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. Reddit is one of the most visited sites on the web, gathering hundreds of millions of unique visitors every month, and the site posts significant income – purportedly over $100 million in 2018 – through a variety of income streams. 

Reddit has been selling ad space since 2009. Today, there are two ways to advertise on the website: through managed, or through self-serve ads. Pricing for Reddit’s managed ads starts at $30,000. The self-serve advertisements cost $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 one cent higher than the next highest bidder.

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. 

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, as well as more substantial sponsorships. 

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 does not require email addresses for account registration and does not track users’ personal data. Without obtaining more targeted data about its users and the high CPM revenue that flash and pop-up ads command, Reddit will not be able to increase its advertising revenue without upsetting their users. 

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 is a membership plan that allows users to pay for premium features. As of October 1, 2018, it costs $3.99 a month or $29.99 per year and is a form of site-specific currency that 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. They are advertising to a paying demographic and can expect to see higher conversions as a result of their primed audience. 

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 was available in the App Store until Reddit published and launched its own official app in April of 2016.

Despite being owned by a leader in the publishing industry, Reddit’s management does not seem eager to monetize the “Front Page of the Internet" in a way that detracts from the user experience. With a community that is essential to its existence but also hesitant to change, it appears as though Reddit will need to replicate the type of out-of-the-box thinking that resulted in Reddit Gold and certain products.