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Social vs. Market Norms at Reddit

Behavioral economics challenge the news aggregator’s plan to make money.
July 21, 2010

How would you feel if a friend you loaned money to came back and suggested you supply them a regular line of credit? That’s a how some users of social news aggregator Reddit feel as the site’s admins grapple with the question of making the web pay.

Earlier this month those operating the site–which is owned by Vogue and Wired publisher Conde Nast–issued a plea for cash donations (a “pledge drive”) to help them keep the site running smoothly. The response of their community seemed generally positive. Then, at the start of this week, the admins unveiled a subscription service that for $3.99 a month allows “gold” users to opt out of adverts and enhanced “friends” features. This time the response appears more nuanced.

This active thread from yesterday saw some “redditors” point to economics research that suggests this wasn’t a good way for the site’s admins to play it. When the thread was started by a user stating “I gladly donated to reddit but I won’t pay for it”, others quickly offered a plausible behavioral economics take on the feeling, as featured in Dan Ariely’s book Predictably Irrational.

“The problem here is about social norms versus market norms,” wrote user SpringProductions, “socially you were happy to contribute (as was I), but in a market norm, the price doesn’t seem like a good value.”

Ariely illustrates the difference between social and market norms with the example of an Israeli day care center that started charging parents who picked up their kids late in an attempt to drive down tardiness. In fact, the problem became worse. Parent’s adopted a marketplace mindset that saw them reason–at some level or other–that the price was worth paying. Before the fee structure, when there was only the social price to pay–guilt–, they felt beholden to the community.

Flipping from soliciting donations from loyal users to help the site, to working out a subscription structure that offers extra features for a fee seems to have pitched some of Reddit’s users from a social to a market situation. Some at least switched to feeling that the subscription model was a bad deal for a user-generated site owned by a large publisher skilled at making money from advertising in other markets.

How the new business model changes Reddit’s community, and survival remains to be seen. But they likely won’t be the last to struggle to extract cash from a web property where the value is tied up in the complexities of human social interactions.

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