Why Reddit will be fine, and Twitch won't
On the defensibility of social products
This year we’ve learned that social products being nice to their users was a zero interest rate phenomenon.
Within the last month, two major social products — Reddit and Twitch — have been brought almost to their knees by their own users. We’ve seen other recent examples of social platforms exerting leverage over their users (I’ve previously written about Twitter and Instagram’s Verified changes here), and this trend has not slowed down.
Today we’re going to dig into what’s happened on both platforms, what it tells us about relationships between social products and their users, and how each case is different.
The short answer is that in my view Reddit will be fine, and Twitch won’t.
First let’s cover what happened in each case. Reddit and Twitch attract slightly different breeds of basement-dweller, so most people aren’t fully up to speed on both. So for those of you who don’t know your Speed from Spez, or Amouranth from AMA, some context might be helpful.
Reddit goes dark: an unavailing protest
Reddit is wide. It contains multitudes. It’s the internet’s newspaper, comic strip, dirty magazine, encyclopaedia and bar brawl, all at the same time. Oh yeah, and its addicted users absolutely hate it and always have.
Managing Reddit, therefore, is hard. The only thing they get criticised for more than them changing nothing, is changing literally anything.
This year, community tensions have turned into all-out attempted revolution. For a full run-down of what happened and how they botched the communications, see here for where Reddit messed up, and here for the AMA by CEO u/spez. For a quick, simplified version, here’s a timeline:
April 18th: Reddit announce upcoming changes to their API, with a vague post about their plans to limit API access, while keeping it “open for appropriate use cases”. Nobody knows what this means, but people start to suspect that third-party clients will be impacted. This decision was presented as a response to generative AI companies scraping its users’ valuable data.
What are third-party clients? Reddit app viewers, like Apollo, which provide an alternate user experience for Reddit (and can currently monetise through subscriptions and ads).
How are generative AI companies using Reddit? Reddit is one of the richest banks of knowledge, English language and Q&A on the internet. OpenAI and other LLM creators can train their models on its data via API, which to date has been free and open.
May 31st: Reddit puts out a new announcement, fleshing out their original statement. Starting July 1, free API use will be dramatically scaled back, with rate limit changes from 60 requests per minute per user, to 100 requests per minute per application. Pricing will be 24 cents per 1,000 API calls. Tools that are non-commercial, academic, or assist mods “will not be affected”.
This change will effectively kill all third-party clients, because they monetise at nowhere near the rate that their API calls will cost. It will also monetise AI scrapers.
Redditors aren’t happy. Many (including some with disabilities) rely on third-party clients to use Reddit on mobile. And nobody trusts Reddit that mod tools won’t be affected.
June 12th: In protest, many subreddits “went dark” (the mods turn the subreddits private, so they cannot be properly used). This takes out 65% of the top 1000 subreddits. This protest was supposed to last 48 hours, but some subreddits commit to staying dark until the changes are reversed (data here). But then Reddit admins started reaching out to them, telling them to reopen “or else” (eg r/gaming), with many reversing their blackouts already.
You made it so far? Basically, Reddit wanted to stop others from using its API for free (to monetise AI scrapers, monitor commercial activity, and, realistically, to block third-party clients). The community briefly protested, but this has been short-lived.
Hard as it may be for the internet-counter-culture nihilists out there, Reddit is going to win. We’ll explain why below. But first: Twitch.
Twitch loses streamers: for real this time
Twitch is a different kettle of fish.
In September, Twitch announced a chance from their streamers’ take of subscriptions from 70% to 50%. This was justified by now-CEO Dan Clancy is an unintentionally hilarious September 2022 blog post which argued that the reduction of streamers’ revenue from 70% to 50% signals that “we’re in this together”.
Since then, Twitch has offered a few select streamers 70% of revenue for their first $100k, and a few cosmetic changes here and there, but basically streamers are pissed. Add to that, overall Twitch viewership has been slowly eroded to YouTube and other competitors, and frankly the market has not grown since its lockdown peaks. Emmett Shear, Twitch’s legendary CEO, stepped down earlier this year, and the company has laid off 400 employees.
These take rate changes, and the recent rise of chaotic competitor Kick, funded by an offshore gambling site (gambling content is banned on Twitch and YouTube), where streamers are promised a 95/5(!) split, has led to a mass exodus of Twitch streamers. Last week, one of the world’s biggest streamers xQc signed a “$70m” deal (don’t read too much into the headline number, much of it is likely in equity) with Kick to stream there non-exclusively. Ironically, Kick is itself built on Twitch’s own software co-developed with AWS: IVS.
Holy shit…don’t worry though, twitch is offering other top streamers a free ice cream cone once a month to keep them exclusive on their platform
— Charlie (@MoistCr1TiKaL)
Jun 16, 2023
So what does this mean? How bad is this for Twitch? Is it better or worse off than Reddit? I have a clear view: Twitch is in trouble. Reddit isn’t.
Why Reddit will be fine, and Twitch won’t
Reddit is dramatically more defensible than Twitch. There are structural reasons for this.
First, Twitch is a two-sided platform, Reddit is three-sided.
On Twitch, streamers create content and viewers consume it. Everyone is in darkly-lit rooms and most of them spend too much time indoors. Simple! (There are also mods, but they aren’t that important.)
On Reddit, it’s more complex. There are three separate interest groups: (i) mods, (ii) posters, (iii) and viewers. Each “side” has different motivations.
This means that if a Twitch streamer seeks to move (perhaps to make more money elsewhere), they only have to persuade their viewers to move with them. Subreddits, on the other hand, have to persuade other mods, the posters, and the viewers to do so. Mods don’t want to give up the glory of their power over the posters, posters don’t want to lose the order of the mods, and viewers don’t want to lose the entertainment of the posters. Moving platforms is a complex co-ordination problem for redditors. Good luck.
Second, cross-pollination is more important on Reddit.
On Twitch, most users spend a large chunk of their session watching one creator. Although cross-stream raids and collaboration between streamers exist, the main use-case is to watch one streamer or event. On Reddit, flitting between subreddits is a core part of the user experience. One subreddit trying to survive alone would be starved of users; whereas one Twitch streamer can easily build community alone. Another collective action problem for redditors.
Third, Twitch’s top-of-funnel are other socials. Reddit’s is… Reddit (and Google).
In 2023, most Twitch viewers discover creators via short-form clips, which attracts them to the creator. People discover subreddits… on Reddit (or otherwise, Google). Twitch streamers can easily signal to the users who discover them where they can be found. By leaving Reddit, subreddits lose a big chunk of their top-of-funnel.
So what do all these structural differences mean?
Twitch is an easier platform to clone. It has significantly lower switching costs, and a shallower moat. It was founded in 2005, for the first ~15 years of its existence, it had a technical moat. Streaming, managing comments and processing donations themselves represented defensibility. Now their own AWS / IVS software has commoditised this. Reddit, on the other hand is incredibly sticky; there’s a reason that the only alternatives suck.
So where does that leave us in mid-2023? Personally, I think Reddit will emerge from this crisis as strong as ever, and Twitch won’t.
I have said in the past that I think Amazon is not the right long-term home for Twitch. Let’s see how that bears out.
Prediction: Amazon will exit Twitch.
It doesn’t make sense: the world’s most customer obsessed company owning the least.
Genuinely, I think they’ll divest within 2y.
— Sasha Kaletsky (@SashaKaletsky)
Apr 28, 2023
This isn’t just about Reddit and Twitch. The relationships between platforms, creators, and users is rapidly changing. As social media grows slower, everybody is fighting for their piece of the pie. Some platforms just control the recipe more than others.