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Good morning! It's Thursday, November 16th. Today’s post looks at Reddit, the internet news aggregator and discussion site that generated $670M in revenue last year!

THE FEATURE

Reddit– Generating $670M a Year from Community Forums

Back in the 90s and early 2000s, internet forums were all the rage. While most traditional internet forums are gone, their format still exists and is best embodied by Reddit. 

Reddit has 430M monthly active users and made $670M in revenue last year!

So, What’s the Business?

University of Virginia roommates Steve Huffman and Alexis Ohanian founded Reddit in 2005 after receiving funding for their idea from Y Combinator. They created Reddit (Read It) as a community forum aggregator, allowing people to discover and share interesting web content.

The platform is free to use and is a web traffic powerhouse with approximately 1.7B website visits a month. However, there are an estimated 473K premium subscribers that get access to an ad-free experience and exclusive VIP features for $5.99/month.

Reddit’s primary revenue stream is its digital advertising, which has seen massive growth over the last five years: 

• 2018: $60.5M

• 2019: $109.5M

• 2020: $176.1M

• 2021: $362.82M

• 2022: $503.35M

The explosion in ad revenue has a lot to do with the company’s recent inclusion of small and mid-sized advertisers. Many social media platforms have high minimum ad spends, but on Reddit, the minimum daily ad spend is just $5 per campaign. 

More and more advertisers are moving to Reddit because they’ve seen sizable ROIs from targeting specific subreddits that are home to their consumer base.

How They Win: Creating a Business Around Community

For Reddit CEOs, the ardent community of Redditors is the company’s lifeblood, but they can also cause many headaches– a “live by the sword, die by the sword” scenario. 

Redditors covet two things: free speech and anonymity. Interim CEO Ellen Pao learned this the hard way in 2015 when an online petition for her resignation got 200K signatures after she banned controversial subreddits like r/fatpeoplehate. The board ultimately asked her to resign.

Even worse, Redditors’ obsession with anonymity would make the user data harvesting seen at companies like Facebook and Instagram impossible without a consumer revolt.

Despite these drawbacks, Reddit’s tight-knit group of users provides unique benefits that make the platform appealing to advertisers. 

Targeted Advertisement 

Reddit does not sell data to advertisers because it doesn’t need to. There are currently over 3M subreddits covering a wide array of topics, allowing everyone from horror movie fans to knitters to find their niche. 

With active groups of sometimes millions of users around very specific topics, advertisers can simply select which subreddit is the best fit for their product and have their promotions featured in its feed. 

Community Self Moderation

Social media companies have long been under pressure from government agencies and, more importantly, advertisers to moderate user content to eliminate offensive posts. For example, Facebook has spent over $13B on safety and security efforts and at least $500M a year on content moderation subcontractors. 

But for Reddit, it has some of the best content moderation of any social media platform and doesn’t need to pay a dime for it. That’s because each subreddit has a group of active members promoted to moderator status. Mods are chosen by the subreddit creator and are often people who post frequently or submit applications proving their expertise in the area. 

As a result, Reddit doesn’t have to pay for content moderation subcontractors like Facebook and other platforms do. In addition to saving money, user moderators are far superior to third-party overseers as they are legitimate forum enthusiasts who accurately understand the context behind posts, preventing over-censorship and user backlash.

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