Reddit (NYSE: RDDT) starts tightrope walk between pleasing investors and ‘enshittification’

Reddit (NYSE: RDDT), the popular social platform that modernized the old-school internet forum, saw its shares surge this week following its first quarterly earnings report as a public company. Shareholders were pleased with user growth and expanding advertising, but the company faces a delicate balancing act as efforts to increase revenue could lead to a well-documented decline in user experience that’s been recently dubbed “enshittification.”

The term, which was named as the 2023 word of the year by the American Dialect Society, became popular after it was used by author and digital rights activist Cory Doctorow to explain how social networks and technology platforms become worse over time by following a common pattern to increase the monetization that shareholders demand. “Here is how platforms die,” he wrote. “First, they are good to their users; then they abuse their users to make things better for their business customers.” It’s a progression that Doctorow argues happened at Meta (NASDAQ: META), Google (NASDAQ: GOOGL) and Amazon (NASDAQ: AMZN). As any Facebook user knows, the platform has become insufferable, but network effects can make it incredibly hard to leave. 

It’s now Reddit’s turn to try. After going public in a highly anticipated IPO earlier this year, its shares have surged, marking it as one of the more successful recent offerings. The company noted strong growth in its first quarterly report, with daily active users rising 37% and advertising revenue increasing 39%. CEO Steve Huffman said that was just the beginning of a new chapter for the platform that will include efforts to expand its user base by offering machine translation to help break language barriers. In a letter to shareholders, however, there were subtle signs that could make some longtime Reddit users worry that things might be about to get, well, shitty.

Highlighting its position as one of the “few uniquely human places on the internet” when online content is increasingly generated by AI and influencers, Reddit said it’s now exploring deals to license that “human-generated and authentic data” to tech companies that could use it to train the models at the heart of generative AI products like ChatGPT. The Orwellian twist is that those conversations are going to be increasingly moderated by the machine. 

“Anyone who has used Reddit has encountered rough edges that we aim to smooth,” Huffman said in the letter to shareholders which noted the use of AI to assist in content moderation. It’s not hard to imagine a truly dystopian feedback loop where AI-moderated humans feverishly write about their favorite topics so that the data can be then sold to train the next generation of large language models, which will in turn be able to improve their moderation of the humans.

To be fair, moderation is nothing new on Reddit, and communities have been free to enforce their own rules. What’s changing are the financial incentives pushing the introduction of new tools that can be implemented systematically across the entire platform. The company is also moving to increase engagement by helping users find communities “they will love,” a key move in the “enshittification” playbook that Doctorow says was used by Facebook to “cram your feed full of posts from accounts you didn’t follow.”

A Reddit with fewer edges may be what advertisers are asking for, but the users who made the platform popular — many known for their dark senses of humor — can always decide to move on. The coming “enshittification” may be good for share prices, at least in the short- to mid-term, but the company will have to walk a tightrope to see just how far its avid users are willing to go. It’s a precarious line that will not only test its own community’s loyalty but also serve as the latest bellwether for how social platforms can balance growth with user satisfaction.

“An enshittification strategy only succeeds if it is pursued in measured amounts,” Doctorow warned. “Even the most locked-in user eventually reaches a breaking-point and walks away, or gets pushed.”