How Does Reddit Make Money? The Reddit Business Models In A Nutshell

Reddit is a social news and discussion website that also rates web content. The platform was created in 2005 after founders Alexis Ohanian and Steve Huffman met venture capitalist Paul Graham and pitched the company as the “front page of the internet.” Reddit makes money primarily via advertising. It also offers premium membership plans.

Reddit Origin Story

Reddit is a social news and discussion website that also rates web content.

The platform was created in 2005 after founders Alexis Ohanian and Steve Huffman attended a lecture by programmer and entrepreneur Paul Graham.

After his lecture, Graham spoke with the pair and invited them to apply for his start-up incubator Y Combinator.

Ohanian and Huffman initially pitched an SMS-based food ordering service, but it was deemed unviable.

Their second attempt, imagined by Graham as the “front page of the internet”, did receive funding from Y Combinator and was launched as Reddit in June of the same year.

In October 2006, Conde Nast Publications acquired Reddit – with Graham and Ohanian leaving the company three years later once their contractual obligations had ended.

In 2014, Reddit secured several high-profile investments and was valued at $500 million.

The following year, Huffman returned to the company to serve as CEO. Several subsequent rounds of funding culminated in a $300 million investment by Tencent in 2019, valuing Reddit at $3 billion.

In February 2012, valuation had doubled to $6 billion.

Reddit ongoing popularity

One of the things that strikes the most when looking at Reddit is its ability (nonetheless being a social media site) to be popular for over a decade.

Indeed, Reddit managed to be interesting to newer generations that can engage in discussions around anything.

The Reddit Brand’s Search Volume trend over the years. Opposite to other social media and sites, Reddit managed to keep growing its popularity over the years, thus as 2021, still representing among the most searched websites across the globe (Data Source: KW Everywhere).

Reddit revenue generation

Reddit makes money primarily through selling advertising space and membership plans.

Advertising space

Advertising space is sold in two ways:

  • The first is the Reddit Ads managed service for large-scale advertisers or political advisors with a minimum advertising budget of $50,000 per quarter. Advertisers are given access to a dedicated Reddit sales team and a full suite of tools and best practices.
  • The second form of advertising involves an auction-based system where advertisers bid using a click per thousand (CPM) model. Prices per 1,000 impressions start at $3.50 and then rise as bidding commences.

Advertising on the Reddit platform arguably requires more finesse when compared to other platforms.

Reddit users are privacy-conscious and are highly suspicious of paid advertisements.

Nevertheless, companies such as Nissan, McDonald’s, Subaru, and Costco have been relatively successful on the platform.

In recent years, advertising has taken the form of sponsored AMA (Ask Me Anything) sessions and other interactive events that promote a more organic form of paid promotion.

Native mobile advertisements followed soon after.

Membership plan

Reddit users can also choose to sign up for the ad-free Reddit Premium membership plan.

Reddit charges $5.99/month for this service. In addition to an ad-free experience, premium members also receive a monthly supply of 700 coins to award to other members. They also get exclusive access to selected subreddits and a personalized avatar called a snoovatar.

Content agreements

In 2019, Reddit signed an advertising and content generation deal with the NFL.

Players and other key personnel from the National Football League participated in AMAs while the NFL itself produced and supplied video content.

While Reddit did not earn a direct free from the content agreement, it is safe to assume the extra traffic brought an increase in ad revenue.

There is potential that content agreements also result in sponsorships and other forms of revenue as Reddit works with other organizations to produce content.

Key takeaways:

  • Reddit is a social news and discussion website founded in 2005 by Alexis Ohanian and Steve Huffman. The idea for the platform was pitched to Paul Graham, founder of the start-up accelerator program Y Combinator.
  • Reddit makes money by selling advertising space in two ways. The Reddit Ads managed service give large businesses with deep pockets access to a sales team and propriety tools. There is also an auction-based CPM system.
  • Reddit also offers a membership plan to its users, giving them an ad-free interface plus access to coins and custom avatars.

Read Next: Google Business Model, Facebook Business Model, TikTok Business Model, Pinterest Business Model, Clubhouse Business Model.

Comparables: Quora Business Model, Twitter Business Model, Amazon Business Model, GitHub Business Model, Medium Business Model.

Related Business Models

Google Business Model

Google is a platform, and a tech media company running an attention-based business model. As of 2021, Alphabet’s Google generated over $257 billion in revenue. Over $209 billion (over 81% of the total revenues) came from Google Advertising products (Google Search, YouTube Ads, and Network Members sites). They were followed by over $28 billion in other revenues (comprising Google Play, Pixel phones, and YouTube Premium), and by Google Cloud, which generated over $19 billion in 2021.

Attention-Merchants Business Model

The organization doesn’t monetize the user directly in an asymmetric business model. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Asymmetric Business Model

In an asymmetric business model, the organization doesn’t monetize the user directly. Still, it leverages the data users provide and technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data and its algorithms sold to advertisers for visibility.

Facebook Business Model

Facebook, the main product of Meta, is an attention merchant. As such, its algorithms condense the attention of over 2.91 billion monthly active users as of June 2021. Meta generated $117.9 billion in revenues, in 2021, of which $114.9 billion was from advertising (97.4% of the total revenues) and over $2.2 billion from Reality Labs (the augmented and virtual reality products arm). 

TikTok Business Model

TikTok is a Chinese creative social media platform driven by short-form video content enabling users to interact and generate content at scale. TikTok primarily makes money through advertising, and it generated $4.6 billion in advertising revenues in 2021, thus making it among the most popular attention-based business models or attention merchants.

Instagram Business Model

Instagram makes money via visual advertising. As part of Facebook products, the company generates revenues for Facebook Inc.’s overall business model. Acquired by Facebook for a billion dollars in 2012, today Instagram is integrated into the overall Facebook business strategy. In 2018, Instagram founders, Kevin Systrom and Mike Krieger left the company, as Facebook pushed toward tighter integration of the two platforms.

YouTube Business Model

YouTube was acquired for almost $1.7 billion in 2006 by Google. It makes money through advertising and subscription revenues. YouTube advertising network is part of Google Ads, and it generated more than $28B in revenue by 2021. YouTube also makes money with its paid memberships and premium content.

Twitter Business Model

Twitter makes money in two ways: advertising and data licensing. In 2021, Twitter generated $4.5 billion from advertising and $570 million from data licensing. While Twitter generated $5 billion in total revenues, it lost 221 million.

Quora Business Model

Quora is among the most popular Q&A platforms, where people can post questions and get answers to any question. Quora is also a great content marketing platform, where it’s possible, with the right strategy to amplify your content and build a strong brand and convert traffic in potential customers.

LinkedIn Business Model

LinkedIn is a two-sided platform running on a freemium model, where to unlock unlimited search and other features, you need to switch to a paid account. Acquired by Microsoft for $27 billion in 2016, LinkedIn made $5.2 billion in revenues in 2018 and nearly 630M members by October 2019.

Discord Business Model

Discord makes money in several ways. From its Discord Store, where users can buy premium games, to the seller shops, that primarily works with a 90/10 revenue share for developers and game sellers. And the ability for sellers to get more visibility on the platform by adding features to the game visibility.

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