Beyond spez (and the fact that he is a greedy little pig boy), I’m curious about the corporate dynamics that prevent a company like Reddit from being profitable. From an outside perspective, they make hundreds of millions per year via advertising, their product is a relatively simple (compared to industries that need a lot of capital to build their product), and their content is created and moderated for free by users. Could any offer some insights or educated guesses? Additionally, I’m curious how this all ties into the larger culture of Silicon Valley tech companies in the 2010s.
At a high level it just comes down to the company not being structured to generate profit – fundamentally it exists to justify moving money from investors to the owners of reddit. That has worked up until now but in the current economic climate investors are looking for a return and it’s exposing how many tech companies have been burning cash because of how easy it was to get with minimal accountability. Any feature reddit adds hasn’t actually had to increase revenue, it’s had to convince investors that it is going to increase revenue, which is why the few features they’ve added have basically been clones of features that attracted investors to other platforms (like the video streaming thing)
After nearly two decades of running the company that way it’s going to be hard to pivot to actually generating money directly to cover what I imagine are loads of unnecessary expenses and inflated salaries
Software engineer here, of the kind who works for companies similar to Reddit.
I don’t know more than anyone else about their financials, and I can surely believe that Reddit has been wasteful in a lot of ways in the past financial climates, since they didn’t have to optimize for profitability. But I can tell this firsthand: people tend to drastically under-estimate how much constant innovation is required to get past bottleneck after bottleneck just to keep the lights on, on very high-scale services.
Reddit’s scale is humongous, so I can see how it would require hundreds of employees just to keep it up and going.
This might be a stupid question, but how much waste (if any) is there typically in corporations like this? Useless HR cruft and the like.
Definitely not a stupid question, it’s a big topic, and there are people whose entire job is dedicated to removing that cruft as much as possible.
At a micro level, for instance if you only look at the people I directly know and work with, there’s actually little cruft at all. We sometimes get stupid wasteful mandates from execs, and they waste a bit of everybody’s time, but it’s rare, and typically very small amounts of time. Other than that, I can tell you what every single person is useful for, and I can’t think of a single person who isn’t pulling their weight.
But at a macro level is the hard part, and I don’t think anyone can really know. An organization can’t scale if it doesn’t get seriously decentralized. As a worker, you need to make bold decisions for yourself and the teams around you, without having to know what the hundreds of other teams are up to. That means I can’t tell you for sure that there isn’t another team far from mine (for instance, from an acquisition or something), who is doing 95% the same thing my team does, but that we don’t know about.
Execs are constantly trying to identify those possible collaborations and introduce relevant teams with each other, but even they can’t know what everybody is doing.
I worked at Apple for a while, and since it’s a very secretive company, they had a very odd way of embracing it completely, which I’ve never seen elsewhere. I worked part-time 3 months on a project, before finding out that a team under the same VP had already solved the problem years ago. I whined about how inefficient it is to my director and he basically told me that unlike other companies, at Apple it’s by design. Basically, they’d rather have duplicate efforts, in order to maintain the project secrecy for the goal of “surprising and delighting” customers, and also in order to find always new and innovative ways to solve problems if the new solution turns out to be better. (Mine definitely was not. 😂) Apple really has an unusual innovation culture in general, I liked some of it, but definitely not that part.
Thank you for such s measured response. Many developers would want to see any manager burn in hell as they tend to feel like they always know better. And while on a technical level that might be and if is true, on other levels a good manager can have a massive impact.
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We’d need to see their financials, which is tricky since they aren’t public yet. There’s also the issue, Steve lies about everything, so should we believe he’s telling the truth?
But my guesses would go like this:
Since they’ve been spending other people’s money, they probably haven’t been watching expenses closely. Their P&L is probably dominated by payroll and rent. I can’t help but feel that programmers are drastically overpaid, which is a symptom of the same issues, that there’s a lot of other people’s money chasing a finite supply of techbros.
The reason I think programmers are probably overpaid, by the way, is the number of man-hours they allegedly put in, versus the quality of their output. Reddit is a particularly shocking example of this.
In any case, the other people’s money doctrine is to grow into profitability, which means burning money on spurious shit until some magic happens. Not exactly a winning business model.
Deciding to host images and especially video really didn’t help, those are expensive.
Because prioritizing growth rather than sustainability costs a shit ton of money, money which gets borrowed from investors, which has to get paid back in folds, and then the investors also want more and can control what you do, and all they want is more money, so they reinvest over and over and over, which just perpetuates debt and further and further delays profit.
In short: late-stage capitalist greed.
Ok, commenters here don’t understand how businesses work. So, let me explain it real quick.
If a company doesn’t trade publicly, then making profit doesn’t make any sense. Companies must pay taxes from profits, so if you make any profit, you will lose money.
Small example with made up numbers (as taxes are different in different countries). Your company makes £100 in profit in year X. Corporate tax is 10%. That means that you have to give £10 to the tax man and you’re left with £90 instead of £100. You just wasted £10 for no reason.
So what do you do instead? There are multiple options to get rid of profit and turn your hard earned £100 into something useful. And usually multiple things are done throughout the year. You can pay dividends to your private investors and yourself. You can invest money back into business and buy something useful like a new coffee machine, a laptop, some patents, etc. You can pay bonuses to your workers. And there are many other things to do.
Now you might ask why do taxes work this way? It’s actually a genius solution to an old problem no one has experienced in centuries - money hoarding. Current tax system forces companies to reinvest money into economy one way or another through natural greed of their owners. Because otherwise they would just hoard money and destroy the economy.
And here’s some fun trivia: if you own a private company and you have profit - you’re dumb. Well, it’s not fun actually, you should hire a professional accountant who will help you out.
Tbh it depends. Usually it is like you say, but it depends on the goals of the owner. Steam is private for years and they make profits. Also if you have smaller business and you treat it like your business, you just want to get sallary for what you do. “Dumb” is too strong word as it depends on your position and goals
First of all, Steam being profitable doesn’t mean anything, because Steam is not a company. Company is Valve Corporation. Also please don’t confuse profit with revenue. Valve Corporation has a very high revenue, but their profit is not disclosed anywhere. I don’t live in the US, so I don’t know how to check what their tax man knows about them, but I don’t think they have much profit and pay much taxes.
Also if you actually have a small business, then you would know, that you don’t want salary or anything that incures taxes. You will buy yourself a car without VAT from company profit, you will fill it up with petrol from company profit, you will buy yourself new laptop from company profit, etc. But you’ll keep your salary as low as possible and you’ll avoid paying any taxes, including VAT. Everything that can bought through your company legally will be bought through your company and then some.
It is stupid to buy something just to avoid taxes. If it helps you grow a business - sure. But not to avoid paying taxes. As I said it depends on your goal. If you want your business to grow, have the best seed round or in general company valuation - yeah, reinvest. But if it is business that you do to make a living, it is stupid to spend everything just to not pay taxes
No, wasting money on taxes is stupid. That’s how you end up bankrupt in a few years later.
Wasting money is not a good way to avoid taxes.
