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:
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.