How Reddit elicits content for nothing and clicks for free

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

The internet economy is all about free labour. Facebook, Snap, Pinterest and peers lay on forums, games and videos at no cost. In return, billions of users contribute posts, likes, photos and social connections — which tech groups then use to sell advertising. Presto: free stuff is spun into gold.

Reddit might be the hottest riff on that theme. The thematic message board company co-founded by Steve Huffman is one of the best-performing initial public offerings of 2024. Its shares have quadrupled since it went public in March. Reddit is nearly 20 years old, but the excitement is new: since it said in October that had turned a profit, driven by a pick-up in advertising activity, the shares are up by two-thirds.

More than most internet groups, Reddit’s secret ingredient is people who work for love rather than money. Its feisty “subreddits”, or niche communities, are established and curated by unpaid content moderators — or mods — who encourage contributions, and make sure participants stick to the rules. They might not see this as labour but from an investor’s perspective that is what it is.

The value created by this effort is escalating sharply. Reddit’s revenue increased 68 per cent in the third quarter, year on year, and it made the equivalent of 4 cents per user per day. Facebook owner Meta Platforms makes 13 cents per user per day, suggesting Reddit has more growth to come. The company is testing ads that appear among users’ comments, and artificial intelligence-powered translation to open up new markets.

Keeping tens of thousands of unpaid mods happy is not really free. Reddit furnishes them with editing tools and technologies, which cost money to build. And the relationship has not always run smoothly. Many mods went on strike last year, a few months before the company’s IPO. As ads proliferate, and investors get richer, the balancing act may get tougher.

Meanwhile, Reddit also leans on largesse of another kind: traffic from Google. More than half of its visitors are what it calls “logged out”, which generally means they come from search engines. If Google were to decide that Reddit threatened rather than adorned its search service and reduced its prominence, that steady stream could be curtailed.

That is all the more reason for Huffman to preserve the integrity of his greatest asset — those loyal mods, and their followers. Preserving that harmony might temper the growth of Reddit’s top line over time — and jeopardise the company’s elevated valuation of 13 times forecast revenue. Still, some premium seems warranted: few internet stocks have proved so adept at making a labour of love pay off.

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