Back in April, Reddit announced that they were changing their API pricing to 24 cents for each 1000 requests, starting in July, a quite absurd claim taking into consideration that 1000 requests should cost them less than a penny.
Why are they doing this? Let’s find out.
Profiting using the API might be one of the reasons but definitely is not the main reason.
Reddit makes its profit by an incredible business model in which users make free valuable content which Reddit can monetize with advertisements.
However Reddit’s user interface is bad, especially their mobile app, so there were plenty of these third party apps that functioned as an alternative to their official app, and that’s bad for advertising.
What would be the sensible option here?
I would say that improving the mobile app is the best option or integrating those third party apps.
Reddit doesn’t think the same, instead they think that killing the competition is the way to go, so by jacking up the price of their API, they effectively force those alternative apps to retire early or go bankrupt.
It may well be a strategy to become profitable as they plan to IPO sometime in the future.
But wait, here’s the Power Move.
Around 7000 subreddits have gone private as a way to protest against the API pricing, this means that users can’t access them, preventing Reddit from advertising.
No ads, no money.
What was made clear is that Mods wield incredible power in the Reddit business, which will surely scare investors if they don’t change things.
But how can they?
Reddit is driven by real users, with real communities.
Which is part of what makes it so great.
But trying to value a business with such an uncertain ingredient, will certainly make it a headache when it comes to going public.