Reddit Business Model

The Reddit business model is based on ads sales, as well as sponsored posts and promoted content, and premium features through subscriptions. Known as one of the most popular websites worldwide, Reddit has been around since 2005. It is a community-driven platform where users can post text and pictures and share their views on various topics, stories, reviews, and news.  It has a vast discussion forum network called “subreddits,” focused on topics ranging from technology, movies, books, music, food, etc. The users are also called “Redditors.”

They can share content and comment on other posts, or even begin separate discussions. Reddit also sells ad space to companies that want to reach their target audience. As mentioned, in addition to traditional banner ads, Reddit offers sponsored posts and promoted content, which target specific subreddits, ensuring they get the right audience.

Reddit also offers premium features, such as Reddit Gold, which provides users additional perks like access to The Member-Only Lounge and ad-free content. Reddit is successful because it focuses on creating a community-driven platform that provides value to users and advertisers. By enabling users to curate content, Reddit has become one of the most popular social media platforms in the world.

Brief History of Reddit

Reddit is a social news aggregation website founded in 2005 by Alexis Ohanian and Steve Huffman. They were college roommates and were at a lecture hosted by programmer Paul Graham during a spring break from their University. After the lecture, Graham invited both of them to join his class called “Y Combinator.” Their first idea was My Mobile Menu, which was intended to allow users to order food by text messaging, which was created during this period but was unsuccessful. While brainstorming for another startup, they devised another idea. This time, Graham called it the “front page of the Internet.” Upon the success of this idea, Ohanian and Huffman were accepted into Y Combinator’s first class. After receiving Y Combinator’s support and funding, Huffman and Ohanian worked together to launch Reddit in June 2005. The site started as an empty site, which prompted the founders to create hundreds of fake users to post to make the site look active and populated. 

In November 2005, Christopher Slowe joined the team. In January 2006, Reddit acquired Aaron Swartz’s company Infogami. In October 2006, Huffman and Ohanian sold Reddit to Condé Nast Publications for about $10 million before moving to San Francisco. However, in 2009, Ohanian and Huffman left Reddit. After this, Erik Martin, the community manager in 2008, became the general manager in 2011 and accelerated Reddit’s growth. Martin kept the site going and aided the purchase of Reddit Gifts. He also led many charity initiatives.

In 2009, Reddit launched a self-serve advert and sponsored content feature. In 2010, it started its premium plan called the Reddit Gold benefits program, which introduced many new features, such as ad-free content to users. Additionally, it became a new revenue stream for Reddit, eliminating its dependency on adverts. In September 2011, Reddit was no longer under Condé Nast’s ownership and became a separate subsidiary under Advance Publications. 

In 2012, Yishan Wong became Reddit’s new CEO. He later resigned from Reddit in 2014 because others disagreed when he proposed to move the company headquarters from San Francisco to Daly City. Wong was credited with the company’s newfound success because, during his administration, Reddit users grew to 174 million. During Wong’s time, the company raised $50 million in funding and became independent. Also, Reddit began to accept Bitcoin for payments through its partnership with Coinbase in early 2013. In 2014 Ellen Pao became interim CEO before resigning in 2015. As a CEO, she established an anti-harassment policy, stopped indirect sexualization, and closed many forums that harassed individuals and other forms of cyberbullying.

Ohanian and Huffman returned to Reddit after five years. Huffman became the chief executive, while Ohanian was the full-time executive chairman. After this return, Huffman launched both iOS and Android apps for Reddit and upgraded Reddit’s mobile website. In 2017, Reddit had its largest funding when it raised about $200 million and was valued at approximately $1.8 billion. In 2020, Reddit acquired a short-form video platform Dubsmash, including its entire team, intending to integrate its video creation tools into Reddit. In 2021, Reddit appointed Drew Vollero as its first Chief Financial Officer after the site became a center of attraction due to its role in the GameStop trading frenzy. Reddit acquired Spike Trap in September 2022, but the amount was not revealed. 

Reddit started as a simple link-sharing site. However, it quickly evolved into a platform where users could create and join communities, known as subreddits, to discuss various topics. Today, Reddit has over 430 million monthly active users and is valued at $10 billion. 

