The Reddit Crisis & Why Community Startups Are Different

Typically these Saturday deep dives are about a question that a subscriber asks me, now the news. But, right now Reddit is at legitimate risk of making an irreversible mistake and losing user trust forever.

I’ve built a venture-backed community company, and have seen crisis situations first-hand. So, excuse the switch from our normal deep dives while I break down:

• What happened so far

• Why Reddit’s in this situation

• Where things will likely go from here

The Fall of Reddit?

What Happened TLDR

Despite somewhat ominously announcing in April that changes to their previously free API’s pricing were coming, Reddit never got to roll them out on their terms.

Instead, 8 days ago, the founder of the popular third-party Reddit client Apollo revealed the new pricing in a lengthy post announcing he was shutting the service down due to it.

The new pricing meant Apollo would have owed $2 million per month and didn’t see a path to generating that much additional revenue so quickly, so they announced the shut down.

Once the cat was out of the bag, chaos broke loose.

First, many previously-public subreddits were taken private by their moderators (and many still are).

Reddit’s co-founder and current CEO, Steve Huffman, responded by going on a press tour “lashing out” (TechCrunch’s words, not mine) at the moderators, which caused many of them to vow to keep their communities private indefinitely.

Huffman’s response has been to continue the press tour, defending the changes as a strategic decision to combat AI companies from freely using data on Reddit to train LLMs.

Why Is This Happening?

Let’s acknowledge the big mistake Reddit made:

They didn’t control the narrative at the start.

When the founder of Apollo shared the new pricing structure, in a post he wrote and filled with his perspective on the situation, Reddit instantly lost control of what I’m sure they knew would be a delicate situation.

Once that happened, Huffman fell into a trap that happens when startups (or even bigger companies, like Reddit arguably is now even though they aren’t public) enter a crisis situation:

He’s listening to the voices around him, not his users.

It sounds odd but, in a crisis, founders have everyone trying to tell them what to do, not the other way around. The hardest part of managing a crisis is keeping hold of your mental sovereignty as the leader of the company.

Your investors want to protect their investment. Your lawyers want to limit liability for the company. Your PR team wants to broadcast the right message.

Read those again. None mention users. Instead they’ll advocate for smart business decisions.

And, in many cases, this approach can work. A well-known VC once told me that the startups that survive a crisis are the ones that take a hard-line position and avoid giving into demands from the media or anyone else. If you do, you’ll enter a slippery slope.

But community-based startups are different because users have such strong (almost cult-like in some cases) brand affinity that it becomes part of their identity. No matter how much you love your Tesla, it’ll never be as core to your life as a Reddit community is for someone who spends 30 hours a week moderating it.

So what caused Huffman to fall into this trap? Shouldn’t he, a seasoned CEO, have known how much Reddit’s devoted users would dig their heels in and fight?

Well, Reddit is a 17 year old startup that finally announced plans to IPO later this year (after previous stalled attempts).

If I had to guess, I’d bet he’s working under immense pressure to land the IPO this time, and increase both revenue and data-defensibility beforehand. I want to avoid devolving into too much speculation, but it’s certainly possible his job is tied to making that happen on schedule and with a certain price target.

So… What Happens Next?

Reddit is in real trouble here. They’ve crossed the Rubicon and the headlines haven’t done them any favors.

Huffman has two options:

1. Double down on his hard line approach, likely escalating to a point where Reddit forcibly asserts control over some of the subreddits that have gone private.

2. Step back, reverse course, and re-evaluate their plans given the immense user backlash.

Currently, he’s trying to compare Reddit’s plan with the price increases Elon made for Twitter’s API. On the surface that sounds logical, but Twitter is a town square, not a constellation of niche communities that people strongly identify with.

There was backlash when Twitter raised their prices, but mostly from indie developers. Reddit’s case is very different, it’s coming from many different types of users.

It’s going to be painful, and his consultants and advisors will be telling him not to, but Huffman’s best move is offer up a mea culpa, announce that they are pausing and changing course, and then do community engagement events through the end of the summer before sharing an updated plan.

The alternative (escalation) will drive many of Reddit’s users off of the site entirely (or cost Huffman his job). They’ll go to Discord, Twitter, and groupchats instead. And they won’t come back.

The new pricing is supposed to go into effect at the end of this month. Trust may reach the tipping point before then.

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