Reddit: When bigger isn’t necessarily better

Reddit has dominated as the result of strong network effects, which also may predict its downfall

The online social platform Reddit (www.reddit.com) seems at first to be a classic lesson in the value of creating network effects, but a summer 2015 uprising among the site’s users reveals the risks inherent in community-based network effects businesses.

Reddit, founded in in 2005 out of the University of Virginia, is an old school feeling web experience. Users create and reply to threads that are largely devoid of design or media. An average thread’s nearly endless scroll of text gives, at best, a comprehensive overview of whatever the subject is and at worst and overwhelming and somewhat disorganized user experience.

Direct network effects are clearly present in Reddit’s model. At the most basic, Reddit is a platform for connecting users in ever-changing discussions. The more users that join, the more discussion topics that are posted and the more responses those threads receive. Further, network effects are further fueled by uproots and down votes: a way for platform users to participate without needing to write out a reply. These upvotes and down votes organize how the content appears on the site, creating further value for other users (ensuring the “best” content rises to the top).

However, it far from clear that these network effects have been only positive for Reddit as a business.

Reddit is a tight-knit community. Redditors, as users refer to themselves, create and respond to the content each other create and get to know each fellow fans of particular “subreddits.” The site’s users also have their own lingo: an OP is an original poster, TIL is “today I learned”, IAmA is “I am a…” while AMA is “Ask Me Anything”. Redditors, not the company, play the primary role in moderating the sites content creating a sense of responsibility and power. This tight knit community has its benefits: it may be the reason Reddit succeeded in the first place (and beat out less user-focused Digg.com), it outsources a lot of effort from headquarters to the user base, and creates fervent fans of the platform.

The problem with social ties this strong is that they are in tension with Silicon Valley’s core activity: scaling. It is relatively easy to scale a consumer-facing web platform, it is much harder to scale a community of people that feel they have created the platform and have an instinct to defend it.

We can see this tension in Reddit’s rise.

The number of Reddit posts has grown exponentially:

Reddit Post Growth

Yet, while all of that growth was happening a storm was brewing. The tight-knit Redditors community was growing increasingly unhappy with the site and its owners. In summer 2015, this came to a head with Reddit fired Victoria Taylor, a manager that helped coordinate the sites extremely popular AMAs. In response, many users and subreddit administrators turned their accounts to private, effectively making huge swaths of the sites content unavailable.

This wasn’t the loud minority, either. Looking at traffic stats you can see the bottom dropping out of the site:

And the carnage wasn’t limited to just traffic stats: Reddit’s CEO, Ellen Pao was swiftly fired following the protest.

In a normal business, if a customer becomes unhappy they quit ordering your products. If a group of customers become unhappy, your sales drop. These are real risks for any business. But at Reddit, and other community-centered network effects businesses, unhappy customers (users) can actually destroy your product, insofar as Reddit’s product is discussion-based threads that its users were able to take offline. Its as if a group of Boston Globe readers somehow got into the printing room and blacked out all of the articles.

Reddit shows us that strong networks, while very good for growing a community-based platform, can come with consequential risks. As we think about network effects we need to think not just about how to get more and more people into our platform, but also how much power we ceding to the network to get them there. Wise managers will aim to make sure their networks cannot risk the future of our business. After all, if the network has the ability to destroy itself, all of the value creation we desire in building network effects is lost.

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Old School Network Effects

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The Knot : Maximizing Value in an Evergreen Industry

4 thoughts on “Reddit: When bigger isn’t necessarily better

  1. This fantastic. Not being a Reddit user myself, it’s a great introduction to the site. In terms of the scaling challenge, apart from the current users defending the site, I also wonder there is an element of “crowding out” at play, so to speak: as a non-user, the lingoes and culture of Reddit is so established, I found it difficult to fully understand Reddit and thus has never been able to make a switch to join. That said, I also wonder how much of the decline in users is driven by poor management/PR as opposed to the inherent challenge of operating on network effects.

  2. One of the biggest questions I have is “how do you monetize this?” In spite of its work bringing in celebrities like Arnold Schwarzenagger (who has been Redditing off and on for some time) and introducing the Reddit Gold program, the website has been unprofitable for years.

    Part of the problem is that Reddit has an on-again off-again relationship with free speech. Its once (and future?) broad approach meant it had a large tolerance for the kinds of material that scare off the more “appropriate” (and lucrative) advertisers: people with swear words in their usernames like S***ty_Watercolour (who painted a picture for the Obama AMA), an open approach to pornography that is on the edge between “free speech” and “see no evil” (and until Anderson Cooper made it public, child porn- see http://nymag.com/daily/intelligencer/2012/02/policy-shift-reddit-bans-child-pornography.html), and a questionable maintenance system that usually leaves the subreddits to police themselves, which means the management team may legitimately not know about the worst portions of the site until a CNN anchor points it out. The theory goes that the more one buys into a product or service the more other people will buy into it. However, if you know a part of your forum is dedicated to making fat people feel bad, you may not want to risk associating yourself with such a forum.

    I still think the network effects are generally in Reddit’s favor; as long as the management learns to communicate better, then it can cultivate the experience by convincing more (not racist or creepy) people that it is a fun place where you can ask the President about beer, post pictures about your cats in various costumes, and other fun tasks. But there are some big questions; do you risk hurting the website by building on the Reddit Gold program and making the experience too different from being a normal user? Do you try to find advertisers who will go to some subreddits and not others (members of r/apple will not necessarily be interested in fruits) or do you pick some subreddits and turn them into cash cows (focus on r/IAMA and some of the picture ones while leaving r/news to police itself unless it turns into a problem like the rabid r/atheism subreddit or a troubled child like r/technology)? Do you try to integrate the ads into the upvote/downvote system, or avoid that because no advertiser wants “downvotes”? And do you need to clean the community first? At what point do you claim Reddit has been purified? Reddit’s management team will need to answer all of these questions if it wants to go beyond being a cultural phenomenon to a profitable enterprise.

  3. Great post! I also wrote about the risks of a strong, tight-knit network, especially when they grow unhappy with your offering. The other big risk I see for Reddit is that their product (an online forum) is easily replicable and a lot of similar alternatives exist. So there’s even more incentive for Reddit to try and keep its users happy in order to prevent them from posting elsewhere.

  4. I always thought the whole Victoria fiasco was more a lesson on bad management than the disadvantages of network effects, but it’s true that when your users are a loud, tight-knit community, you have to tread carefully. Even when all of these subreddits starting going private to protest, there were hyperbolic news articles about Reddit’s downfall. The storm quickly passed; subs started carrying on as before, the CEO was ousted, and now I think management will be more careful in the future to not alienate their vibrant, core user base.

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