Reddit, from underdog to Wall Street bogeyman
Bernardo Montes de Oca
March 16, 2021
  |  

Reddit, from underdog to Wall Street bogeyman

Bernardo Montes de Oca
March 16, 2021
  |  
Company Forensics - Learn from the mistakes of VC-funded startups | Product Hunt

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Once again, Reddit is all over the news, this time enraging the fat cats at Wall Street. It's no stranger to controversy and has been so for years. But there's much more to Reddit than heated debates. Its history is filled with human struggles, clashing realities, and revivals. It's a tale that deserves many subreddits of its own. So, for the moment, we'll compress all of its fascinating history in this video.

This is Company Forensics: Reddit. 

A frustrating origin

Reddit's story begins in 2005, with Alexis Ohanian and Steve Huffman. They're young and illusions and are sitting in front of none other than Paul Graham, the Y-Combinator founder. But, this time, it's different. You see, the program was just starting, and Graham was looking for people to be a part of the first Y-combinator generation.

The two friends had traveled from Virginia to Massachusetts to hear him speak on creating startups. Mashable reports that after the event ended, both approached Graham and told him that they had, in fact, come all the way from Virginia on a student budget. Impressed, Graham sat down with them to hear their ideas. 

Their proposal was ahead of the time: a mobile food ordering app. With SMS, in 2005! And, at first, Graham was interested. So much so, he invited them to pitch the idea at the Y-Combinator. The hype, however, would fade quickly. After a couple of meetings, Graham rejected the idea.

But he believed in them. They were talented, and he, instead, suggested they build something like the front page of the web.  

A great, complicated idea

The first idea was a bulletin board of sorts: a site where users posted images, videos, text, and links to other websites. The most interesting posts eventually climbed up and appeared on the front page. 

Looking back at the idea, it's genius in its simplicity. With this second attempt, Ohanian and Huffman were now part of the Y-Combinator program's first class. This first generation had some pretty impressive members, including future Twitch founders Emmett Shear and Justin Kan and a dark-hair programmer, one of the youngest, who hated pictures and rarely smiled. His name was Aaron Swartz. 

Ohanian and Huffman focused on two competitors, the tech news site Slashdot and a bookmarking site called Del-icio.us. The main issue with these sites, they thought, was that reading news was frustrating and labor-intensive. Their goal was to make the world suck less, Ohanian said, by changing how we read the news. 

But, how would they change that? Well, they wouldn't; the community would, by highlighting the most shared content. Any post that thrived did so because users wanted to, which would be one of Reddit's core values.

Speaking of Reddit, we haven't mentioned the name because they didn't have one. After several ideas, such as Newstew or Snoo, Huffman came up with Reddit as a play on words. The idea was for people to say: I read it on Reddit

They had an idea and a name, but the site was nowhere near complete when Paul Graham pressured them to launch. This urgency angered Huffman, but he reluctantly agreed to release a bare-bones version in 2005. Ohanian himself calls this first version shitty and, it didn't get easier after that. There were three posts, and there was friction since the first post. 

Ohanian posted the first-ever reddit, a link to a site that spoke about the Downing Street memo, a secret meeting between British Officials regarding the war on Iraq. Huffman didn't like this post and downvoted it immediately. Fun fact: the first reddit is still there, but the link is now broken, as is with most of Reddit's history. 

Then Graham shared a link to his personal blog on Reddit, which did cause a spike in traffic, but mostly benefited Graham's site, and both Huffman and Ohanian weren't happy. Nor was the rest of the world; Slashdot, a competitor, had a flurry of messages hating on Reddit, but, hey, at least they were talking about it. 

But the two founders worked hard to get content into the site, taking on fake accounts and scraping the web for news. They even asked friends to post whatever they wanted. Day and night, they lived for Reddit. 

Then, one day in mid-August 2005, new content appeared. It was the turning point. But the road ahead would be hard. 

Rollercoaster times

Though competition, like Digg and Del.icio.us, rose in popularity, Reddit had started to carve its own niche. With growth and more users, Huffman and Ohanian needed more talent, so they called in another Y-Combinator participant, Chris Slowe. 

He joined them, and the three moved into a cramped apartment, where they worked 24-7 on Reddit. Slowe learned how to deal with crashes, and between the three, a very unhealthy diet and almost no sleep, they managed to survive. And Reddit kept growing. 

So, luck. A Y-Combinator product called Infogami failed to gain traction, so mentors suggested that the company merge with Reddit. Into the equation came Aaron Swartz in February 2006. 

Swartz was determined and skilled. He had his own vision of the future, but he was also stubborn, competitive, and, some sources say, frustrated with how Infogami performed when compared to Reddit. Which wasn't exactly kicking ass. Yes, it was popular and rising, but nowhere near the competition. 

