I recently attended a 2-week online strategy sprint put on by Scott Galloway’s Section 4.   We covered a concept called the T-algorithm which is a way to frame business and prioritize where to invest to improve and differentiate that business.  The 8 components of the T-Algorithm are:

1. Appealing to Human Instance
2. Career Accelerant for Employees
3. Margins and Growth
4. Recurring Revenue Bundles
5. Network Effects
6. Vertical Integration
7. Likability
8. Storytelling

I am going to apply this analysis to Reddit, a company that I worked for from Oct 2018 to Oct 2019.  At the end of my tenure, I did choose to exercise options. To be clear, I am far from an unbiased observer.  I also worked at Reddit during an apparently troubling time. You can see the glass door ratings for that time period:

I am 30% sure that I did not drive that dip.

The social media companies I am going to use as comparisons are

• Facebook/Instagram
• Youtube
• Twitter
• Pinterest
• Snap

Summary

Reddit’s two main areas of investment should be Growth/Margins and becoming a Career Accelerant.  It should work on improving its vertical integrations to improve the discoverability of its content, the growth of its users and improve advertiser value.  Advertising value has and will continue to be improved by maintaining efforts in Storying Telling and being a Likable company/brand.

Recurring Revenue Bundles are not applicable to social media business models, so I am going to skip covering them in this analysis.  

Appealing to Human Instincts & Network Effects

Status: Intermediate

Reddit appeals to the need for connection (heart) through its use of communities, the need for knowledge (mind) through community curated answers and ask-me-anythings, the need for more (gut) from a large variety of user-generated content, and the need for reproduction (genitals) with is NSFW content and subreddits.

Despite having hooks in all 4 human instincts, there are buffers that reduce Reddit’s broader appeal and/or inhibit tradeoffs.

Reddit has a culture of anonymity and toxic community/user interactions are not uncommon, both acting as plaque in Reddit’s arteries.   The content of Reddit is also notoriously difficult to discover. Reddit search is all but useless, and most communities only have a small fraction of content surfaced because of the voting/commenting dynamics that produce its content ranking.  The NSFW content is poor for its brand, and the need to build an advertising base requires that this content be effectively hidden.    

Reddit has more value as more users generate content.  There is more to consume, and there are more incentives to post.  Large communities grow the fastest, validating there is indeed strong network effects.   

Without elegant curation, users have to filter through a large amount of content that might be low value to them.  Additional users lead to additional content, and it is likely that the growth of all content is faster than the growth of content relevant to a specific user.   The network effects are reduced without integrating this curation (ie Recommendation Engine) process.

Career Accelerant for Employees

Status: Needs Improvement

Reddit does not appear to be a career accelerant for its employees, which has implications for its ability to improve its product and growth faster than its competitors.   According to Glassdoor reviews, Reddit is ranked 5th out of 6th of these companies. It is also 5th for work Culture, for Management, and for Positive Business Outlook. It is tied for first in Work-Life balance and rated 3rd as being good for one’s career.

Note:  Google and Youtube have very similar rates

	Overall	Culture	Work-Life	Management	Comp	Career	Pos Business Outlook
Reddit	3.8	3.9	4.3	3.3	4.2	4.1	65%
Pinterest	4	4.3	4.3	3.8	3.8	3.7	74%
Twitter	4	4.2	4	3.4	4.1	3.6	67%
Snap	3.3	3.2	3.2	2.8	4.1	3.2	49%
Google	4.4	4.3	4.2	3.9	4.5	4.1	81%
Facebook	4.4	4.3	3.8	4.1	4.7	4.3	83%

Using LinkedIn search gives a sense of where former employees go.  As a proxy for career advancement, I am looking at the % of former employees that move onto Apple, Amazon, Facebook, or Google.  

Limited to the classes of jobs associated with Software, Project Management, Data, and Marketing, we can see that Reddit has the lowest of this group of companies (ignoring Facebook/Youtube).   

