community.
Reddit launched without a monetization model, the plans was to build a VC darling and sell it so that monetization was someone else's problem. Now that the platform is trying to get cash positive, they've effectively failed to come up with a Plan A and gone for Plan B: ads. It's a particularly weak option, but a 'safe' fallback option used by shitty blogs and newsreels around the world. Reddit isn't offering particularly great value, it's not offering particularly great targeting, it's not even able to offer prominent placement or assured attention. Reddit is in a very poor position to sell ads when compared to Google or Facebook.
Reddit has struggled to make ads relevant, and has struggled to discover alternative revenue streams. The most major alternate revenue option has been awards / gold, but Reddit's commitment to that space has been half-assed at best, and resented or used toxically by the community at its worst. To the users or the outside world, we've never seen any attempts to make their niche more relevant to outsiders, or to make money from site users. Instead, they've waffled somewhat noncommittally in both spaces, while not excelling in either, or in walking a balance. I think it's safe to say from the Third Party Apps that there was huge willingness from Reddit's userbase to pay money in order to engage with the site in specific ways, and willingness to spend money on the community as a part of the community. Reddit never meaningfully figured out how to tap into the enthusiasm their own site inspired in its userbase.
Which I think is in large part because Reddit never really understood their own community. Reddit started with this wild anti-commercial, anti-adweb, mentality and attracted the technologically literate and internet-savvy demographic as it's core userbase, which went on to inform sitewide culture up to today. They launched a platform with anti-ad sentiment, attracted ad-opposed userbase demographics ... and then went ad-supported. This could have been something that reddit pitched successfully to the site at the time - they could have acknowledged that folks don't like ads and made a point of framing advertisers as entities choosing to support reddit and keep it free & functional - Reddit likes supporting "it's own". They could have facilitated and supported connections between advertisers and targeted communities in ways that bypass Reddit's hostility towards ads and appeals to advertisers. Instead they just started serving ads. Likewise with awards, premium, and similar: they could have done far more to play into the gamification and the willingness to support the platform - they just failed to. And today ... site Admin, Reddit Inc, have burned all of the community goodwill that could have made those programs successful by instead forcing corporate-feeling monetization and advertising upon the community.
More than wasting money directly, they've wasted opportunities and advantages. I think one huge long-term learning from Reddit's current struggle is the importance of soft skills and social acumen in managing a tech platform whose masthead product is its "communities" - they desperately needed people on staff who understood community and who understood their userbase's values and culture.
That is a brilliantly thoughtful take, thanks a lot for taking the time!
The one thing I would temper, is that we don’t know for sure if there would have been better ways to monetize. I’m hopeful that there have been smart people at Reddit who looked into it and gathered good insights about it; maybe some approaches that feel right to us laymen actually crumble under closer scrutiny, with those insights we don’t have. Maybe there is a different leadership team out there who would have figured it out; but I don’t want to rule out the possibility that there isn’t, and that it just couldn’t get figured out. Maybe Reddit was just a terrible investment that had no way to get anywhere good, and that’s just how it is with startups sometimes.
Having worked at startups, there almost certainly were better ideas floating around that couldn't get the political capital to get adopted.
Better ideas, most definitely. But good enough to make Reddit profitable? I guess my point is: it’s very possible that yes, but it’s also very possible that there wasn’t really anything to be found.
The one thing I would temper, is that we don’t know for sure if there would have been better ways to monetize.
This is a fair point, and I do want to avoid the Armchair QB issue, where it's easy to make something The Team didn't do sound like it would have been successful, once matters are already decided and whatever was picked clearly failed.
That said, I think that over their lifespan, especially their time at peak, there must have been opportunities and options for monetizing that Reddit failed to fully exploit or embrace. I think that so many other people have made so much money off of Reddit over the years that Reddit Inc not getting their share feels like it must have involved missed opportunities.
At the very least, I don't think that the existence and community of Reddit is inherently impossible for Reddit to profit from.
I apologize in advance, this train of thought ran long and late; it's a really unique situation that touches on some stuff I think is super interesting.
