Reddit wants its users’ money — but not their input

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Social network Reddit says it may be made from code and algorithms, but it is really built by users. That is correct. Redditors provide both content and moderation for free. As thanks, a portion of shares in the upcoming initial public offering will be reserved for those who contribute to its communities.

What they will not be given, however, is control. Unequal shareholder voting rights mean voting control will be concentrated among directors, executives and others who already hold Reddit stock. The company notes that investors should consider the added risk as this structure will limit or preclude their influence over corporate matters.

Rightly so, multi-class stock structures are disliked by many investors. Yet tech companies love them, certain that somehow only their insiders have the necessary vision required for success. See also social media network Snap, Alphabet and Meta.

These details were included in the S1 listing document that Reddit published on Thursday, allowing investors to prod around in its finances for the first time. Some of the numbers were as expected. Sales are growing, up 21 per cent to $804mn last year. Losses are narrowing, down more than 40 per cent to $91mn.

There were some unexpected details too. Among the surprises: the company’s investments in bitcoin and ether and the inclusion of entities affiliated with OpenAI’s Sam Altman, Silicon Valley networker par excellence, among the biggest investors. Altman was also a former board member.

Reddit’s main source of revenue is digital advertising. It estimates a $1tn digital advertising market opportunity, meaning it currently has a sub-0.1 per cent slice of the total.

Alongside advertising, Reddit also has its eye on ecommerce and data licensing. The latter required a change in access to the company’s application programming interface causing some upset among users.

Chief executive and co-founder Steve Huffman was right to hold strong against protests. The data is valuable. Besides, Redditors may have threatened to disappear but Reddit’s wide range of topics and distinctive message board style of communication is addictive. It had 73mn daily active users in the last quarter, up from 57.5mn last year.

The change allows Reddit to charge companies that access its data to train generative artificial intelligence models. It has already announced a licensing deal with Google. Of course, at some generative AI companies much training has already been carried out.

One wonders how the board, with at least one AI luminary among them, did not spot the opportunity a little earlier.