this post was submitted on 19 Jul 2023
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I couldn’t think of a worse time to try an IPO, though. They’re selling into an already less than enthusiastic market. Although there’s been recoveries on parts of the tech sector, if the VCs are hurting for funds and the institutions are being conservative, it’s going to be a disaster.
I am not sure that the bad press over the APIpocalypse is going to have a lasting effect in and of itself, but if they’ve lost users or have slowed growth in the US market as a result, that definitely might. Elon destroying all remaining value at Twitter and spurring an exodus to Threads and other sites is also going to make people question hopping onto a big social media investment because the market has become less predictable than it was a year or two ago.
The late 90s were where you could use an IPO as a take the money and run exit strategy. I think they should have avoided Musking the site and instead pushed all out for growth and look to get acquired, maybe by a Chinese company looking to own a large US-based social media company.
It really looks like the financial decisions at reddit are being handled with the same level of competence as the site policy decisions.
I completely agree, it's a pretty bad time for an IPO - in general. But, they also raised 10 rounds ($1.3 billion total) in funding over the years, a lot of that in the last 3-4 years; their E and F rounds were in 2021, for $250 million and (iirc) $700 million respectively. That's a lot of pressure to produce results, especially after the pandemic-inspired craziness has worn off and the Fed changed the zero percent interest rates that drove a lot of poor business decisions.
To quote a sadly departed poet on the subject - mo money, mo problems.
I agree and I’m even a bit sympathetic - not to their leadership, who can sleep in the bed they made, but to the idea of the site. I just think they could have taken a few of those millions and used it to figure out something other than “We can increase revenue by eliminating access and making the experience worse for users that remain unless they pay us monthly.”
The heavy-handedness of the policy combined with the short timeline and non-negotiable, let-them-eat-cake stance makes me feel like this was a shoot from the hip thing rather than something fully investigated via models with decision points and predictions. In short, very Elon/Trump.
I think the core problem is that Reddit's leadership wanted it to be an SV unicorn, and they tried lots of ways to make money off the site (cryptocurrency, Reddit gold, an official app that I swear was designed to make you click on ads by mistake, etc.). But it as never going to be the kind of cash making machine, actual or potential, that they were looking for. Well, that and, once you start taking outside investments (especially from VCs), the goals of the organization necessarily change towards making an exit (IPO or acquisition).
I think this essay gets at a lot of the things about how the place worked and why the value was hard to convert into money. The feudalism frame is a little gimmicky, maybe, but does provide some perspective and a useful analogy.
Reddit likely doesn't IPO until Q4 or Q1 2024, by then most of the 3rd party drama will be forgotten. IPO is their only choice, there isn't tons of VC money looking to get spent, and they've already burned several rounds of funds to limited effect. I agree it's not a great time to IPO for Reddit, but they really don't have a choice.
I also think the drama will have died down, and even of it didn’t, it would have a limited effect on the IPO by itself. Twitter losing about 2/3 of its value isn’t because people think Elon is a jerk. It’s because he’s killing growth and revenue. If a company can’t trade on its profitability, it has to do so on its KPIs. What I’m saying is that if reddit’s growth was negatively affected by the ham fisted decisions, it’s going to pile negatives on top of already existing negatives.
Basically, I think it was a desperate move but also a terrible idea, not unlike Elon forcing $13B in debt on Twitter and then making up for it via the destruction of verification.
I don’t think reddit was positively affected (as of yet) by the decision - otherwise they wouldn’t be doing the outreach stuff. If only 20% of reddit users are creating 80% of the content (a wild ass guess that’s not unreasonable as a starting point), and if those engaged users are more likely to be protesting/leaving, then the aftereffects are going to be showing up over the next two quarters. If spez needed to show a turnaround for the money folks, it needs to be a turnaround and not a “we tried.”
I just think they’re selling into a down market - down for them in particular but also for the industry - and if they IPO under those conditions I don’t think they’ll hold their initial pricing. “Here’s a turd. Do you want to pay a premium for it in case we can polish it?”
It's absolutely desperate, but they don't have a choice. The company isn't profitable, their revenue per user is awful, they are running out of VC money, they hired a ton of people to growth hack their metrics and it appears to have largely failed, they have no plans for effective monetization of the site or how to be profitable at an acceptable level for the amount of investors they have.