Monetizing reddit required some very unconventional thinking compared to typical approaches at tech startups. Which kind of does loop back to how I closed above - I think that some of what has slowly gone wrong with Reddit over the past decade is rooted in tech startup culture itself, and that tech startup culture very highly values founders, tech people, software solutions, metric-able sales tactics ... and can massively undervalue soft/social skills and knowledge more aligned with Humanities' fields.
Starting off trying to go user-supported on somewhere between a donation basis and a soft-gamified award system is very tech startup - build a good software product users like to interact with, then ask the users to support the company, ~but make it fun~. That their next option was then to transition to ad sales using things like in-community placement to "target" is a fairly equivalent model of creativity - the users aren't donating enough, so lets serve a couple ads just to cover the gap.
Now, fully: I have biases here. I'm from a branding and communications background and my academics was 'community'. With that starting point, I don't think Reddit ever truly understood how significant and how impressive what they had built, from a community perspective, really was. Or how massive a commercial opportunity many of those communities represent if approached correctly.
As a very surface example, I think something like 90% of niche hobbies are fundamentally based around goods or services of some sort, and have companies competing to access the hobbyists as a targeted market. Reddit has hosted the dominant communities for many of those hobbies for a decade or more. Yet Reddit has never visibly attempted to leverage that.
Something I'm sure has been suggested and I strongly suspect has been rejected because it's complicated and has a long payoff scale would be selling abstract 'community membership' to companies buying ads. Not just placing the ads, but a much more comprehensive, but less strictly tangible, package of traditional ads, product placement, community management, and communications coaching. Redditors really like supporting "their own" and they tend to value even corporate entities that can engage on their level and participate in community membership; companies that can proverbially "take off the suit and shitpost" can Fellow Kids their way to financially valuable relationships with communities. Reddit being able to offer an advertiser a package similar to the level of support Victoria provided AMA celebrities during her time with the community - meets the successes that a company like Ghost Ship sees in their level of community engagement around Deep Rock Galactic.
It definitely is more complicated than just that and that model has other separate sales barriers, especially as a starting program. Equally, it cannot offer the concrete outcomes many large companies currently look for, while being a challenge to price accurately for smaller companies etc - I absolutely acknowledge that it would be hard. At the same time, I'm also wanting to note that this approach would be playing into an existing model for many companies' engagement with relevant consumer groups on Reddit already, and when done well the approach has a massively proven track record and clear payoff. Without necessarily following the exact model I'm speculating about above, but using it as an example of ways that Reddit could have been working to add value and and support to a space that already exists with proven (advertising) marketplace demand.
TLDR; at the very least, there absolutely were ways Reddit could have monetized its strengths rather than just its traffic.
This could have been something that reddit pitched successfully to the site at the time - they could have acknowledged that folks don’t like ads and made a point of framing advertisers as entities choosing to support reddit and keep it free & functional - Reddit likes supporting “it’s own”. They could have facilitated and supported connections between advertisers and targeted communities in ways that bypass Reddit’s hostility towards ads and appeals to advertisers. Instead they just started serving ads.
And they didn't just start serving ads, they started serving ads like the HeGetsUs campaign that were so poorly targeted that the community they'd built absolutely hated them.
If there was a c/ThreadKillers community this deserves to be posted there
This might be a stupid question, but how much waste (if any) is there typically in corporations like this? Useless HR cruft and the like.
Definitely not a stupid question, it’s a big topic, and there are people whose entire job is dedicated to removing that cruft as much as possible.
At a micro level, for instance if you only look at the people I directly know and work with, there’s actually little cruft at all. We sometimes get stupid wasteful mandates from execs, and they waste a bit of everybody’s time, but it’s rare, and typically very small amounts of time. Other than that, I can tell you what every single person is useful for, and I can’t think of a single person who isn’t pulling their weight.
But at a macro level is the hard part, and I don’t think anyone can really know. An organization can’t scale if it doesn’t get seriously decentralized. As a worker, you need to make bold decisions for yourself and the teams around you, without having to know what the hundreds of other teams are up to. That means I can’t tell you for sure that there isn’t another team far from mine (for instance, from an acquisition or something), who is doing 95% the same thing my team does, but that we don’t know about.
