Reddit’s ill-conceived API Pricing & Response to Moderators: What To Do About It

June 29, 2023
Posted by: Peter Friedman, Founder, Chairman & CEO

Reddit: Oh what a tangled web we weave, when at first we slap our value creators in the face.

While it’s understandable that Reddit wants to monetize its content, the service’s new API charges and its heavy-handed response to moderator protests are ill-conceived. Especially since almost all of the content comes from either these same moderators or other end users whose content is effectively curated by these moderators. These changes have potential negative financial implications for Reddit. Of even greater concern is the pricing and company response actually undermine the content and community value of which the moderators are the backbone, threatening the foundation and vitality of the entire ecosystem. The company can still turn this around and avoid lasting damage, but it needs to rethink the entire situation.

How did we get here?

Reddit is a massive series of user forums (sub-reddits) providing a unique mass of user content that corporations can leverage in various ways. In particular, generative AI models such as ChatGPT can be trained on and source much material from Reddit. Naturally, Reddit wants to be paid for that value, especially given a pending IPO.  With this in mind, Reddit recently announced it would charge anyone to access its API. The API being the means by which such companies get at the Reddit content. But it’s also the means by which the moderators access and manage the content. In the course of trying to gain rent from the big third parties, Reddit’s new pricing puts undue hardship on small developers and the community of moderators, thus giving them the back of the hand and risking stifling the user-generated content that constitutes the core value of the system.

In some respects, Reddit was following in Twitter’s recent steps to charge for companies to access its API. That would be following in Twitter’s ill-conceived recent steps in which their exorbitant API charges alienated everyone and sparked a rush of 3rd party providers and customers to depart the platform. Twitter ultimately had to introduce more modest API pricing to stem the departures and calm the objections. Good move, but late, leaving a reservoir of ill will.

The critical dynamic here is that while these two companies do indeed have a treasure trove of content, really entire eco-systems that can be monetized, that content is coming from the users and 3rd party providers, moderators in Reddit’s case.

Arbitrarily charging these people high prices for something they’ve had all along for free is essentially slapping the source of your value in the face.  One moderator reports the charges will amount to $20 Million. Clearly, the charges are too burdensome for enough moderators that they have begun waves of protests, including shutting down or otherwise restricting their forums. Reddit’s response has been to suspend or otherwise punish the moderators rather than adjusting its program. The company may hemorrhage under the weight of moderator protests and desertions, or it may be able to bully its way through this crisis. Either way, if it continues on this path, it will have created lasting ill-will, thus constraining its future value creation and growth. Not exactly a good recipe for an IPO.

But it’s not too late. The solution is simple, though it may require some ego adjustment. Here’s how Reddit can right the ship and flip the crisis to its advantage:

  1. Acknowledge the API pricing was rushed out and failed to seek input from and account for its impact on Reddit’s most important partners, the moderators.
  2. Create a special moderators pricing advisory group to help work out a better model.
  3. Rollout in phases a new API pricing model that is tiered with low or perhaps no fees for the existing moderators. But higher, in some cases substantially higher pricing for corporations, in particular generative AI suppliers. It’s not that Reddit can’t charge the moderators anything. The charges just have to be low enough that they don’t cripple the moderators work or alienate them.
  4. Going forward don’t follow Twitter’s flailing examples. Better to look at other ecosystems such as eBay and Apple, that have thrived by prioritizing the interests of their 3rd party value creators, keeping fees at a level that is more modest. Don’t price to the point of breaking the value model that is the foundation of your ecosystem.

The author, Peter Friedman, is the founder and CEO of LiveWorld, the longest standing social media related company in the world and with the most years of content moderation experience. With a combination of human moderators, technology platforms, and digital agency services, for over 27 years LiveWorld has provided hundreds of programs to F500 brands in healthcare, financial services, CPG, auto, entertainment, and Internet categories. Prior to founding LiveWorld, Mr. Friedman was Vice President and General Manager of Apple’s Internet services division including its moderated online communities