Internally, things weren't going well. Ohanian faced very tough family situations which demanded his attention and time. Then, Swartz began displaying erratic behavior. He wouldn't leave his room for days and frequently blogged about his professional frustrations. 

With such an onslaught of negativity and Reddit underperforming, Graham, Ohanian, and Huffman agreed that it was time to sell, and Condé Nast, the publishing giant, was interested. After lengthy negotiations, Reddit was now sold for under $20 million. Slowe, Ohanian, Huffman, and Swartz would now work for Condé Nast. But, hey, they were millionaires. 

The four attended a mellow Halloween party and drank some cocktails to celebrate. Then, Ohanian upgraded his father's Redskins' season tickets to a better seat, which I bet he regrets now. But, besides that, nothing extraordinary happened. 

According to theory, they had done everything: have an idea, make it work, then sell it for millions. But, looking back, there's a hint of frustration in Huffman's words when he spoke to Mashable. 

"When we sold, I was very, very happy. I wanted to be a millionaire. I wish I knew what I know now. It was just starting to click. It still felt very dysfunctional. It's frustrating that we never quite made it."

And, we'll see why. But, at that time, the purchase seemed to make sense. Ohanian and Huffman enjoyed working at Condé Nast. But not Aaron Swartz. His attitude became increasingly aggressive, and he blogged about his frustration with its inefficient culture

After constant run-ins with management, Condé Nast had enough of Swartz and fired him in 2006. Sadly, in 2013, Swartz committed suicide after he was found guilty of illegally downloading millions of articles from the JSTOR database. His untimely death is, to this day, a source of discussion regarding the disproportionality of his prosecution. 

Many users, little cash

At first, Reddit was a safe haven for programming and, ahem, NSFW content. Let's leave it at that. But other topics became popular, such as politics, culture, and entertainment, to the point in which there was something for everybody. 

With a chaotic 2008, a new president, and a financial crisis, users flocked to Reddit and sunk themselves in fiery discussions. It was a sign to improve the platform and, that same year, the site allowed users to create their own subreddits. 

This feature seems obvious now, but at the time, it set Reddit apart from the competition. Traffic boomed, but it didn't translate to economic growth. Plus, Condé Nast was struggling with massive layoffs and frozen hiring. Because Reddit was so small, there was little investment, and, unable to hire, the staff couldn't bring in new talent. 

Facing a frustrating environment and with the honeymoon between them and Condé Nast over, both Ohanian and Huffman left Reddit in late 2009

With the cofounders gone, a new era began, and not necessarily a good one. Yes, there some luck on Reddit's side when Digg, their competitor, shot itself in the foot in 2010 by changing their platform to better suit advertising instead of users. 

Angered Digg users flooded the platform with posts supporting Reddit, and many fled to become Redditors. Traffic grew steadily, but, once again, revenue was idle. Add to this the lack of leadership, and Reddit was a ship with no heading. 

Then, a depressed Reddit developer, Mike Schiraldi, blogged about his frustration. Everybody was blogging back then. In that post, he hinted about Reddit Gold, a premium service, and users were so enthralled by the idea that they were willing to pay for it. There was a catch: Reddit Gold didn't even exist, and he hadn't even run the idea by Condé Nast. 

It didn't matter! Based on his promise for Reddit Gold, users backed him up in exchange for eventually creating those features. Once Reddit Gold was live, traffic went over a billion views in January of that year. This increase helped Reddit convince potential advertisers to dish out cash, something it had never been able to do. 

Why? Kourosh Karimkhany, the executive who led the Reddit purchase, explains it clearly:

"There aren't very many advertisers who want their ads to be seen by atheist, libertarian, porn-loving Ron Paul fans. It sucked. It was a difficult sell. But it got us in the door."

Yet, getting to the door wasn't enough. Reddit was just getting by after years of trying. So, in September 2011, Condé Nast made Reddit independent, allowing them to choose a CEO, hire staff and, basically, fend for themselves when it came to profits

So, Yishan Wong became CEO, in March 2012. With experience in PayPal and Facebook, Wong showed promise, and the newfound independence seemed to be working. By August 2012, even president Barack Obama made a surprise appearance in the Ask Me Anything section: so many people logged in to participate, most of Reddit crashed. 

Yes, there was practically no money. Reddit had somewhat achieved its goal: to be the web's front page. But, there's one thing we haven't talked about. 

Controversy: engraved in Reddit's DNA?

Let's think about what makes Reddit an ideal place for debate: anonymous avatars, millions of topics, and endless subreddits make it very difficult to track down and censor all discussions. So, it's a boiling pot for controversy. 

In fact, we could dedicate an entire episode just to how controversial Reddit has been, from leaked nudes to extremist groups. So, let's summarize it. 

Take the leaked nudes, for example. In 2014, after the massive celebrity hack, many users shared pictures of underage celebrities throughout many subreddits. Though eventually, they managed to take it all down, moderators had a tough time tracking down all the posts related to this. 