Execs are constantly trying to identify those possible collaborations and introduce relevant teams with each other, but even they can’t know what everybody is doing.
I worked at Apple for a while, and since it’s a very secretive company, they had a very odd way of embracing it completely, which I’ve never seen elsewhere. I worked part-time 3 months on a project, before finding out that a team under the same VP had already solved the problem years ago. I whined about how inefficient it is to my director and he basically told me that unlike other companies, at Apple it’s by design. Basically, they’d rather have duplicate efforts, in order to maintain the project secrecy for the goal of “surprising and delighting” customers, and also in order to find always new and innovative ways to solve problems if the new solution turns out to be better. (Mine definitely was not. 😂) Apple really has an unusual innovation culture in general, I liked some of it, but definitely not that part.
Thank you for such s measured response. Many developers would want to see any manager burn in hell as they tend to feel like they always know better. And while on a technical level that might be and if is true, on other levels a good manager can have a massive impact.
Sure! I think I used to be a bit more annoyed by managers in general, before I got myself in the crazy situation where I actually was an engineer manager myself for a few years! I went back to an IC role since, and I don’t miss it, but now I feel that while there are incompetent managers (and incompetent people in all positions), most are just doing their best. It’s a tough job, it’s made of a lot of navigating between one rock-and-a-hard-place situation to the next.
On one level I definitely see the appeal of that way of innovating though. At the early stages of solving a problem, one solution might appear superior, but then unforseen problems come up further down the pipeline. Having completely disconnected groups work on the same problem in one way reduces the chances that everyone falls into the same trap.
In a sense, that's how we work in the scientific community: You have different, more or less disconnected research groups researching the same problems, and even when someone publishes a solution, another group may realise that they are on the track of a better solution that they can publish a year later. We still collaborate quite a lot, but a lot of what a research group does is quite disconnected from the rest of the world until someone publishes.
Oh yeah, absolutely, I’m not saying it doesn’t make sense; particularly if you’re called Apple, which was the most valuable company in the world at the time, and therefore had insanely deep pockets. It absolutely makes sense that they would prioritize augmenting the odds of serendipitous events over cutting costs, because they’re far more likely to die of lack of innovation, than lack of funds. Really only saying that I didn’t like that part of it much for myself. But I agree, it did make a lot of sense for their situation.
Also, to be comprehensive, there are more things that I liked about the Apple culture, than things I didn’t like. They had an very extreme approach to individual ownership, which was very empowering, and which I’ve been missing since.
This is probably the best summary for how tech business works
Thank you!
Those pesky API hoggers stealing all the revenue.
er took er ~jebs~ API
Because prioritizing growth rather than sustainability costs a shit ton of money, money which gets borrowed from investors, which has to get paid back in folds, and then the investors also want more and can control what you do, and all they want is more money, so they reinvest over and over and over, which just perpetuates debt and further and further delays profit.
In short: late-stage capitalist greed.
Business profitability is something vague.
They could have lots of unneeded expenses designed to give spez and friends money and luxuries with company money.
One thing is for sure, u/spez is swimming in money and luxuries. Probably a lot of his friends and family hired in high positions in the company are also swimming in money.
I won't believe any company profits/losses unless they release full accountability books.
A company of Reddit's size might make hundreds of millions in ad revenue, but they also have hundreds of millions in costs. For example, spez said recently they have ~2000 employees. If we make a conservative estimate that the average salary is $50k, that's $100 Million a year just in payroll (and given that they're based in San Francisco, it's definitely higher than that). And if you consider all the computers, servers, electricity and other utilities, marketing, etc, etc, it adds up quick.
It was commented by the Sync developer, I think, that they made their app as a single developer. The Reddit app is made by 200 god damn people and sucks. That's a major symptom.
I wonder what the hell are those 2000 employees even doing? Brainstorming new awards?
I assume some of them are doing ad sales, which is revenue generating. Probably a lot of HR (which 80%+ of those positions are a grift, IMO), and a lot of other make-work positions. Their product team is like 200 people and they don’t even have any accessibility engineers.
Ok, commenters here don't understand how businesses work. So, let me explain it real quick.
