Reddit's 5 Stages of Network Effects Growth

Day 1 to IPO growth strategies

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This is a 2 part series of how Reddit started as an NSFW site.

…I’m kidding! Though, the chart below might make you think that.

We will go over the following in this series:

1. Part 1 - How Reddit got to today with 5 stages of network effects.

2. Part 2 - How Reddit plans to expand its TAM and grow post IPO.

Reddit’s Origin Story

Reddit was founded in 2015 by Steve Huffman & Alex Ohanian in Medford, MA. Instead of your typical spring break activities, they attended a lecture by Paul Graham. This naturally led to an invite to apply to YCombinator’s first class, though their first idea “My Mobile Menu” was unsuccessful. They brainstormed other pitch ideas, and Paul Graham ended up convincing the roommates to start the “front page of the internet” and pulled in $100k in seed funding.

But, how do you start a user-generated content site with no users or content?

This is the classical “Cold Start Problem” that Andrew Chen coined. (He’s a General Partner at a16z.)

This is a problem that exists when you’re building:

1. A 2 sided marketplace, or

2. A social network (like Reddit)

The framework has 5 stages of growth:

1. Cold start problem

2. Tipping point

3. Escape velocity

4. Hitting the ceiling

5. Moat

And has ultimately led to where they are today:

Let’s dive into each stage.

Stage 1A. Build an “Atomic Network”

An atomic network is the smallest number of users needed to stay engaged & self-sustained. Once you reach this magic number, the users and their activities should self-sustain themselves. In other words, they are getting value from the network and giving back to it.

These are four examples from some of our favorite tech brands:

• Facebook: started with a tight-knit college.

• Uber: started with 1 city.

• Slack: a team of at least 3 in a company.

• AirBnB: hundreds of active listings in a specific market.

Now let’s dive into Reddit’s first atomic network.

They use the following strategies to build this

Fake profiles

Seed the site with users and content. They made hundreds of fake profiles & submitted content. A simple backend submission process helped them turbocharge profile creation. It had 3 inputs:

• “Users” (the fake ones…)

• URL

• Title

This helped the Founders accomplish 2 essential objectives:

1. Make the site feel alive

2. Set the tone, feeling, & character of the site

Simplicity

One community (no categorization). No comments. Two possible inputs for general users:

1. URL

2. Title

The simplicity of this reduced the need for users to make any type of decisions. (Extra time thinking = increased chance of user drop off.)

Reduce friction everywhere

1. No decisions to make (except to submit URL + Title)

2. No email collection

3. No censorship

Sticker the world

There is no way you could use this today. But back then… hardly anyone was using the strategy. It worked!

Yes, stickers: the soundest investment I ever made. I used to travel around the country a lot (thank you, Chinatown bus), and everywhere I went I took stickers with me. I put them on signs, poles, and even other advertisements.

“Please sticker responsibly!” we would say, and hand out these stickers at events, meetups, just to random people on the street. This may not sound like a major or even strategic marketing approach, but we kept at it. The focus was on building a great product and a community online–the stickers were just an excuse for people to show their allegiance.

How Reddit Built Its Empire On 500 Bucks, Stickers, And Giving People What They Want

All of these tactics resulted in the growth of their primary and only subreddit.

Screenshot from July 25, 2005:

Stage 1B. Build Adjacent Networks, Rinse & Repeat

This is where the NSFW stuff comes in.

The chart shows the topics of subreddits - the adjacent network to their front page.

It only looks like Reddit started as an NSFW site because they didn’t include the homepage. (That was their only community until NSFW. Then programming and science subreddits were introduced.

And, then you reach the tipping point… just after the start of 2008, they had a Cambrian explosion of subreddits.

% of posts submitted to various subreddits:

Stage 2. The tipping point

The challenge then moves to creating a repeatable strategy for building more networks to expand the market.

This was ultimately the point just after 2008. The creation of subreddits was highly repeatable.

Generally, there are 2 strategies for this stage:

1. Make the network invite only.

   1. LinkedIn, Gmail, & Facebook all used this strategy.

2. Bootstrap with a strategy of “come for the tool, stay for the network”

   1. Attract via a single-player tool and convert into more active members. (Instagram & Dropbox used this strategy)

In the context of Reddit - single-player mode was finding the most interesting content, which led to participation, and then feeling a part of the community.

2008: Retracing the Evolution of Reddit through Post Data

This year, we see an explosion in the diversity of subreddits. What the heck happened? As it turns out, Reddit added a feature for users to create their own subreddit. Almost immediately, people created /r/pics, /r/funny, /r/WTF, and many other subreddits dedicated to pictures. In just the matter of a few months, 1/3 of Reddit's content was sorted from /r/reddit.com into subreddits dedicated to specific topics. Thanks to the new "create your own subreddit" feature, Redditors were able to sort the majority of their own content out into the proper forums. The Reddit system works! Cool!

It's also pretty cool to see the spike in posts to /r/politics and /r/obama near election time in November, showing just how active Reddit was in the Presidential election. It seems even from the early years, Reddit was a politically-oriented web site.

Stage 3. Escape velocity

Success is scaling and this is when the strategy shifts to focus on strengthening 3 types of network effect forces:

1. Acquisition effect

2. Engagement effect

3. Economic effect

Stage 4. Hitting the ceiling

The rapid growth of networks causes a peculiar thing to happen. The community wants to grow, but at the same time tear itself apart.

Only new products & innovations can help kick off the next growth wave. There were a few features that helped here:

1. 2012: Pictures

2. 2014: Redditlive

3. 2015: Upvote/Downvote

4. 2017: Video

Another way to break through the ceiling is to go from single to multi-product.

Stage 5. The moat

You have 2 characters to choose to defend your fortress:

David and Goliath.

• David’s strategy is to: Pick niche segments within a larger network & build atomic networks that are defensible with key product features. He aims to become more valuable to that niche than the larger incumbent.

• Goliath’s strategy is to: Leverage scale to drive higher monetization & value for users.

Reddit took on David’s strategy. Each subreddit is a self-sustaining niche community that is hard to reproduce elsewhere.

Finally, seeing all of the growth together:

Growth of subreddits:

That’s over 2M niche forums!

Growth of content submissions (blue) and users (red)

Source: Gyazo

And, now going public!

Subscribe for Part 2: Reddit’s Growth Strategies Post IPO

Congrats Reddit for getting to where you are today and opening at 38% above the IPO share price!

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