The Exchange joked earlier this week that Christmas had come early thanks to a particular SPAC deck providing us with some good fun. Ha. Little did we know what was coming.
Social hub Reddit filed to go public, TechCrunch reports. You know what that means: It’s time to ask questions.
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Often The Exchange digs into topics and companies that we cannot claim seniority in. Not that we mind, but it’s worth admitting. When it comes to Reddit, however, we have bona fides. I’ve had my account since June 2008, and have been a casual user even longer, so we have the standing to put a few questions into the conversation.
TechCrunch has tracked the company since time immemorial. Most recently, Reddit raised a huge venture round at a roughly $10 billion valuation. That means that its IPO is not merely the exit of one of tech’s best-known companies — it’s also a decacorn debut to help kick off 2022. Consider us excited.
Here’s what we’ll explore when we get our hands on its S-1: We’re curious about content moderation costs, product expansion, the company’s revenue mix, how frequently governments come up in the filing, and what the unicorn has to say about crypto.
Content moderation costs?
A key element of the Reddit platform is independently-run communities that self-police. If you want to better understand what that means, post a Nickelback video in the ProgMetal subreddit. You’ll learn quickly!
But Reddit proper must have a material content moderation budget to keep scum and illegal content, as well as government and corporate astroturfing, off its platform. Such efforts will require both software and human inputs, so we presume that this particular cost will prove significant.
Precisely how expensive is a question, as well as how the costs are accounted for. Is content moderation a cost of revenue or an operating expense? I can see that both ways, so how the company does the math will prove fascinating. We’ve seen social networks generally have attractive gross margins. But Reddit might look different!
Product expansion?
I use Reddit to keep tabs on my sobriety day count — shoutout /r/stopdrinking — and a number of musical sub-genres. It’s great for such things.
But Reddit has been doing other things that have caught my eye. There’s a livestreaming thing that always seems to feature someone playing guitar. That’s new to me. And the company has rolled out a number of monetization techniques, including different types of coin (fungible tokens, if you must), and more.
After watching Twitter manage to expand its product mix without overly diluting its core experience, it will be more than interesting to see how Reddit discusses its product work and how new features are boosting — or not — usage patterns.
Revenue mix?
Given that the internet is moving more toward direct monetization over advertising, how Reddit’s revenue mix winds up looking is a huge question mark for The Exchange.
Is it majority advertising? Are user-driven dollars on the rise as a percentage of revenue? And which portion of the top line has better gross margins? Does the company have material recurring incomes? I frankly have no idea, so the S-1 is going to be a goldmine of information for us to parse.
Government oversight?
Twitter has been at odds with India, Nigeria and other countries around the world. Governments, content to slip toward autocracy, are turning to social networks as tools to limit dissent. Call them baby Chinas.
The Exchange is curious about how often government censure, warning or data demands make appearances in the company’s IPO filing.
Every major social network has to deal with government requests. But given Reddit’s freewheeling and often political content, it could have more footprint with governing agencies than we might anticipate. How the company talks about its current situation, and the potential impact of governments on its business moving forward, will be super interesting.
Crypto?
Reddit has long hosted important cryptocurrency subreddits. What an ass I am has been the topic of whole threads on a bitcoin forum.
But that’s not what I care about in this case. Reddit, I would posit, is one of the few companies out there for whom a token would actually make pretty good sense. Its karma system is already a form of digital asset, so why not turn it into something more, and something that is tradeable?
Naturally, there are risks to the idea. If Reddit karma became valuable in monetary terms, karma-farming would suddenly be lucrative in a new way. That could distort incentives and engender more inauthentic behavior, as Facebook loves to put it. Still, Reddit Gold is something that just screams put me on the blockchain.
Let’s see if Reddit agrees.
We need this S-1 now. Reddit, please.
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