Reddit, the self-proclaimed “front page of the internet,” has been facing a backlash from its users over plans to start charging third-party developers to access their data. Whether Reddit chooses to deescalate or stay in its current course, there are broader lessons that we can draw from Reddit’s communications strategy which are relevant to any tech firm considering an IPO.
Reddit’s broken promise
Unlike other social networks, Reddit has been one of the few that offers an alternative model to the algorithmic centralisation of newsfeeds. It is built on the principles of sharply defined niche communities and self-governance. Their central promise to their users has always been that the community belongs to them, and it empowered them to self-moderate and build their own apps.
Reddit risks breaking its promise over its plans to start charging developers to access their data. This strategic shift is part of Reddit’s plan to increase profitability. By centralising traffic on its native apps, Reddit aims to enhance its ad revenue significantly. However, these charges are seen as unreasonable by many of the developers. One app, called Apollo, would have to pay Reddit USD 20 million per year to keep running as it is. Many users have already bought annual subscriptions to apps like Apollo, and the new pricing takes effect at the end of this month, leaving developers little time to put things right with their customers.
Why Reddit’s IPO process might suffer
Thousands of Reddit communities have shut down in protest at these plans and are currently not accessible. A Reddit moderator, on which the platform relies heavily for content moderation, said they believe the blackout could continue until Reddit row back on these changes. And some communities, such as r/Music – which has 32 million members – say their subreddit will be indefinitely inaccessible until Reddit reverses its policy.
Potential investors may see this standoff between Reddit and its users, and the resulting disruptions, as a sign of instability and uncertainty which may negatively impact their IPO process. Following the onset of the blackout on June 12, daily visits have seen a decline, dropping from 57 million to 53 million according to third-party data. This equates to a 7% dip in traffic, a trend that doesn’t exactly bolster Reddit’s investment case.
Learnings for tech firms considering an IPO process
It is still unclear whether Reddit seeks to reconcile with its users or if they’re pursuing a finance-driven approach towards profitability, akin to Elon Musk’s strategy when he assumed control of Twitter. For any tech company considering an IPO, there are more effective ways to engage with users that can avoid causing a public confrontation in the first place:
1. Take a proactive stand on CEO comms:
Reddit CEO Steve Huffman blundered last week when he dismissed the issue in an internal staff memo saying, “like all blowups on Reddit, this one will pass as well”. Huffman later provided a more carefully worded statement in an interview, however, it failed to capture as much attention as the leaked memo. This serves as a reminder to CEOs to handle internal communication with the assumption that it will become public, especially when the message addresses contentious topics.
2. Recognise your users’ value in pre-IPO processes:
It’s critical to view users as key stakeholders in any business endeavour, particularly as you move towards an IPO. Reddit’s lack of consideration for its userbase appears to be a missed opportunity. Before announcing significant changes to your business strategy that can affect your userbase, it’s crucial to engage them in detailed consultations. This proactive approach allows you to both hear their concerns and potentially make necessary adjustments. At this stage, it appears unlikely that Reddit will pursue this course of action.
3. Be transparent about your business model:
Reddit is under financial pressure and needs to be profitable to be able to sustain itself. If API pricing is the chosen strategy, the implementation and communication process need to be handled delicately. Abruptly severing ties with influential third-party developers, which Reddit has traditionally relied on, is less than ideal. A better approach would be to conduct comprehensive focus group discussions with all primary stakeholders before announcing significant changes to the business strategy. These discussions will not only foster understanding but also help in developing more effective ways to communicate such changes.
Reddit has upset its userbase by announcing changes to its business strategy at short notice in an effort to become profitable ahead of its planned IPO. Although this is a reasonable aim, Reddit’s IPO communications strategy failed to anticipate the backlash that it would face, and the later blunders following its announcement showed that it doesn’t have a good grip on its IPO communications.
The lesson here for companies seeking to make fundamental changes to their product and business strategy ahead of an IPO, is that communicating with your userbase strategically and proactively is as important as communicating with your future investors. If you don’t, you may end up irritating both and your IPO process may suffer as a result.
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