Does Reddit's chaos prove that Digg never had a chance?

By Sarah Lacy , written on July 13, 2015

From The Disruption Desk

In 2006, the story of Reddit was easy.

It was one of a burgeoning wave of user-generated content companies spearheading a comeback of the consumer Web. And it was ultimately an also-ran.

Digg and Reddit were both takes on communities discovering and curating their own front pages — or if you must— “homepages of the Internet.” And Digg was ascendant, in conversations for nine-figure acquisitions, a media darling, while Reddit sold to Conde Nast for a forgettable sum.

In 2011, the story of Reddit had turned poetic. Digg had become one of the biggest flameouts of the early Web 2.0 era. It had nearly every superstar investor— David Sze, Marc Andreessen, Reid Hoffman* among them, and as companies like Facebook separated from that early Web 2.0 pack, Digg stagnated. At a PandoMonthly in 2012, Hoffman called Digg one of the most surprising disappointments of his investing career. A company that seemed to pull defeat from the jaws of victory. Both founders — Jay Adelson and Kevin Rose— eventually would abandon ship before it was sold for an unimpressive amount and reinvented by Betaworks.

And yet in the meantime, somehow, Reddit’s community had built this property left by the Silicon Valley elites for dead and acquired by a stodgy east coast media titan that couldn’t innovate its way out of a paper bag, into one of the largest Web properties on earth.

In the consumer Web, comebacks like that just don’t happen. There’s an inertia to these things. Ask MySpace, ask Yahoo, ask … Jeeves. The only thing rarer would be a consumer Web also-ran that became more powerful years after it sold to an East Coast media titan. And yet, that was Reddit. That story arc culminated last year in a $50 million venture capital deal from a crew that included Sam Altman, Marc Andreessen, Peter Thiel, Ron Conway*, Snoop Dogg and Jared Leto, reportedly valuing the company at some $500 million.

Today, Reddit is yet another story. It’s one far uglier, messier, and fiercely debated than the simple saw of “also-ran” or “resurgent comeback king of all comeback kings.” Reddit is valuable, but no one knows how to unlock that value into revenues, profits and growth— to say nothing of an actual exit one day that makes that venture deal look like a smart buy.

Reddit has a valuable audience of some 170 million people— many so passionate that they essentially work for Reddit for free, enabling this massive venture to function with fewer than 100 employees. And yet, that audience is also a liability on the loud fringes— racist, sexist, abusive.

And that community of moderators? Well that’s a double edged sword too. As we saw in the last two weeks, they answer to no one and understand and run the site with more effectiveness than Reddit’s investors, board or management.

Reddit is, all at once, the winner of a market and the leader of an un-win-able market. Some people have called Reddit “broken,” watching its community’s appalling behavior and inept management of the last few weeks. But Reddit isn’t broken. As I argued last week, it just doesn’t fit into the neat little Silicon Valley startup box of a high-growth company that turns eyeballs into hundreds of millions of dollars of ad revenue.

And it won’t. Even the incoming CEO, co-founder Steve Huffman, told Re/Code his focus was making Reddit’s community “ten times as large” saying he had a “clear vision of how to get there.” He said making Reddit into a business was “not a huge priority, enabling Reddit to grow is.”

Smart man. That’s a promise he can keep, as opposed to outgoing interim CEO Ellen Pao, who vowed to clean up Reddit without destroying its value. The few moves she made were quickly undone once the community effectively held the site hostage.

But Huffman is only kicking the can down the road, hoping for someone else to solve that whole turning this weird, intense, passionate community into something an advertiser would want to sit next to, or have any comfort that unpaid moderators wouldn’t shut it down if they didn’t like a particular ad message.

Is it possible— I wondered watching the last three weeks unfold and reading analysis after analysis of bad advice to “save” or “fix” Reddit— that a business like this just isn’t meant to become a highly valuable Web business? And by that, I don’t just mean a business where the community has more power than the management— I argued that last week. But a business where users scour the Web for what they want to read, post it, vote it up or down but add little value beyond that. Is the essence of what Reddit is more valuable to people than it is to advertisers? After all, Reddit wasn’t a new concept. It was essentially Slashdot -- yes another site that was bigger culturally than it was as a business.

All that leads me back to a company I thought I was done writing about: Digg.

There are so many reasons Digg failed — and I’ve chronicled many of them. A CEO in Jay Adelson who lived across the country and was battered by trust issues from the bubble. A founder in Kevin Rose who was never quite willing to step up and become the CEO and make this company his life’s work. A team that never built the kind of data-driven product that they talked about in the early days. An over-reliance on being the top link in Google when it came to current events— a vulnerability exposed when Google changed its search algorithm and Digg’s traffic plummeted. And a constant struggle over how much to cave to a vocal minority of power users.

The fortunes of Digg and Reddit — long intertwined— seemed to move in opposite cycles. But all the same problems underlie both.

Is there something just flawed about this concept? So flawed that we should actually cut Adelson and Rose some slack for creating one of the ultimate disappointments of the early user-generated Web era?

If you think about other social networks, they require you to put more of yourself out there. Even if it’s not your real name-- sorry authentic self-- like on Facebook, photo sharing services like Instagram are highly personal. Even Twitter reveals a lot about your psyche 140 characters at a time. And other user-generated content sites that have succeeded, like YouTube or Yelp, require more of an act of creation than just finding something, posting it, up or down voting it and commenting.

There is obviously great content on Reddit. The Ask me Anything series is talked about the most, but there’s also a lot of BuzzFeed content that’s essentially just pilfered from Reddit, and made more valuable in the context of another site.

A bulletin board is so simple. And contributing to it is so simple. What makes these sites “valuable” in the venture sense of the word is the passion of the community and the desirable traffic they send elsewhere. And when either company has tried to unlock that value, the community has reared up. More than other user-generated content sites, these companies are the community, and these communities just don’t want to be bought and sold, expanded or sanitized.

[* Disclosure: David Sze, Marc Andreessen, Reid Hoffman, Ron Conway, Peter Thiel are investors in Pando]