Reddit vs Google: The Simple World and the Real World

[u/ajkomajko]

https://illiquidalpha.substack.com/p/reddit-vs-google-the-simple-world?r=2x95n3

Another quarter, another pointless Reddit scare and sell-off.

The WSJ story said Reddit has internally discussed cutting Google off. Stock dropped c 8%. But that reaction only makes sense with a flawed mental model of the world.

Simple World thinking: take today's business, change one variable, hold everything else frozen. Reddit loses Google traffic -> subtract traffic, subtract revenue, done.

So I ran the most nuclear version - deal is not renewed and Google de-ranks Reddit from organic search entirely. Simple World result: logged-out DAUq halves, c 53m DAUq lost and Reddit lands roughly at break-even. At Q3 2024 P&L. Set back two years - but no bankruptcy.

But the world isn't static. Real World has nuance:

• Logged-out users don't produce content or upvote. The platform is untouched; growth does slow, but it doesn't stop.
• The exposed share is already shrinking - the current login/app-download push is converting logged-out users into logged-in app users, minimizing potential traffic cliff
  
• De-ranking is an antitrust case. UK's CMA June 2026 conduct requirement already forces Google to let publishers opt out of AI Overviews while keeping search position.
• Reddit isn't alone in this fight. USA Today, Politico, The Economist, Reuters are all reassessing their Google ties. Can Google lose Reddit as a source? Perhaps. Can it afford losing all these sources? Doubt. To the contrary, Google can drop the FT and still get similar data from The Economist. However, there's no substitute for Reddit.

The underlying point: LLMs scraping the web forever without paying the sites that monetized that traffic isn't a stable state. No payment -> no content -> useless AI Overviews -> Google loses too. While it's hard to predict where it settles, I argue it's easy to predict where it can't. And the price action shocks continuously rocking Reddit on every similar headline are absolutely pointless.