Like many apps, Apollo had (a small number of) paid users and (a large number of ) free users. And because they were competing with the Reddit app (which is free) their pricing model was only $10/year.
Reddit's changes would mean that they would have to cut off all of their free users entirely, and 10x the cost of the paid users. Also, they would have to lose money on all of their existing yearly paid paid users until renewal time.
That’s what they wanted to charge - Reddit only makes $0.13/user/mo, so their cost must be less than that (or else Reddit has much bigger problems), so let’s say $0.05/user/mo. Apollo has 2 million users, so $1.2 million per year.
Moreover, at that cost, less than a dollar per user per year, Apollo could have instituted a $1/year subscription. But instead Reddit wanted over $100 per user per year, two orders of magnitude more than the cost.
Sibling comment already addresses it. But to add, I’d happily pay and I want to pay $5 or more to Reddit. But not everyone is like that. Reddit cornered third party apps into a single subscription model with very little time to adapt. I think Apollo could have accommodated these changes over 6 months. Reddit could have also added an ad based tier. Instead they forced a huge price hike with less than a month to react to it.
I don’t see how that would work. A fraction of Reddit users use Apollo. A fraction of Apollo users pay Apollo. A fraction of those users would be open to also pay Reddit on top of that.
Why would the Apollo developer keep working on their app if this subset of users bring in $500/month at best?
I do agree however that it would have probably caused less trouble, because suddenly the users have to pay Reddit rather than the developers.
There would have been a huge uproar if they did that too. Most Apollo users don't pay. I'd be surprised if they would get even a 2% conversion rate. The other 98% of users would be angry about losing access. Reddit would still be accused of effectively killing off 3rd party apps.
The economics are basically the same. Apollo could charge their users $0.25 per thousand requests and continue to operate. They don't want to do so.
It is a burden for the app developers to implement payment processing. And one month was not enough notice. But fundamentally, this is killing apps because most users won't be willing to pay.
(Also, 1000 API requests isn't that little. For example, getting the top 25 posts of a subreddit is just 1 API request. Posting a comment is 1 request.)
Unpaid users are important to these apps because it's what drives adoption. You can release a new paid app to browse Reddit and get maybe 1000 users, or release a free app and get 1 million users, of which 1% convert to paying customers (i.e. 10,000 customers. These numbers are just made up for illustrative purposes).
Specifically, the $12.99/year model is floating a ton of free users, in addition to paying for server resource usage. None of that $12.99 currently was allocated to paying Reddit, and we know Apollo calculated an approximate cost of $2.50 per user per month with the new API fees.
This $2.50 fee seems to align costs with what we can reasonably expect Reddit to earn per user on their platform. Reddit prices Premium membership at $5.99 monthly, which among other benefits removes all ads. $5.99 likely indicates a $2-3 profit when all ads are removed but user engagement remains constant.
The typical mildly engaged Reddit users probably easily spends an hour a day looking at ads via the app - so while the math may be fuzzy, it seems like Reddit possibly based their API pricing off something like this.
At a minimum, that is $2.50 x 12 = $30 of cost annually per user. This means all users need to pay Apollo $30 a year to break even on just Reddit fees, or some subset of users needs to pay a lot more than $30 a year to float a bunch of free users. Apollo has other expenses too (labor, servers, etc.).
Even if the API fees were reduced 80% down to $0.50 per user per month, that's still $6 annually per user - and Apollo has a lot of free users.
All of this is to say, the $12.99/year membership for Apollo was never going to work with any API fees.
I personally don’t understand the outrage. Reddit obviously has costs, and if it wants to make a profit it should not subsidise third party apps that cost double - both no revenue and no ad views.
The cost of 0,00024 per request seems reasonable, and according to Apollo’s creator the cost per app user would be just 2,5 a month. Keep in mind that currently this app probably has no incentive to go light on the requests, so with some tinkering the creator could probably get that down. Maybe some proxy caching or what not.
Of course free is going away, but paying users at say 5/mo or 50/yr should still work for Apollo.
In the recent AMA, they claimed that the average cost per user would be around $1/month. Apollo dev believes it will be much more than.
I feel Reddit could have easily come up with a model where the API usage gets tied to premium account and that decouples apps from API charges.
Reddit has now created a new problem for itself which is that a huge user base that previously didn't bother to look at third-party apps has suddenly become aware of third-party apps. So now, they will start bypassing Reddit's official apps that generate revenue for Reddit in favor of third-party apps that seemingly have a better UX and are ad-free.
Reddit told the Apollo developer the API pricing was more opportunity cost than actual cost. And many people suggested Reddit could make 3rd party access a subscription feature.
This was something that the Apollo dev (and a few other apps) were interested in, but the timing was just too sudden to make work. Specifically for Apollo, they had been selling year-long subscriptions for $12/year. With the API pricing change happening on July 1, that meant Apollo would have to continue to offer up to 11 months of the same service, at the same price (since users already paid for it) while operating at massively higher costs.