Who Owns Reddit

Reddit was founded by Steve Huffman and Alexis Ohanian in 2005, but it was later acquired by Condé Nast in 2006. However, in 2011, Reddit became an independent company when it was spun out of Condé Nast. Reddit has undergone several ownership changes but is now under the control of Advance Publications, where it will possibly remain for the future. Therefore, Advance Publications on Reddit. 

Reddit Mission Statement

Reddit’s mission is “to bring communities together and provide a platform for people to share their ideas, opinions, and experience.”

How Reddit works

Reddit is a social networking community where users can share views, discuss topics, and connect with like-minded individuals. The platform allows users to create communities, also known as subreddits, to post content related to a specific topic. Reddit’s main content consists of posts made by its users. Users can comment on other posts to keep the conversation going. 

A significant feature that Reddit has is that users can vote either positively or negatively, called upvotes and downvotes, for any post or comment on the site. The number of votes determines the posts’ visibility on the site, so the most popular content (with the highest Upvotes) is displayed to more people.

Users can also earn “karma” for posts or comments, showing their position and contributions to Reddit. Sometimes, posts are automatically archived after six months, which means comments and votes can not be made on such posts anymore. The upvote or downvote on posts determines their visibility on the platform and allows for a democratic system where the most popular content rises to the top.

How Reddit makes money

Reddit generates revenue through advertising, premium memberships, and partnerships with other companies.

Advertising

Reddit’s advert is unique because it allows advertisers to target specific subreddits or communities relevant to their products or services. This targeted approach has been successful in attracting advertisers who are looking to reach niche audiences. Reddit’s ads can be used in two ways: managed and self-serve. The price of managed ads and self-serve ads varies with the audience targeted. In 2019, Reddit made about $119 million in ad revenue. In 2020, the company’s ad revenue increased by 52.4% to $181.3 million, and in 2021 it was deemed that it would increase by 44.4% to $261.7 million. However, it was later known that in the second quarter of 2021, Reddit earned $100 million in ad revenue. 

Premium Membership

Apart from adverts, Reddit offers premium memberships called Reddit Gold that provide users with additional features and benefits. These memberships are a source of recurring revenue for the company, and they have successfully attracted a loyal user base. Users who subscribe to Reddit Gold have their ads off whenever they want, allowing users to manage, filter and save comments they like and put them in categories. The premium plan costs $5.99 per month or $49.99 per year. In 2021, about 344,000 Reddit users brought in $17.21 million in revenue for the platform, an increase from 2020, when the revenue generated from premiums made up only $12.38 million. 

Partnership

In addition, Reddit partners with other companies to offer sponsored content and other promotional opportunities. These partnerships have successfully generated revenue for the company while providing value to its users.

Reddit Business Model Canvas

The Reddit Business Model can be explained in the following business model canvas:

Reddit Customer Segments

Reddit’s customer segments are:

• Businesses
• Analysts
• Investors
• Individuals

Reddit Value Propositions

Reddit’s value propositions are:

The value proposition for businesses:

• Generate leads: Reddit has a large user base. Therefore, it is very effective in creating traffic. Advertising on Reddit creates more traffic than most social media platforms. The platform provides a perfect advertising opportunity for businesses. When appropriately used, Reddit can reach a large audience and increase online business visibility and, in turn, sales. As such,  Reddit enables businesses and companies to choose the target audience for their adverts amongst the numerous users on the platform by using Subreddits. It also has a ranking system on Reddit that enables businesses to examine how well the targeted audience receives adverts. Hence, appropriate steps can be taken to make improvements;
• Improve marketing: Businesses can also use Reddit in the following ways: Affiliate marketing, Social listening, Market research,  Hosting AMA (Ask Me Anything), and creating subreddits. Reddit also helps to make a good niche for businesses.

The value propositions for analysts:

• Research: Analysts can use Reddit for research by monitoring engagements on topics that concern their industry. This makes them understand their target audience’s needs better and know their views on related subjects.

