How Reddit Makes Money

Reddit, the self-proclaimed “Front Page of the Internet” was founded in 2005. The website, known for its bare-bones user interface and strong community spirit, is valued at $1.8 billion, according to CNBC.

Over the years, the web portal has grown immensely in popularity, receiving over 200 million unique visitors a month, and Reddit culture has become a very real thing. On Reddit, users, also known as Redditors, submit content that is then upvoted or downvoted according to other users’ likes and dislikes. Comment sections work in the same manner, and comments are threaded to facilitate conversations.

CNBC reported that two people familiar with the company's financials said the company will top $100 million in revenue in 2018. The two declined to be named because the numbers are confidential. Although the company owns one of the most popular sites on the internet, 2018 will be the first year it tops $100 million in annual revenue.

The History of Reddit
Reddit was founded in 2005 by Steve Huffman and Alexis Ohanian, and was acquired by Condé Nast in 2006. Condé Nast’s parent company Advance Publications spun the website off in 2011, maintaining ownership, but no longer holding day-to-day influence over the site. A round of funding that closed in September 2014 saw Reddit bring in $50 million from Y Combinator’s Sam Altman, Snoop Dogg, Jared Leto and Peter Thiel, among others. Curiously, 10% of this investment was planned to be returned to the Reddit community – likely through a proposed cryptocurrency.

The online community has not been without its controversies. The website is comprised of multiple forums, called subreddits, where users gather to discuss mutual interests. Certain subreddits have been shut down due to hateful language or subject matter, and the website became embroiled in a scandal when users uploaded hacked nude images of celebrities during fall 2014. The controversial subreddits have been closed at the expense of freedom of expression in an effort to keep advertisers happy. (For more, see Seven Time Wasting Websites That Make Millions.)

Advertising
Reddit has been selling ad space since 2009. Today, there are two ways to advertise on the website, either through managed or self-serve ads. Pricing for Reddit’s managed ads starts at $30,000, and for self-serve ads at $5.00 cost per thousand (CPM) depending on the target audience. The Reddit Ads platform uses a second price auction based system, meaning advertisers pay a cent higher than the next highest bidder. Because Reddit uses an auction based system, there is a risk of 20% overdelivery when setting up an individual campaign.

The ads are clearly marked, and aside from being published on a blue background, the ads blend seamlessly into the rest of the website. The non-obnoxious ads – flash and auto-play ads are banned – have earned Reddit the right to be automatically whitelisted by the popular AdBlock extension for Google Chrome. (For more, see Digital Advertising Is The Future, But Why?)

Unfortunately for the website, selling advertisements poses two major problems. Since Reddit is built by and valued on the strength of its users, excessive advertising could lead to further censorship and drive community members to seek alternatives. In fact, on multiple occasions, user protests have occurred in the wake of attempts to institute changes that would pave the path to monetization.

Secondly, in an effort to keep the community happy and anonymous, Reddit doesn’t require email addresses for account registration and doesn’t track users’ personal data. Without obtaining more targeted data about its users and the high CPM that flash and pop-up ads bring in, Reddit will not be able to increase its advertising revenue without angering the users. Reddit’s management needs an income stream that is stable enough to pay for its staff and servers but community-minded enough to avoid being seen as an attempt to sell out.

To take advantage of the site's broad audience, Reddit is looking to build its business by actively seeking out advertisers. The company has shown it wants to increase advertising across the site, including more display and mobile ads and sponsored opportunities.

The lack of regulation that appeals to users scares many potential advertisers. Because subreddits are essentially self-moderated, companies fear that advertising on Reddit could hurt their brands and images. They don't want to be linked to hate groups, leaked celebrity nude photos, or misreporting of breaking news.

Reddit Gold
Enter Reddit Gold. This offering is a membership plan that allows users to pay for premium features. Reddit Gold currently costs $3.99 a month or $29.99 per year and can be gifted to other users. The premium features enhance the user’s experience in part by removing ads and allowing users to filter comments. Doing so allows for better comment management. Users can also create their own custom Snoo (the Reddit mascot).

Third parties provide additional benefits or discounts in a marketing exchange. In return for offering their products or services to Reddit Gold members, participating companies get their brand out into the Reddit community and have a chance to show off their customer support skills in the event that something goes wrong.

Relying solely on Reddit Gold ought to be the company’s ultimate plan. Not only does the membership allow more features for community users, it also helps support the community directly as opposed to the indirectness of traditional advertising.

Reddit Products
Reddit also makes money the way a lot of popular websites do: by selling branded products. Although the Reddit Marketplace closed in February 2015, the Reddit Market remains open and users can buy t-shirts, Snoo dolls and stickers.

In 2014, Reddit purchased Alien Blue, the unofficial Reddit app for iPhones and iPads. This purchase legitimized the app and it's currently available for free download in the Apple App Store.

Where Does Reddit Spend Its Money?
Reddit has a large user base. While we don’t know the details of the company’s current expenses, the site had more than 330 million monthly active users and attracts about 14 billion page views per month.

Reddit likes to give back to the community. In February 2014, the company promised to donate 10% of all advertising revenue to charities chosen by Reddit. In early 2015, it was announced that the company earned $8.3 million and would be holding a vote to pick the 10 charities that would each receive $82,765. However, no similar efforts have been widely publicized since.