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.

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