If a company doesn't trade publicly, then making profit doesn't make any sense. Companies must pay taxes from profits, so if you make any profit, you will lose money.
Small example with made up numbers (as taxes are different in different countries). Your company makes £100 in profit in year X. Corporate tax is 10%. That means that you have to give £10 to the tax man and you're left with £90 instead of £100. You just wasted £10 for no reason.
So what do you do instead? There are multiple options to get rid of profit and turn your hard earned £100 into something useful. And usually multiple things are done throughout the year. You can pay dividends to your private investors and yourself. You can invest money back into business and buy something useful like a new coffee machine, a laptop, some patents, etc. You can pay bonuses to your workers. And there are many other things to do.
Now you might ask why do taxes work this way? It's actually a genius solution to an old problem no one has experienced in centuries - money hoarding. Current tax system forces companies to reinvest money into economy one way or another through natural greed of their owners. Because otherwise they would just hoard money and destroy the economy.
And here's some fun trivia: if you own a private company and you have profit - you're dumb. Well, it's not fun actually, you should hire a professional accountant who will help you out.
Tbh it depends. Usually it is like you say, but it depends on the goals of the owner. Steam is private for years and they make profits. Also if you have smaller business and you treat it like your business, you just want to get sallary for what you do. "Dumb" is too strong word as it depends on your position and goals
This is a bad explanation. Dividends are paid out of retained earnings. They are actually taxed TWICE and investing money into the business is a capitalized under GAAP not expensed.
The actual reason is that pre-IPO companies prioritize revenue growth while they are raising money over expense control. The idea is once their growth flatlines they can cut expenses while maintaining their revenue.
I don't know how taxes work wherever you are, but here in the UK dividends are exempt from corporate tax. Additionally everyone gets dividend allowance per year making part of your dividends tax free. Everything above is taxed progressively rendering dividends up to very large sums cheaper than corporate tax or salary.
You can't deduct dividends from profit for tax purposes. This is just wrong, the aim of companies is to eventually recognise a profit to return to shareholders.
There are certain things you can do to make sure your profit is recognised in a favourable regime (e.g. Google recognising profits in Ireland) and there are tax incentives to reinvest in the company but at the end of the day, the value of the company is the value of all profits its expected to generate in the future. If that were 0 then the value of the company is 0.
That's pretty insightful. Kinda knew that businesses don't want to post profits but never really knew their reasonings or the implications. Thank you for spelling it out.
Amazon are famous for this, they try and run AWS at a net loss of whatever profit Amazon Retail makes, because it's easy to spend money quickly at the end of the year to avoid taxes on IP and contracts.
Private companies don't have to post anything publicly, they only need to send correct numbers to the tax man.
I have heard that things like this lead to various accounting finagling to lead into statements like "Star Wars was not profitable"; also so that they didn't have to pay actors as much.
At a high level it just comes down to the company not being structured to generate profit -- fundamentally it exists to justify moving money from investors to the owners of reddit. That has worked up until now but in the current economic climate investors are looking for a return and it's exposing how many tech companies have been burning cash because of how easy it was to get with minimal accountability. Any feature reddit adds hasn't actually had to increase revenue, it's had to convince investors that it is going to increase revenue, which is why the few features they've added have basically been clones of features that attracted investors to other platforms (like the video streaming thing)
After nearly two decades of running the company that way it's going to be hard to pivot to actually generating money directly to cover what I imagine are loads of unnecessary expenses and inflated salaries
Expenses and salaries that were surely decided upon based on the thought, "Well, OBVIOUSLY, we're going to be a big, multi-billion-dollar tech company like the other guys, so we'd better spend like one!"
Deciding to host images and especially video really didn't help, those are expensive.
We'd need to see their financials, which is tricky since they aren't public yet. There's also the issue, Steve lies about everything, so should we believe he's telling the truth?
But my guesses would go like this:
Since they've been spending other people's money, they probably haven't been watching expenses closely. Their P&L is probably dominated by payroll and rent. I can't help but feel that programmers are drastically overpaid, which is a symptom of the same issues, that there's a lot of other people's money chasing a finite supply of techbros.