The value proposition for individuals:

• High-level interaction with others: It is straightforward to create an account on Reddit. Users can indulge in their interests and discover new ones by subscribing to Subreddits on the forum. Redditors can also share new things and discuss various topics, broadening their knowledge horizon. However, spamming must be avoided to enjoy the platform;
• A sense of community: Reddit provides its users with a sense of community that is difficult to find on any other social networking site. It makes the concept of the world as a global village more real. One of the ways it does this is to ensure the platform is secure. Users can engage in discussions without creating an account. Contents created are safe and cannot be accessed by hackers, nor can spammers steal information easily. Besides, getting followers in Reddit communities is easy.

Reddit Channels

Reddit’s channels are:

• Website
• Mobile app (Android and iOS apps)
• Social Networks

Reddit Customer Relationships

Reddit’s customer relationships comprise:

• Social media
• Email
• Customer Support Center
• Automated recommendations

Reddit Revenue Streams

Reddit’s revenue streams are:

• Advertising
• Premium services
• Company Partnership

Reddit Key Resources

Reddit’s key resources include:

• Technological infrastructure
• User-generated content
• Community moderators
• Advertising partners

Reddit Key Activities

Reddit’s key activities include:

• Improving and sustaining its technological infrastructure
• Monitoring its user content
• Developing new features
• Sustaining partnerships
• Marketing
• Operation costs

Reddit Key partners

Reddit’s key partners include:

• Moderators
• Advertising partners
• Technology partners

Reddit Cost structure

Reddit’s cost structure includes:

• Web hosting costs
• Server maintenance costs
• Technological development costs
• Employee salaries
• Marketing expenses
• Legal management
• Securing intellectual property rights.

Reddit Competitors

Primarily, Reddit competitors are social media forums, content-sharing sites, and online communities. Some of Reddit’s competitors include:

• Discord: Discord was once a communication forum for online gamers. However, it evolved and began to include forums for online audiences and also private chat rooms for groups and limited communities. Like Reddit, Discord has been designed and divided into channels for different topics. The user base on Discord is highly customizable by the moderators who manage the community. Users can engage in the community via text chat, video, and voice calls;

• Hacker News: Hacker News site interface looks very similar to Reddit. Hacker News users can share links for others on the platform to vote and comment about. The platform targets computer engineers with current topics of interest;

• Quora: Quora is a social question-and-answer site. It can be described as a forum in which one may find answers to questions that may not be found on Google easily. Quora has numerous forums on varieties of topics. Answers to questions can be given as comments by people who think they know the subject.  Asides from professional answers, anyone can answer, sometimes leading to unhealthy exchanges;

• Hive: Hive is a forum for discussions over different topics. Although it’s not close to being as big as Reddit, the website’s interface will make an almost perfect substitute for Reddit, with its similar post layout. Asides from that, Hive also has upvotes and downvotes features and communities, just like subreddits;

• 4chan: 4chan is an imageboard that allows its users to post images on their favorite boards and post comments on other people’s content as well. Anyone can share their pictures and also post comments without creating an account. One can participate in favorite communities without having to register an account;

• Product Hunt: A platform where users hunt for available products, such as the latest tech in games and music. Users can get a list of products people create and share them with the world. Users can comment on other people’s creations. They can also create lists to share with everyone on the website. People share tech-related content with people in the community so that anyone can join and share their views. Although it is different in its specific features and target audience, it competes for user contribution and growth in its user base;

• Slashdot: Slashdot is a platform that offers the latest technology news from various sources. It makes it easy for anyone to get the latest news. An account is not needed to access the site. Anyone can visit the site and get all the technology news from different sources on the home page. Users can also participate in the discussions and comments on the content on the site;

• Mix: Mix is another platform that contains content submitted by various people from around the world. Formerly known as ‘StumbleUpon,’ it gives users access to content on different topics on the site. All the submitted content can also be accessed in the mobile app or browser.

