With a huge 2012, Reddit may be the ultimate Web 2.0 underdog victory

By Sarah Lacy , written on December 31, 2012

From The News Desk

As someone who has covered startups all over the world for the last 15 years, I've seen a lot of patterns repeat. But the very reason I write about entrepreneurship is the promise of seeing something new, something I've never seen before.

Things like that rare founder who can build three companies worth more than $1 billion each. (So far, just Jim Clark and Elon Musk.) Or that rare founder who can mostly manage to run two companies successfully. (So far, just Steve Jobs and, again, Elon Musk.) Or that rare founder who can stay dominant and in charge through decades of technology shifts. (I'd put Jeff Bezos and Larry Ellison tops here.)

Just as rare are acquisitions that actually provide synergies and don't kill what was great about the original company. (I'd put Zappos selling to Amazon here, along with surprisingly YouTube and Google and a few others.) The dying, moribund, embarrassing public tech company that actually pulls off a turn around and winds up back on top. (Anyone other than Apple here?)

But I'm hard pressed to think of another company that has had quite the story line of Reddit. The company announced today that it had a whopping 37 billion page views, 400 million uniques in 2012, not to mention some big pop culture highlights like an AMA with President Barack Obama. Reddit has had successes and scandals this year, but it has had such a pulse on the zeitgeist of the Web generation that Farhad Manjoo has argued a lot of BuzzFeed's monster success is just repackaging what it finds there.

Back in the early Web 2.0 days, most people assumed competitor Digg -- not Reddit -- would be the company that would refashion a new front page for the Internet. I was definitely in this camp, as were most tech bloggers and Valley insiders.

And, indeed, we weren't really wrong at the time. Digg turned down higher acquisition offers than Reddit accepted when it sold to CondeNast in 2006. Even Digg's venture capital valuations were far higher. Back at the time of its sale, Michael Arrington noted Reddit had always been "second fiddle" to Digg, despite its Y Combinator cred.

Add to this pile on, that Reddit was from Boston -- a place that hasn't competed well with the Valley throughout the Web 2.0 era. Meanwhile Digg had some of the best VCs in the Valley behind it. Even Reid Hoffman said that the decline of Digg was the biggest stunner out of his angel portfolio at our August PandoMonthly, because it had started life so strong.

And add to all that, the fact that Reddit was sold early and spun out later on, while Conde Nast retained control. This after trying and failing to get an outside bidder around the $200 million valuation range. Typically that's a recipe for a half-assed relaunch that yields nothing.

Let's look at the fates of other promising early Web 2.0 companies that sold early on: Flickr, Delicious, StumbleUpon. How well did they fare? Not so well, even without a bigger direct competitor. StumbleUpon and Delicious were spun back out as well, but have so far failed to come close to their original promise. Meanwhile, Flickr has has a much-belated refresh and now has filters. It had a moment in the sun when everyone hated Instagram a few weeks ago, but I still haven't gone back because frankly, who the hell knows what my Yahoo ID or password even is? It's been years since I actually needed it.

Contrast the surge of Reddit in 2012 with Digg's sad $500,000 sale to Betaworks this year. At the time, the vast majority of its own users said they wouldn't recommend Digg to a friend. Ow.

I've written a ton already about what I believe went wrong with Digg already -- much of it echoing the challenges I said the company faced in my book on Web 2.0, published back in 2008. It's regrettable to see founder Kevin Rose spending his time blaming the press and others for Digg's decline, instead of owning up to his own execution gaffes.

Meanwhile, Betaworks believes it is righting the ship, and a lot of the tech press agrees. But looking at the track record for Web comebacks, it's hard to be too optimistic. Particularly because Reddit seems to have already stolen that surprising narrative first.

Reddit may never be a big exit or a $1 billion company. And by its very nature it will always showcase some of the worst of the Web-- I mean truly, truly gross sub-Reddits-- along with the best. But its impact this year was indisputable. It just goes to show a strong start doesn't equal a strong finish, and that sometimes the entire startup world and all common startup logic can bet against you and you can still win.

For more, here's an explainer music video we did about Reddit's crazy 2012 a few months ago.