Then, with the Boston Marathon Bombing, digital lynching occurred. Reddit users began identifying possible suspects of the attack, with the caveat that those accused weren't the ones responsible. They even accused someone who was missing and eventually found dead

The list goes on: there's explicit violence against women, racism, antisemitism, and, of course, one of the most controversial sections is politics. Far-left, far-right, and Trump supporters, Reddit has actively tried to ban all of these groups, to eliminate as much bad journalism as possible. But these actions always draw heavy criticism and backlash from promoters of free speech. 

Still, this criticism didn't deter investors as the company landed $50 million in funding and a $500 million valuation. And this money injection had a twist as Reddit aimed to share 10% of the financing amongst community members. 

But, as much as money was coming in, there were internal struggles. There were massive arguments regarding community management and delicate topics like child pornography and the use of unauthorized information. And the company would do very little to help itself. 

Internal chaos

As controversies arose and the media turned its attention to Reddit, Yishan Wong spoke to moderators and administrators and told them that "we stand for free speech…we are not going to ban distasteful reddits". He did say that Reddit would take down all illegal content, which he did, like eliminating underage porn subreddits. But, for the moment, the rest of the subreddits would remain

But his controversial tenure would be short. He not only struggled with the media but frequently fought with the Board of Directors. The strain was so much; he quit in 2014. In came Ellen Pao, and hopes were high because, at the same time, Alexis Ohanian returned. And from the start, he made it clear, a lot was riding on Pao and that she would right the ship. Yeah, about that.  

Let's not take away credit: Pao made a lot of changes. She made an effort to monitor harassment and illegal content, launched new policies, banned nudity, and purged the site of hate speech. But then she fired Victoria Taylor, a community favorite, and the backlash was immediate.

After the firing, moderators shut down more than 250 subreddits in protest. Just seven months after coming, Pao resigned after no less than 160 000 people demanded she quit as "Reddit entered into a new age of censorship" under her guidance. Talk about making friends. 

But, who was her replacement? Well, would you look at that? Steve Huffman. With Huffman and Ohanian on board, Reddit took leaps forward to the platform. Huffman launched apps, improved the mobile website, and spearheaded a major aesthetic redesign. 

The new platform featured the ability to hide posts and comments, and private messages now existed. Again, there were new guidelines but, this time, they gave moderators more control, after years of abandonment. And Reddit saw a turnaround. In 2017, they secured $200 million in funding and a $1.8 billion valuation. And, by then, it was the fourth most popular site in America, with staff growing to the hundreds.

So, it seems, this overhaul image came at just the right time. With the world more and more chaotic each day, Reddit consolidated itself as a favorite place for debate, and more.  

The latest happenings

In 2020, in the wake of the George Floyd murder, Alexis Ohanian resigned from the Board in protest. He requested that a Black candidate fill his job. Yet again, the company revised its policies (which it has done every year since 2017) to try and control hate speech. 

Huffman took to Reddit to explain that, basically, they were trying to make up for the lack of moderation during their absence from 2010 to 2015. 

In 2021, the New York Times reported that Reddit banned the subreddit r/DonaldTrump after many of its members glorified and incited the violence in the Storming of the Capitol. The subreddit had over 52 000 members at the moment of the ban. 

But, even after that, the controversies didn't end. The latest news about Reddit revolves around the GameStop squeeze. Watch our video on it for more details

For the sake of this video, all we can say is that a Reddit page called Wall Street Bets banded together against two hedge funds that were betting that Gamestop's shares would fall

The effects were impressive, to say the least. In a matter of days, Gamestop's closing share prices went from $19.94 per share to $325. This spurred Robinhood (also, check out our video on them) to halt purchases, with other brokerage firms following suit. In turn, these actions angered Reddit users who united in claiming class action suits. 

Media like Business Insider considered the attempt as a failure. Still, they’ve also highlighted that such uprisings against the system indicate how lopsided Wall Street against small investors.

Reddit has been on the news every day since. Celebrity business figures like Kevin O’Leary, from Shark Tank, even joined the social platform to “ride with the herd”, and, you know that they say: there’s no such thing as bad press.

Huffman himself even testified before Congress and defended Reddit's role in the GameStop surge. He said that financial advice within Reddit is probably better than traditional media because it is vetted by a community. What do you think, is he right? 

And this power, this ability to drive social movements, big or small, is what led many to believe in Reddit once more. In February 2021, the company secured another funding round, $250 million, with a $6 billion valuation. That's how we get here. Think about it, Huffman isn't far from the truth. Yes, Reddit is controversial and has seen its fair share of illegal content. 

Also, now more than ever, Reddit's tale brings, once again, the discussion of free speech and social media. It's a discussion that's far from over, but one thing is clear: if people want to, they can change the world or scare rich guys at the stock market. And, sometimes, they’ve read it on Reddit.