Christian even said that if Reddit had given app developers longer -- maybe six months to a year -- it would have been tough to change the business model, but not impossible. With this timetable, he would have had to come up with something like $500k in 30 days just to cover immediate costs, which was obviously impossible.
First being Reddit wouldn't have suddenly needed to stop supporting 3rd party apps for free - apps that only cost Reddit money and generate no income. If the API made Reddit money, instead of costing them money, there would be no need for a sudden change. The "suddenness" of this change is due, in no small part, to the cost of supporting basically free-loading 3rd party apps that consume resources but offer nothing in exchange.
Secondly, Apollo would have formed a business model that supported paying for API access, be it monthly subscriptions, freemium, etc. The current model of pay-once-use-forever is simply unsustainable (on an obvious level) - and the $12.99 annual subscription equally so. The Apollo model, as it was, required free API access.
Even if Apollo had been paying for API access all along, and Reddit decided to suddenly hike the prices - Apollo would have been in a better position to raise their own prices accordingly, and would have had a userbase more accepting of paying.
Paying for API access also compels the business to be more efficient in their calls. As it was, there was little-to-no incentive to operate large content caching on your own servers/services, etc. I have seen, but do not know their credibility, that Apollo was not very efficient in it's API calls and essentially hammered the API far more than was necessary. If you're not paying for it, why would you bother designing a more efficient system?
The API fees were inevitable. More are coming - be sure of that, as corporations tighten their figurative belts and look for ways to stop bleeding money.
If Apollo keeps operating, it charges its users more and pays reddit $20 million for one year, and presumably continues paying that into the future.
If Reddit purchases Apollo for $10 million, then those customers now belong to Reddit. For the first year, Reddit would "only" earn $20 - $10 = $10 million, but after that those customers would continue directly earning revenue.
It's all about reasoning with the value of the app in terms of the api rates. Either the rates are unreasonable, or that would be a reasonable sale to Reddit.
A point that has gotten lost in the discussion; The CEO is saying the "average" user would only cost $1 a month and therefore the pricing is fair. But users of apps like Apollo are not average, they are super users (and include a high percentage of mods). The Apollo app developer says he would have to pay $2.50 a month per user.
If he was able to pass through $1 a month to users and given a reasonable time to do so, Apollo would likely still be alive. Or better yet, require a $10-12 a year subscription on each Reddit user account, paid directly to Reddit, to use 3rd party apps.
The trick is the end user of the third party app doesn’t have to pay. The app developer is the one being charged by Reddit.
If you have 10,000 users that Reddit in 30 days is going to charge you $250,000 per month to continue allowing your third party app to operate and you only had 5-10% of your users paying for a premium version you could see how that becomes somewhat unreasonable.
A bit more of a heads up is all the Apollo developer wanted. He understood that the API no longer being free is reasonable. The timing is what he objects. No assistance in allowing premium Reddit accounts that use Third Party Apps to cover API costs, etc.
I think some important takeaways are: the proposed pricing monetizes the users much higher than Reddit can general monetize them today. And the 30 day window apparently precludes any kind of orderly transition for the app developers who have been monetizing their apps on a yearly schedule.
The cost for reddit as stated in another part of the call is an opportunity cost. By acquiring Apollo instead of shutting it down they would seamlessly acquire a lot of users who would have a hard time adjusting to the native app and potentially leave the platform, so this call is still a cost to them.
Apollo is a for-profit app. They are using reddits technology, servers, and users for free to make money off their own advertisements.
Reddit isn't "losing" any money by losing apollo users, since it wasn't making any money in the first place.
This seems like a billing dispute between two companies, not a user issue. Reddit also announced that modtools will be allowed to use the API free of charge.
At the end of the day, most people log in to reddit once or twice a month. Those are the users that are being targetted by advertisers anyways. The power users and terminally online moderating staff are more of a headache for reddit than a benefit.
For Apollo specifically, about $5/month is what he decided would be sustainable to support Reddit's increased prices, but since there were existing users with yearly subscriptions, it would cost a lot to break even while still providing those users with service.
As for why he couldn't simply shift those users to monthly, it's due to the notice being a month. If Reddit had given a 6-month warning, that would've given everyone time to content with the issue and update their own apps (billing system changes are hard).
> Going from a free API for 8 years to suddenly incurring massive costs is not something I can feasibly make work with only 30 days. That's a lot of users to migrate, plans to create, things to test, and to get through app review, and it's just not economically feasible. It's much cheaper for me to simply shut down.
Per the Apollo developer's post, a huge amount of the problem is existing subscriptions already sold for $10/year, which are now massive costs - and negative on net if there's even four months left on them. Not that having the price of your app suddenly quadruple from $10/year to $40/year because of API fees would be a small problem on its own!
Reddit's changes would mean that they would have to cut off all of their free users entirely, and 10x the cost of the paid users. Also, they would have to lose money on all of their existing yearly paid paid users until renewal time.
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