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What Reddit, Sonos and Plex learned about making big changes — and angering superfans

How do you communicate difficult decisions without alienating your most enthusiastic users?

Sonos CEO Patrick Spence

Sonos CEO Patrick Spence conceded that his company did not communicate recent changes well.

Photo: David Paul Morris/Bloomberg via Getty Images

When Reddit's VP of product and community Alex Le joined the company in late 2015, he was told some shocking things about Reddit's rabid fan base and their resistance to change. Supposedly, the site's designers at one point increased the line-height of text displayed on the site by 1 point — and promptly received death threats.

Details about the incident are vague, and it may have never actually happened. But that the story was passed around shows how concerned the company's employees were about the backlash any potential change could provoke.

"This idea had sort of penalized the company," Le said. So when Reddit executives decided in late 2016 to overhaul their entire site, the company had to deal with a major challenge: Could it pull off a massive redesign without provoking all-out riots?

It's a question many companies with superfan followings have to deal with in some form or another. Design changes, the discontinuation of existing products and major pivots all can provoke emotional responses from loyal users. What amounts to a PR problem for billion-dollar corporations can be an existential struggle for startups, which often depend on the goodwill of customers turned brand ambassadors for word-of-mouth marketing, peer-support and more.

So how do you make and communicate difficult decisions without alienating your most enthusiastic users? Here's how Reddit, Sonos and Plex handled the challenge.

Share your plans early and often

By 2016, it had become clear that Reddit needed major design tweaks to facilitate continued growth, account for new media formats and lower barriers of entry for new users. To break the fear of blowbacks, the company decided to tell its users early on about its plans. "With the redesign, we wanted to be really upfront," Le said. Reddit execs began to publicly talk about the redesign two years before it flipped the switch, and early on, they shared their rationale, ambitions and even design ideas.

This level of transparency was new to Le, whose previous jobs included a two-year stint at mobile game maker Zynga. He admitted that there were initially some concerns about secrecy and confidential information. But Reddit execs realized that the company's service was unique enough to take some calculated risks. "We shared everything that we could with our community," Le said.

Reddit soon began to test parts of the redesign with subsets of users and frequently solicited feedback from its community. For instance, employees talked in detail with users about the way ads were going to be displayed on the site and incorporated a number of features inspired by the way communities were using the service.

The company also decided to make the new design optional, giving users the option to switch back to the old look at any time. And when Reddit launched the new design, the company continued to work with users to iron out bugs and address concerns, resulting in a much more positive response. "When we do things in collaboration with our community, they will make it successful," Le said.

Check your assumptions

Smart speaker maker Sonos had to deal with not just one but two instances of backlash from consumers in recent months. First, Sonos announced a new recycling program in late October that was meant to reward customers for trading in their old speakers with a rebate on new products. And in January, it announced that it would end support for some legacy hardware going forward.

Both decisions were challenging to communicate on their own. But taken together, they seemed to suggest that Sonos was turning its back on its most loyal customers, who had in some cases spent thousands of dollars on the company's speakers, and bricked perfectly fine speakers that could otherwise have been resold. "We flubbed the communication for sure," said Sonos CEO Patrick Spence in a conversation with Protocol in February.

However, at the core of the uproar wasn't just a poor choice of words. It was also a series of assumptions that made perfect sense from the company's perspective but seemed like an affront to customers.

Take the recycling program, for example. Phone makers frequently offer customers rebates for trading in old phones. While some of these phones are refurbished, many are actually sent to recycling facilities. And since Sonos doesn't have retail locations in most cities, it decided that it would further minimize the environmental impact of the program by letting customers turn their products in at local recyclers, with the company decommissioning the devices with a software downgrade, instead of having them shipped to the company's headquarters.

"We had assumed people would understand that's what everybody else in consumer electronics does," Spence said. However, this didn't account for the fanlike customer loyalty Sonos had developed over the years. "We aren't everybody [else] in consumer electronics," he said. "We've set a different bar."

Spence responded with a mea culpa blog post, and the company more recently clarified why some of its new features, including high-definition audio, wouldn't run on legacy devices. Sonos also reversed course on the recycling program, doing away with the need to render old hardware inoperable in order to qualify for a trade-up discount.

"It really helped us understand that we've got to be more mindful of how we communicate," Spence said.

Be your own superfan

Plex, which launched a little over a decade ago as a hobbyist project for digital movie collectors and has since turned into a media-streaming solution for millions of users, is in many ways a prime example for a company driven by fans.

Not only does Plex owe much of its growth to word-of-mouth marketing driven by an avid user base, the company's business model is also an outgrowth of fan support: When some Plex users suggested that the company should put a donation button on its site in 2012, Plex turned that donation idea into a paid product called Plex Pass, a subscription that offers access to premium features, but also gives users a way to directly contribute to Plex's development.

"When you have fans, then they are looking to support you," said Plex CEO Keith Valory.

Except, sometimes, some of them won't. In recent months, Plex has expanded its product to offer access to professional media services, including music subscriptions via Tidal, and ad-supported movies and TV shows through its own video-streaming service. This has resulted in vocal criticism from some users who'd prefer that Plex continue to focus on its core product instead.

The inability to share business-critical information with consumers is at the center of many misunderstandings with superfans, Valory said. "We try to be as transparent as possible," he said. However, the company has to be cognizant of competitive threats and keep some information under wraps, leading to an asymmetrical information problem. "To some degree, users are always surprised," Valory said. "If I could sit down with every customer individually, I could very quickly make them understand."

Plex makes up for that by relying on superfans inside the company, where heavy users include co-founder and Chief Product Officer Scott Olechowski. "We use it every single day, just like our users do," Olechowski said. "Scott is one of our biggest power users," Valory added.

Being a heavy user of the company's own software allows Olechowski to see consumer criticism from a different perspective. "There is usually some truth in some of those things," he said. As a result, Plex introduced a more customizable design when it began integrating commercial streaming services. Now, users who aren't interested in ad-supported movies and TV shows can simply remove those items from their home screen.

Don't just manage a crisis

Sonos and Plex both use their own blogs and forums to communicate with their users, but increasingly, fans express their grievances on social media. That's why Reddit long ago began to assemble a playbook for brands on how to better engage with their audience on its site. Lesson number one? "You start by listening and learning," according to the company's head of brand strategy Will Cady. "Simply being present is enough for most brands," Cady said.

It's also important to be present before things turn sour, he suggested. If company representatives participate in customer service threads and address smaller issues, they're more believable when big problems arrive. "In order to really be successful, you have to lay down the groundwork early," he said. "Be there not just when you need them."

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That was also very much true in the lead up to Reddit's redesign and has become key to introducing other product changes as well. Le said that early dialogue also helped to change the perspective on what a company aims to achieve, moving the goal post away from the notion of crisis management.

Ultimately, engagement with the audience wasn't just about avoiding a backlash, but about building a better product, he said. "It's not just to manage the downside, it's to claim the biggest upside that's possible."

 Janko Roettgers

Janko Roettgers (@jank0) is a senior reporter at Protocol, reporting on the shifting power dynamics between tech, media, and entertainment, including the impact of new technologies. Previously, Janko was Variety's first-ever technology writer in San Francisco, where he covered big tech and emerging technologies. He has reported for Gigaom, Frankfurter Rundschau, Berliner Zeitung, and ORF, among others. He has written three books on consumer cord-cutting and online music and co-edited an anthology on internet subcultures. He lives with his family in Oakland.

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Protocol | China

Everything you need to know about the Yuanxin Technology IPO

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.
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