The Information's TITV
00:28:31 · Saanya Ojha
[00:28:31] S4: Yeah. I mean, the quarter itself was pretty remarkable. I mean, they're hugely profitable, growing really well, 45% EBITDA margins, throwing off cash. Things are looking good. I think the market always reacts to their vision of the future and not really the quarter that was. And so that's what the 30 drop was. Very obviously, the CEO came out and said, Google has changed its relationship with the rest of the internet and we're not getting as much search traffic as we used to. Now, that's a death knell for a lot of companies. Let's hope Reddit survives it. I'm personally biased in favor. Because so much of how people find these websites is they will put in a search on Google. A Reddit link will show up and then they'll go click on it and Reddit gets a user. The user gets their answers. Google facilitated the interaction. Everyone's happy, but obviously now that we have AI overviews and AI mode, that's not how people work anymore. The interaction model for the web is fundamentally changing. And what that means is Google can still get all the information, surface it to the customers, but it's not a link anymore. It's a synthesized answer. And customers are satisfying what they need from that generated summary and never going to the underlying website. And what that means is you lose your biggest source of traffic. And Reddit CEO very quickly and very, I think easily flagged it, that not only them, but everyone else in the internet ecosystem is facing the same quandary. And I would actually argue Reddit has One of the better chances of survival because people know it as a standalone entity. But if you think about a whole world of websites that are travel blogs and recipe websites, etc, that don't have that individual identity, I think the traffic is just going to get sucked right out of their arena.
00:30:33 · Akash Pasricha
[00:30:33] S0: So if we backtrack for just a minute here, how is it that Reddit got so good at SEO in the first place? Because it felt like for many years there, when you Googled anything, its forums were the first thing to pop up. Was it the volume of content that was being generated on these forums? Was it something that the platform really mastered to really get good at Google's SEO? Why was it so great in the first place?
00:31:03 · Saanya Ojha
[00:31:03] S4: I mean, I'm sure it's a combination of the two. The platform does have immense depth. They shared that they have 27,000,000,000 posts and comments, and a billion were added actually just last quarter. So there's clearly a lot of depth and range of topics. So whenever people search something, there's high likelihood that something on Reddit is going to satisfy the question that they have. So they have the content. And then SEO has had pretty static rules for a very long time and everyone has optimized around that. I think the issue is that SEO just doesn't work now and there are a lot of people that are trying to hack together. You know how do you get the agent or the chatbot to surface your company's name? Now we have GEO that people talk about. But honestly, it seems more art than science at this point. I think everyone's trying. Some people say they have a better grasp of it than others. We kind of can see the outcome in some cases, but no one has the sure shot recipe of getting it to fall one way or the other. So, we're rediscovering the rules of what this new internet looks like. I would say even Google is rediscovering the rules. They're also hurt.
00:32:21 · Akash Pasricha
[00:32:21] S0: Well, this was kind of the irony of Reddit reporting results, I think, the day after Google. Google came out and said, Hey, our search advertising revenue is decelerating. Everyone got scared. And then Reddit comes out and says, Well, we're getting hit on the Google end of this. And so, is just doing what it needs to do presumably to try to maintain its growth. One of the other interesting parts though of the Reddit equation is that you didn't have to log in to see a lot of the content. This was a change that they now said that they're going to be making. My read on it was it's an effort to stop these chatbots or platforms from being able to access the data so freely. Do you think that this is going to work? Technically speaking, are there still ways around this for these agents and chatbots to read the data? Where is that going to go?
00:33:22 · Saanya Ojha, Akash Pasricha
[00:33:22] S4: Google, I think, has a direct licensing agreement for Reddit to train on their data. I don't think we're going to see as much of a ding to Google itself. But I think more broadly, that does is it makes users that do come to Reddit a lot more intentional about their engagement. 80% of their revenue already comes from users that are logged in and on their app. So, I think from their perspective, it really is about instead of Googling what stroller do I buy Reddit and then getting the answers through that. They want people to come directly to Reddit and that's kind of the thing that they're trying to facilitate. And maybe it is such that the licensing agreement allows the models to be trained on kind of Reddit language and content, but then because there's a login now, it doesn't surface it in AI overviews as easily. I'm not sure what the exact structure of that agreement is, But clearly, they're trying to have a direct user relationship instead of relying on Google to send the user their way, which they've been doing for years now. [00:34:33] S0: How do you think this changes the value proposition for Reddit insofar as how it pitches advertisers? How does it change product itself that they ultimately have to pitch if the news story is, Hey, these are people that are logged into our platform. I mean, on one hand, it's basically what? That these are more engaged people. You're likely to hit the same person more than once. On the other hand, the TAM of who you might reach is a little bit smaller. Is that sort of the story here?
00:35:07 · Saanya Ojha
[00:35:07] S4: Yeah. I mean, that's definitely the case. I think advertisers will care when their MAUs start going in reverse and if the ice cubes start shrinking. Then there's going to be a conversation about where do we spend our money. Honestly, I think even advertisers, it's hard to say where to go at this point because Google isn't working as effectively as it did. A lot of the underlying assets it relies on are also kind of struggling to find their footing in this new world. I think, theoretically, if they can keep their user growth and the login doesn't dissuade that, I think they're going to see a higher quality of base. From an advertiser perspective, a dedicated, engaged community where you know what you're getting is probably better than a lot of people that don't actually engage with the platform. So it can cut either way. And I think we're going to see a lot of people try to gate access and curate these communities on the web that are not as open as they used to be because they used to give away content in the hope of traffic and now they're not getting traffic. So there's no reason to give away content. The economic bargain completely shifts.