Looking at it from the view of Reddit, their original excuse for charging for API access was due to the usage of it for machine learning with training their models. LLM's (Large Language Models), such as LaMDA (Bard, Google), GPT-4 (OpenAI), need an enormous amount of data inputted into them and Reddit has a large amount of high quality conversations, making it an invaluable source for them.

However, because Reddit's API was free, they didn't get a cent of this. Unsurprisingly, they didn't like this and wanted to profit off of this in some way. So they decided to charge for the API data access.

However, there is a clear issue with this as the Reddit API was used by third party apps, that don't abuse the API and use it to operate their Reddit clients.

It's quite clear now that the intention was not purely based on LLM's as there was a large number of solutions that Reddit could've used to charge for API access for those wanting the data and those who are simply operating third party apps.

• They could've made a system where app developers can apply for a specialised API key to be used for third party apps.
• They could've made different pricing tiers for those who are operating third party applications with adjusted rate-limits for mass-scraping compared to generalised browsing.
• They could've allowed third party apps to have their users use their own API key that they get from Reddit themselves.
• They could've worked with developers to add advertisements for their apps unless a premium subscription was purchased from the developer.
• Many, many other ways they could've handled it other than this living PR nightmare.

Client developers were absolutely more than willing to discuss these options, yet they were thrown a ton of hurdles by reddit.

So why do they want you to use their app?

• They get engagement data, since your usage can be completely tracked by them when using the app, such as how long you're looking at posts for, your engagement with specific topics, etc.
• They can show you advertisements, this is their primary source of revenue.
• They can promote their other revenue schemes, like purchasing coins and NFTs.
• They can wall parts of the app off, like preventing you from downloading videos and forcing you to share the link to reddit, thereby creating engagement.
• They can show investors the number of app downloads and their apps growth. This also makes it more likely that they get promoted in the various app stores. They probably get disdain every time they see Apollo being promoted many times by Apple, even in WWDC presentations, over their main app.

These are a few examples of reasons that Reddit want you to use their app and there are most certainly many more. However, their argument has a fatal flaw, in that the value of Reddit does not come from their platform, but it comes from the data within it.

Social media follows this rule usually, 90% are lurkers and 10% are contributors. However, it depends. You might have a 1% of contributors that are prolific contributors that produce most of the sites content, or you might have a very small portion of contributors, like 0.01%. Think of the number of YouTube users and how many actually post videos themselves, or even contribute to the comment section.

Reddit contributors will be more likely than the average lurker to use a third party client or adblock on their browser. The revenue from these users is net-loss on paper, however, in reality, they are contributing significantly to the content that the revenue-generators will be viewing. If this content didn't exist, there would not be a lurker to view the content, they'd simply go elsewhere.

Reddit doesn't see it this way, they see these users as revenue losers that need to be migrated to their official app so they can begin to generate revenue. However, as mentioned, the huge backlash indicates that this was a terrible idea. Especially considering that unlike a platform like Twitter, Reddit is divided into sub communities managed with volunteer labour. As with the contributors, these individuals are much more likely to be using adblock or a third-party client. The Reddit app is rubbish, Reddit themselves have admitted this. Power users are going to try and find an alternative method of browsing that they find is better, which they have done.

Reddit absolutely knows this. /u/spez made an indication in his main post for his AMA that old reddit is not going away. They likely have engagement data for this and know that many contributions are made through old reddit. However, old reddit still gives them revenue and it's still their platform. They added advertisements a few years back. https://safereddit.com/r/changelog/comments/c5clgh/ads_are_now_in_feed_on_old_reddit/

TL;DR Reddit wants money, but those who don't use their app don't generate money, on paper. In reality, they do. But it's hard to convince investors of that.