Reddit insists on being “fairly paid” amid API price protest plans, layoffs

As thousands of subreddits prepare to go dark in five days to protest Reddit's jacked-up API fees, Reddit claims it's only asking for what's fair. At the same time, the company is reportedly enacting layoffs and slowing hiring.

Reddit used to provide free access to its API, enabling various developers to build and create apps aimed at improving the Reddit experience. But similar to Twitter, Reddit last month announced that it would start charging apps to access its API.

From a financial perspective, it's sensible for Reddit to try to make money off third-party apps, considering how popular they are and that most don't show Reddit's ads, which is how Reddit makes most of its revenue. In fact, a 2019 CNBC report found that Reddit makes less average revenue per user than Twitter, Facebook, Pinterest, or Snap.

However, there has been widespread debate about how much Reddit will charge and claims that exorbitant fees are trying to exterminate third-party Reddit apps altogether.

The discourse hit a boiling point when Christian Selig, a developer for Apollo, the most popular Reddit app, said, "Apollo would have to pay Reddit $20 million per year to keep running as-is." Selig said Reddit is charging $12,000 for 50 million requests, compared to $166 for Imgur. Twitter charges $42,000 for 50 million tweets, but considering Twitter has virtually killed off third-party apps entirely, that doesn't bode well for Reddit app developers.

In a statement to Bloomberg on Tuesday, however, Reddit spokesperson Tim Rathschmidt sought to "clear up confusion," as Bloomberg put it, and said Reddit spends millions on hosting and is only seeking fair payment for API access.

"Reddit needs to be fairly paid to continue supporting high-usage third-party apps. Our pricing is based on usage levels that we measure to be comparable to our own costs," Rathschmidt said in a statement to Bloomberg.

However, Apollo's Selig has previously questioned Reddit's math, saying last week that Apollo's "average user uses 344 requests daily" and that with the price increase, "the average user in Apollo would cost $2.50, which [is] 20x higher than a generous estimate of what each user brings Reddit in revenue."

Last week, a Reddit employee in the r/Redditdev community claimed Apollo's high-cost expectations were tied to inefficiencies but didn't specify what those were when Selig asked for clarification.

"Our pricing is $0.24 per 1,000 API calls, which equates to <$1.00 per user monthly for a reasonably operated app," the Reddit worker said.

"However, not all apps operate this way today. For example, Apollo requires ~345 requests per user per day, while with a similar number of users and more comment and vote activity per user, the Reddit is Fun app averages ~100 calls per user per day. Apollo as an app is less efficient than its peers and at times has been excessive—probably because it has been free to be so."

However, a dev for Reddit is Fun expects costs "in the same ballpark" as Apollo's estimates. And some apps are already preparing to shut down.

"I don't see how this pricing is anything based in reality or remotely reasonable," Apollo's Selig said last week.

A post on the /r/Save3rdPartyApps subreddit has requested a decrease in Reddit API pricing "by a factor of 15 to 20."

Another argument comes from how essential many users, including some of Reddit's moderators, consider third-party apps to navigate Reddit. Despite their widespread use, many developers of these apps feel like Reddit is trying to kill them off, which Reddit has denied. Some have pointed to Reddit removing access to NSFW content for third-party apps after Reddit recently added support for NSFW desktop image uploads as further evidence.

But Reddit is trying to break even next year, according to an email to employees from Reddit CEO Steve Huffman and reportedly viewed by The Wall Street Journal on Tuesday. Killing third-party apps and forcing users to Reddit's native apps, where they'll see ads, or making money off app developers seem to be ways for Reddit to attempt to make ends meet.

Another way is layoffs. The Wall Street Journal reported that Reddit is laying off "around 5 percent" of its workforce or "roughly 90 employees."

The company also reportedly cut the number of hires it planned for the remainder of the year from 300 to 100.

Reddit filed for an initial public offering near the end of 2021, but nothing has been finalized amid an uncertain economy.

With over 2,000 subreddits, including some with tens of millions of subscribers, planning to participate in a blackout on June 12, we'll see how Reddit moves forward with the third-party app community it claims it isn't trying to kill.