Reddit, the self-proclaimed “Front Page of the Internet” has celebrated its tenth anniversary last year. The website, known for its bare-bones user interface and strong community spirit, had a pre-money valuation of $500 million before raising additional capital in 2014, 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.

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 but remained a majority shareholder. 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 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.

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, allowing users to filter comments, allow for better comment management and allow the user to 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, in 2012, the site had 2.07 billion page views and 240 servers to support them. In 2014, user calculations, which were called “not terribly off but […] not super close” by then-CEO Yishan Wong, estimated that one server costs $8,280 annually. Accounting for technological increases in server capacity, Reddit could have approximately 400 servers running in 2015 at the cost of $3.8 million a year. This, of course, in addition to the 70 or so employee compensation packages and other fixed expenses the company has.

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.

The Bottom Line

Despite being owned by a leader in the publishing industry, Reddit’s management isn’t eager to monetize the “Front Page of the Internet” anytime soon. 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.

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