Alternatively, we can look at the percentage of current employees in these groups that come from Apple, Amazon, Facebook or Google as a measure of some combination of employee quality and opportunity.

Reddit is on par with its peers from this perspective.  

Reddit has room for improvement in becoming a career accelerator.  Its employees’ rate is lower than its peer companies, former employees are moving onto top companies at a lower rate, but it is able to recruit similar rates of top talent from other companies.  

Growth and Margins

Status: Intermediate

Reddit currently boasts 430M monthly active users with a 30% YoY growth rate.  This value puts it larger than Twitter and Pinterest monthly active user counts, but the definitions are not the same.   Reddit defines users as new cookies, while all the rest of the numbers report authenticated user numbers.   

Pew Research conducted a survey of social media usage, and I plot the results vs companies publicaly reported US MAU and eMarketer’s analysis estimate of Reddit US MAU:

eMarketer’s estimate is consistent with the Pew Research results and what other companies publicly report.   It is consistently reported that about 55% of Reddit traffic is US traffic, so this puts Reddit Logged-in MAU at about 48M.  It also suggests that in an apple to apple view, Reddit is still much smaller than many of its peers.

Its growth rate is similar to Pinterest and could be similar to Twitter’s growth once the fact that Twitter now reports DAU instead of MAU.

All of the comparison companies public report revenue and some measure of user counts.   That allows a creation of the metric which is the total quarterly revenue (Q4) defined by the number of monthly active users (ARPU).  The Reddit revenue estimate is coming for eMarketer since it still a private company.

We can see that on an ARPU basis, Reddit is lagging behind its peers.  If we use the Logged-in MAU estimate of 48M, we see that Reddit’s ARPU is comparable to this peers.   Additionally, eMarket is estimating that Reddit’s advertising revenue is likely to increase by 100% for 2020 because of its increased efforts to grow its advertiser platform.

Reddit’s user growth is on track with its peers, and its revenue growth seems to be on track to outgrow its peers.   This is a positive sign for its margins.

Vertical Integration

Status: Needs Improvement

Vertical integration can mean a few things in relation to social media companies, but traditionally it means that the following 4 areas are increasing owned by the company:

• Distribution (Devices/Surfaces)
• Manufacturing (Product)
• Design (Algorithms/Optimization)
• Raw Materials (Data Centers/Research/IP/Employees)

All of these companies hire hundreds of engineers to ‘manufacture their product, so I am going to exclude this component.

Youtube, as a part of Google, has a large number of integrations.

• Distribution
  • Pre-Installed in Android Devices
  • Integrated into Google Search Results
  • Embeddable all over the web
  • Mobile Apps
  • Connected Devices
• Design
  • Video Search
  • Content Classification
  • Recommendation Algorithms
  • Scaled Content Moderation
  • User-Advertising Targeting
• Raw Materials
  • Data Centers with dedicated Computer and Storage
  • Dedicated Research for Algorithms

Twitter, in contrast, has

• Distribution
  • Embeddable all over the web
  • Mobile Apps
• Design
  • Text Search
  • Recommendation Algorithms
  • User-Advertising Targeting
  • Topics/Trending through #
  • Push Notifications

Reddit is lagging in integration, and needs to catch up or risk being outpaced

• Distribution
  • Mobile Apps
• Design
  • Subreddit/User Search
    • Content search is poor
  • Ranking Algorithms
    • Personalization is weak
  • Subreddit-Advertising Targeting
    • Unclear if this has changed
  • Push Notfications

Reddit needs to improve the design of its algorithms to be more in line with Twitter, Pinterest, and Youtube while also increasing the distribution of content outside of its site.  The discovery of content is largely due to surfaces not controlled or easily influenced by Reddit, thus makes it hard for them to control improving them.    

Story Telling/Likability

Status: Significant Progress Made

Reddit moving from ‘Isn’t that a porn site?’ to having advertisers like Disney and McDonalds spending money to reach Redditors is a clear indication they are moving in the right direction.  This is an area they need to keep on what they are doing.