The Reddit Rollercoaster Underlines the Changing Nature of Social Media

Social media company Reddit Inc. has raised $250 million in Series E funding from existing and new investors, doubling its valuation to 6 billion.

Although Reddit dubs itself “the front page of the Internet”, this is probably the first time in its 15 years of existence that the site has made front page news for three consecutive weeks.

Reddit could use the new cash though – hopefully they hire some more designers, because that forum-style interface is anything but user friendly.  

The announcement of the new funding round comes as the site’s r/WallStreetBets thread gained international attention for a successful attempt at “taking down” big-name hedge funds.

Amateur traders on the forum organized mass buying of shares in certain companies that hedge funds had taken a large short position against. Wall Street found the stunt pretty funny, until the prices of GameStop and AMC stocks skyrocketed.

The recent turbulence in the US stock market has caused so much distress that the Securities and Exchange commission is now investigating whether the Reddit posts have breached any securities laws.

This isn’t the first time a social platform has made an impact on the world.

We’ve witnessed the power of social media plenty of times in the past:

• Glossier leveraged Instagram to build a cult following,
• the WHO turned to Facebook to quickly raise awareness of Covid-19, and
• Trump’s strategic use of Twitter (unfortunately) helped him win the US election. 

So, what makes the Reddit short squeeze so “extraordinary”? (Apart from the multi-billion dollar losses it’s inflicted, of course.)

Up until now, social media has been treated as a powerful and effective communication channel. But what the Reddit fiasco shows is that social media is no longer just a medium of communication (i.e. a way to get the message out), but an incubator for ideas and movements (i.e. a place where messages are created). By providing platforms for freer and frequent communication for anyone with access to the Internet, social networks allow people with shared interests, beliefs, and goals to find each other irrespective of geographical location and other physical factors. People build communities, and communities are the breeding grounds for innovation, ideas, and collective action.

This has many implications.

It probably means that social media regulations need to be revisited, since it’s evident that opinions published on these platforms can have a high degree of influence on real-world events.

It also means that companies could consider reexamining the role of social media in their business strategies – is it just a digital marketing channel?

Or can businesses somehow harness the ideas and communities and innovations emerging on social networks to enhance their own growth? (Apparently a quant fund is actively recruiting /WallStreetBets to join their team.)

Knowing how valuations are done today, I’m betting that valuations of social media companies will probably rise since these platforms have more to offer than just advertising revenue.

I’m not making a case for, or against social media. It’s a tool, and like any tool it’s not inherently right or wrong, good or bad. It just depends on how it’s used. But what we need to realize is that the tool we have in our hand is just a little more complicated than we thought it was.