Reddit communities revolt + Brad Gerstner on state of private and public markets in 2023 | E1761

Episode Summary

Executive Summary: The episode opens with a deep dive into Reddit’s API pricing revolt, where moderators and third-party app developers are protesting changes that threaten the platform’s free labor ecosystem and mobile client economy. The conversation then shifts to a fireside chat with Brad Gerstner on investing, emphasizing contrarian, first-principles research, the end of free-money valuation excesses, and why AI is the next major platform shift that could reshape productivity, company size, and investment opportunities.

Main Topics: Reddit API backlash and moderator strike (Priority: 5/5): Reddit’s decision to charge for API access triggered a widespread protest: moderators made thousands of subreddits private or read-only, and third-party apps began shutting down. The discussion frames this as a clash between platform control, community labor, and monetization ahead of Reddit’s IPO. Third-party apps, mobile growth, and platform control (Priority: 5/5): The transcript explains how Reddit and Twitter historically benefited from open APIs, enabling third-party apps like Apollo and Alien Blue to improve user experience and expand adoption. Once platforms matured, they moved to reclaim control and monetize directly, angering developers who had helped grow the ecosystem. Monetizing data for LLM training (Priority: 4/5): The speaker argues that Reddit’s API pricing is also about charging AI companies for training data, reflecting a new market for data that previously had little direct commercial value. He views this as a rational attempt to capture value from a scarce and increasingly important asset. Contrarian investing and first-principles research (Priority: 5/5): Brad Gerstner argues that the best investment outcomes come from being prepared, doing deep work, and being willing to act when consensus is wrong. He cites examples like NVIDIA, Snowflake, and Meta to show how non-consensus views can lead to outsized gains. Meta, efficiency, and operating discipline (Priority: 4/5): Gerstner describes how he pushed Meta toward efficiency and how the company’s subsequent restructuring validated a thesis that Silicon Valley could do more with less. He presents Meta as evidence that founder-led companies can correct course when forced to confront reality. AI as a major platform shift and productivity catalyst (Priority: 5/5): The chat frames AI as an early, transformative platform cycle akin to the iPhone or browser era, but potentially larger. Gerstner argues AI will dramatically increase productivity, reduce the need for labor in many workflows, and create new trillion-dollar companies, though winners remain unknowable. Essentialism and information overload (Priority: 3/5): The closing message stresses the need for an organizing philosophy—'essentialism'—to navigate accelerating innovation and constant information flow. Listeners are encouraged to focus attention and prepare their minds so they can recognize the next big opportunity.

Key Arguments: Reddit’s moderators and power users create substantial platform value without direct compensation, so API monetization and strict control risk alienating the very people who sustain the site. Open APIs were originally a growth tool for constrained startups, but mature platforms often close them once they have enough scale and want to control monetization and user experience. Charging for Reddit API access is not just about third-party apps; it is also about capturing value from AI companies training on Reddit’s corpus of human conversation. A reasonable middle ground would be revenue-sharing or acquisition of top third-party apps and compensating moderators, turning adversaries into partners. Contrarian investing works best when grounded in deep domain knowledge and original research rather than consensus narratives or sell-side models. Meta’s turnaround showed that large technology companies can and should cut costs aggressively when excess spending no longer matches market reality. AI is likely to boost enterprise and economy-wide productivity far more than the internet did, while also causing major labor dislocation and organizational change. It is too early to know which AI companies will become enduring category leaders, so investors should prepare broadly while avoiding dogmatism. The biggest returns come during major platform transitions, when innovation accelerates and new winners emerge quickly. A disciplined attention framework like essentialism is necessary because innovation cycles are shortening and more opportunities arrive faster than any individual can process.

Data Points: Subreddits darkened: 8,000 - Number of subreddits that went private or stopped new posts during the Reddit protest. Moderators involved: 28,000+ - Approximate number of moderators tied to the subreddits that went dark. Reddit API price: $12,500 per 50 million requests - The proposed API pricing structure starting July 1. Apollo estimated monthly API cost: $1.7 million/month - Projected cost for the Apollo third-party app under Reddit’s new API pricing. Apollo estimated annual API cost: $20 million/year - Speaker’s conversion of the projected Apollo monthly API cost into yearly terms. Reddit mobile app launch lag: 11 years - Reddit launched its own mobile app in 2016 after starting in 2005. Reddit valuation target: $15 billion - Expected valuation mentioned for Reddit’s IPO. Reddit revenue (last known): $400 million - Last publicly cited revenue figure from 2021. Meta layoffs: 10,000 - Referenced as the size of Meta’s major efficiency-driven layoff round. NVIDIA share price mentioned: $125/share - Brad Gerstner cited NVIDIA trading at this level in January before its run-up. Sell-side forecast for data center growth: -6% - Consensus estimate from analysts that proved wrong amid AI demand. Actual data center growth cited: +80% - Observed growth mentioned for NVIDIA’s data center business. AI anti-portfolio size: 75 companies - Gerstner said Altimeter’s AI no-go list had grown to 75, including all foundation models. Productivity impact estimate: 30% to 50% - Gerstner’s estimate of potential enterprise productivity gains from AI.

Pivotal Quotes: "We are not profitable." — Steve Huffman: Huffman’s AMA response explaining why Reddit is trying to become profit-driven ahead of its IPO. "This is going to be a bigger productivity gainer boon for the global economy and the U.S. economy than the internet itself was." — Brad Gerstner: His argument that AI will transform productivity more than prior platform shifts. "The biggest challenge you all have is how many things are coming at you every day... I encourage you to read the book Essentialism: The Art of Doing Less Better." — Brad Gerstner: Closing advice on focus and attention amid accelerating innovation and information overload.

Implications: Reddit’s fight highlights the tension between platform monetization and community labor, while the Brad Gerstner segment argues the next wealth-creating cycle is AI. Investors and operators should prepare for higher productivity, sharper competition, and faster winner-take-most dynamics.