The reason I think programmers are probably overpaid, by the way, is the number of man-hours they allegedly put in, versus the quality of their output. Reddit is a particularly shocking example of this.
In any case, the other people's money doctrine is to grow into profitability, which means burning money on spurious shit until some magic happens. Not exactly a winning business model.
The same data you use to say that programmers are overpaid could be seen as an indication that professional-level software development is more difficult than you think and warrants the higher salaries. Programming is one of those things that almost anyone can do, but relatively few can do well.
Either way, if there were people who could do it better or cheaper they would be.
Edit: In the interest of full disclosure, my view may be slanted because I am a developer. On the other hand, that means I've seen the subject from the inside.
Liars like Steve are easy to catch. We know he's selfish and unempathic. His behaviors and accusations are clear tells. This recent Reddit move of demanding insane prices for the API and upsetting the community is really good info. He needs money (the price increase), wants more control (API got priced out), and is willing to piss everyone off ultimately sabotaging the company. While we don't know the specifics, we know he's desperate for money, control, and a charade while he's running out of time. Something on his end is blowing up in his face, he's trying to save himself, and he could be saved if someone shows up with a ton of money. Otherwise, he's going dress the Reddit turd up as a sausage, and fake it long enough to pass it onto someone else. I wouldn't want to be involved with him in anyway at the moment. If I worked at Reddit, I'd be sending my resume out to other employers.
It makes no sense to me. And more, with Reddit openly stating this I don’t know why anyone would buy into the IPO.
Nobody will. All this negative sentiment and suddenly turning toward musk ahead of IPO seems almost deliberate. Keep your head on a swivel with this one.
For Reddit specifically I couldn't give you a good answer, but I recently watched a video about the streaming service Nebula and its path to profitability I found interesting. It isn't a one-to-one but is still an example of how a big business may be technically unprofitable but still appealing to investors.
The short answer is that investors have a good reason to believe that it will be profitable in the future.
So imagine a streaming service. They know the average amount of time a user will be subscribed. Let's say 25 months. So the subscription cost multipled by that 25 months is the average amount of revenue they'll get from a user signing up. Obviously you would not want to pay more for marketing to this user than that amount as you'd never take money (not to mention the other costs of business). No matter how you slice it, you'll pay a good bit for marketing because it's not about just the ad for that user because you can't magically know who would subscribe based on one ad. So you pay a good chunk in marketing, let's say like 10 months of subscription cost. That means you're going to be in the red for 10 months before you ever start seeing profit from that user. That's where investors come in. They see your growth and have been convinced by you that you just need money to stave you over until you start seeing a profit.
Now, the reason a lot of services aren't profitable yet is because the investors and the company (rightfully or wrongfully) believe that they can still grow. So they keep doing this seemingly unsustainable practice of getting more marketing money from investors to get more users onto the platform. Now, sure, after that first round of investment they could just wait until they start seeing profit and out that towards marketing but many times there are more interested in getting more growth now. Especially because there may be a lot of hype for the service they're trying to capitalize on.
So that's an example. Basically you're getting investors to give you money to get customers who should help you turn a profit later but you just continually do that and keep growing more and more.
Common problem with IT companies they overgrow themselves under false optimism and the urgent need to innovate to keep up with competition. It doesn't help when a bro who once had a good idea is tasked with leading the company. If they actually only did minimum like craigslist they might make a lot more profits but might eventually fail. But not worse than now.
I'm not sure whether you can trust any conclusion that they are or aren't profitable so I'm not sure it's worth thinking about.
A site like Reddit could be run on a skeleton crew of 20-50 people. That's what Elon Musk is trying to do somewhat with Twitter, slashing unnecessary employees. (Example: How many people are working on lemmy?)
Look at it from the viewpoint of an executive. "I managed a 5 person team." makes you sound like a loser. "I managed a 100 person division" makes you sound like a Big Important Person, even if 95 of those jobs were unnecessary.
Also look at it from the viewpoint of investors. If an investor puts $200M into Reddit, they want Reddit to be spending $100M-$200M on growth. No investor would put $200M into reddit if reddit was going to just run a barebones operation spending $20M per year and then coasting for 10 years off the investment money.