How to Buy Innovation: The Case of Condé Nast and Reddit

By Shlomo Maital


  Obama:  AMA

  Last Thursday, President Barack Obama signed up for an AMA (Ask Me Anything) session on Reddit, a social networking “aggregating” site.  (His favorite basketball player? Surprise – Michael Jordan.)

  What is Reddit and what can we learn from it?  Founders Steve Huffman and Alexis Ohanian, Univ. of Virginia graduates,  founded it in 2005, then sold it to the magazine publisher Condé Nast in 2006 for $20 m.  Reddit is very messy,  “like peering into a bowl of spaghetti”, writes David Carr in his Global New York Times media column (Sept. 3).  But it has defeated sites like Digg, has 40 m. subscribers, serves up over three billion page views monthly, and has only 20 employees. 

   Big organizations have immense trouble with innovation, almost by definition. Many of them try to buy innovation, by buying startups, like Reddit.  As they swallow the startup into their bureaucratic jaws, their gastric juices dissolve all the creativity, the founders leave, the creative people leave, and nothing is left. 

   But not in this case.  Condé Nast wisely decided, under its Chair Steve Newhouse, to spin off Reddit in 2011 as an operationally-independent subsidiary. This happened after it became clear Reddit was failing as an integral part of the Condé Nast bureaucracy, even though the two founders stayed on with the company for three years after they were acquired.  As one expert noted, “Condé gave it enough rope and left the people there to their own devices.  I don’t know whether it was a brilliant strategy or accidental neglect, but the founders did not leave, the community stayed intact and the site grew beyond anbody’s expectations.”

   Reddit is, well, weird.  Carr says it has the “retro graphic appeal of Craigslist”.   And it has miniscule revenues.  Condé Nast says that is OK, “there will be ample opportunities to monetize what they have built”.  Perhaps, perhaps not.  But the lesson is clear.  If you are big fish, and you swallow a very small one, best to leave it largely alone.  Recall that the IBM PC was born only because IBM made an independent unit out of it, way down in Boca Raton, Florida, and then ignored it, so it could not be infected by the stultifying IBM bureaucracy.  You can buy innovation, without killing it, provided you treat it with benign neglect.