Reddit SWOT Analysis

The Reddit SWOT analysis is as follows:

Reddit Strengths

• People-Oriented: Reddit is provided mainly for the use of people, which means everyone can share their opinions. It’s free and also an open platform for content discussion;

• Diverse User Base: About 48% of Reddit users are from the U.S., and over 138 thousand content categories can be commented on and rated anywhere in the world;

• Content Validation: This feature checks content authenticity by either upvoting or downvoting, ensuring valuable and relevant content is promoted while irrelevant ones are disregarded;

• Various Topics: With more than 138 thousand categories on Reddit, users can discuss topics they want. These topics include information from all over the world to keep users up-to-date;

• Customer Retaining Features: Reddit has features to retain users, such as coin gifts a user gets if their content gets a comment or value from a viewer. This makes users eager to use the app again to earn more coins;

• Open Discussion: Reddit is a great place to hold debates. People with different perspectives from different parts of the world are on Reddit. This diverse group makes it possible to learn different views on various topics;

• Generating Website Traffic: Reddit offers free traffic for websites as long as they share content that other users would find interesting. Alternatively, discussions about a niche can be started if it generates interest among Redditors;

• User Privacy: While registering on many platforms, information such as real name, birthday, and contact numbers are often required. Sometimes, a photographic ID and other personal details are requested. On Reddit, users do not need to reveal personal information. The only requirements are a username, password, and a valid email address. 

Reddit Weaknesses

Despite its strengths, Reddit is not without its weaknesses. Some of them are:

• Offensive Contents: Due to Reddit being an open platform, anyone can share their views and opinions without any validity of a morality check. This can offend people who easily get angry, especially if their content gets downvoted or gets wrong responses;

• Old and Outdated Design: Despite being in use for a long time, Reddit still uses an old and outdated design, making users change to similar platforms like Quora;

• Numerous Categories: The numerous categories on Reddit can easily change users’ original motives for using the platform. For example, entertaining posts, which are attractive, easily distract users from other content;

• Monitoring Issue: Reddit has sub-platforms called Subreddits, many of which are not adequately monitored. This can spread wrong information to viewers;

• Server Crash: Reddit is known to have a large user base. Therefore, the ads often crash because of the high traffic. Asides from the ads, numerous people trying to access the site simultaneously also leads to a server crash;

• Unfollowed Rules: Even though Reddit has rules guiding against harassment and bullying, some users still post offensive content because of the leniency of the Reddit system;

• Poorly Organized Layout: Reddit seems poorly organized to people because of its layout. Much cannot be done to customize profile pages or to create folders for separate Subreddits;

• Information Overflow: A lot of information is posted on Reddit daily, making it challenging for users to review their shared content. This means a lot of time may be spent sifting through a lot to find specific information;

• Misleading information: Due to the voting system on Reddit, users tend to believe content that is upvoted without confirming the facts. This can be very misleading.

Reddit Opportunities

Below, there are some opportunities Reddit can take advantage of to strengthen its position in the market:

• Expansion: Reddit slogan says “the front page of the internet” This means with the right partnerships, they can grow large enough to create a platform that would be recognized as the “world’s homepage;”

• Merging Opportunities: As part of its expansion, Reddit can easily merge with search engines like Google for more viewership and quality traffic;

• Transitioning to Social Media Platform: Reddit is already known for its opinion-sharing platform, but it can easily transition to become a top social media platform like Twitter and Facebook;

• Customizable Options: To maintain and increase its user base, Reddit could include an easily customizable option, allowing users to use Reddit with their own choices and preferences.

Reddit Threats

Below, there are some of Reddit’s threats:

• Dynamic Website Design: Most recently, many websites have flashy designs and likable features. This can easily overcome Reddit because of its old and outdated features and designs;

• Censorship Laws: Due to censorship laws, Reddit has limited some of its sections, and users no longer have access to the freedom Reddit provides;

• Regional Blocking: There are certain countries and regions where Reddit has been blocked, like China. This affects and reduces Reddit’s Goodwill in other countries;

• Competitors: With competition from other social media platforms, especially those with similar features to Reddit or even a better experience, Reddit’s position is highly threatened because it could lose its users to a better platform. 

Conclusion

Reddit’s success is based on the power of community and the importance of providing a space where people can come together to discuss their passions and interests. By fostering community, Reddit has created an environment where users feel comfortable sharing their thoughts and ideas, making some of the most vibrant and engaging online communities. By being quick and open to new opportunities, Reddit can easily use its strengths to expand its market valuation while managing weaknesses to eliminate all potential threats.