One of the peculiar trends that emerged during the low interest rate era in the tech industry was the focus on companies as investments rather than functional businesses. The ultimate goal became a successful exit, typically through IPOs or acquisitions. This phenomenon may shed light on the recent actions of Reddit CEO, Steve Huffman.
Prior to the Reddit protests, Huffman was under pressure due to a significant markdown in Reddit’s valuation by investor Fidelity. This markdown raised concerns about Reddit’s ability to go public at a desirable valuation, which would allow investors to exit. The company had aimed to go public with a $15 billion valuation, but missed its window as the IPO market cooled off with rising interest rates.
It is worth noting Huffman’s investors, which include Fidelity, Sequoia, Tencent, Coatue, Y Combinator, and Andreessen Horowitz. These venture capital firms are also facing pressure and tend to pass it along to the companies they invest in, which may explain some of Huffman’s recent actions.
Huffman, a co-founder who returned to Reddit as CEO after the user revolt against interim CEO Ellen Pao in 2015, has faced controversies in the past. During the 2015 protests, Pao faced backlash from the community for banning certain subreddits and firing a key liaison between moderators and the company. Huffman’s return as CEO was announced in a post by co-founder Alexis Ohanian, who took responsibility for the firing. This incident highlighted the lack of support Pao received.
In the aftermath of the 2015 revolt, Reddit emphasized its dedication to community building and user-led moderation. However, recent events have shown the limits of community moderation. While it can be a cost-effective approach, the protests have demonstrated that moderators involved in harassment campaigns are unlikely to stop them. There are also limits to what unpaid individuals will do to align with a company’s objectives.
Huffman’s actions during the recent Reddit protests have further highlighted the company’s risk factors. Reddit took a hard line on the API protests and began cracking down on moderators. Huffman compared the protesting moderators to the “landed gentry,” positioning himself as the king. This power dynamic raises concerns for potential investors considering the IPO.
The API changes implemented by Reddit were viewed as a way to boost the company’s bottom line before the IPO. Third-party apps allowed users to bypass ads, impacting Reddit’s profits. The pricing for the API changes seemed steep, leading some to question Reddit’s motives. Former Reddit board member Sam Altman, who was also involved with OpenAI, admitted to training the AI on Reddit’s data. This suggests that Reddit is positioning itself as a valuable resource for AI companies during the AI gold rush.
Additionally, Reddit announced layoffs and a reduction in hiring, which investors often like to hear. However, these moves may harm Reddit’s ability to build and maintain its community, particularly as competitors like Discord gain traction. Discord and other private group chat communities are becoming increasingly important as users shift away from broadcasting their thoughts on traditional social media platforms.
In conclusion, Huffman’s recent actions at Reddit may be influenced by the pressure to deliver a successful exit for investors through an IPO. However, his decisions have raised concerns about the company’s ability to prioritize community building and moderation. The API changes, layoffs, and focus on profitability may hinder Reddit’s ability to compete with emerging competitors and maintain its user base.
