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Can Reddit Grow Up Without Selling Out?

Can Reddit Grow Up Without Selling Out?

By Mike Isaac, The New York Times | Updated: 28 July 2014 10:47 IST

Since its founding nine years ago, Reddit has stuck to its own weird guns.

The site, where users find, share and talk about Web links and photos, has been faithful to an antiquated design and still looks like an online message board plucked from the 1990s - think Craigslist, but with more Lolcats. You don't need to hand over any personal data, not even an email address, to sign up and post or view an item. Discussions are often peppered with vulgar schoolyard humor.

And unlike many other Internet startups, Reddit has never fully embraced the dominant business model of selling advertising to support its free service.

But that is about to change.

The company is trying to jump-start its advertising business, as well as bolster some smaller moneymaking efforts. Its challenge is to figure out how to become a real business without changing the essential nature of the service and alienating its powerhouse constituency of 114 million intensely loyal monthly users.

If it fails, those users could revolt and ultimately depart en masse, turning Reddit into an also-ran like MySpace - another social Web giant that faded into obscurity.

"One of the things you have to be careful of when you have a site that's 100 percent community-driven is how best to support that community and not make them feel like you've sold out," said Kevin Rose, general partner at the venture capital firm Google Ventures. "You just don't want that community to blow up on you."

Rose knows a little about this. He co-founded Digg, a link-sharing site similar to Reddit that had millions of visitors at the height of its popularity. Tweaks to Digg's advertising strategy and site design ended in a mass exodus of its users.

Trying to avoid that fate, Reddit is moving slowly. The company already hosts a gift exchange, for instance, in which Reddit takes a cut of purchases made through participating vendors. There is also Reddit Gold, a premium membership program that users can purchase and award to one another.

"If we're thinking this hard about the user experience, why can't we try a little harder about the monetization?" said Alexis Ohanian, a Reddit founder and a member of its three-person board.

The main focus, though, is advertising, a small but growing effort. Four months ago, the company added staff to its sales team, which now has seven people.

It has also hired Ellen Pao, a former partner at the venture capital firm Kleiner Perkins Caufield & Byers, to head up business strategy.

"We're not monetizing to the full extent that we could," said Pao, who made headlines two years ago when she sued Kleiner Perkins in a sexual harassment case. "Our business comes from wanting to be able to continue to serve as a place where people build awesome communities."

That community is potentially a big prize for advertisers. Links that grow popular on the site often drive a surge of traffic elsewhere online. The activity has caught the attention of brands eager to show ads to large, enthusiastic audiences.

At the same time, Reddit's distinctive culture may be a hard sell.

Comment threads are often tough for the casual browser to understand. Many conversations are interrupted by in-jokes known only to longtime redditors, as users call themselves.

Also, the content can range anywhere from a quaint series of animal photos to an intense discussion about bitcoin to graphic pornography, all in a single thread. That could spook brands that do not want their ads displayed alongside not-safe-for-work material.

Pao and other Reddit officials declined to give specifics on how the push to gain ad dollars is going or to share any of the private company's revenue numbers. But last year, the company decided to continue spending on expansion while remaining unprofitable, according to a person familiar with Reddit's finances, who declined to be named because of continuing ties to the company. For Reddit, a large campaign from an advertiser runs in the $100,000 range, according to this person, while a good-size single ad sale is around $20,000.

The advertising strategy relies on leveraging the site's overall design. Users are able to create different subsections, or "sub-Reddits," focused on specific topics of discussion. There are over 7,000 active sub-Reddits, with hundreds more created daily.

"Makeupaddiction," for example, is a section dedicated entirely to beauty products and tips. Users post hundreds of conversation threads daily, often recommending different types of products to one another.

This is exactly where a brand wants to be, Reddit says. If a company like Estée Lauder bought an ad unit - a so-called "native ad" that looks similar to other Reddit conversation threads - at the top of the Makeupaddiction sub-Reddit, users in the thread would treat it less like an ad and more like content.

But some analysts say advertisers may be skeptical of Reddit's approach to user identity.

"People on Reddit want to be anonymous, and at some point these brands want to have a real relationship with their customers," said Brian Blau, an Internet analyst with Gartner Research. "Can Reddit deliver that over time?"

Others say Reddit's game plan is not where the advertising market is going. Many big brands are experimenting with purchasing ads through automated auction platforms, like those offered by Google and Facebook. These companies build profiles of users - age, Web browsing habits, sex - and use those demographics to deliver better, more targeted ads.

This is diametrically opposed to Reddit's refusal to collect users' personal data.

"Reddit is a 1998 product, trying to have a 1998 business model," said Gina Bianchini, chief executive of Mightybell, a social networking start-up. "How big is the market for interest-based advertising when the biggest customers are moving to programmatic buying?"

Reddit has struggled with advertising from the start. For years Reddit tried, and failed, to get more resources out of Condé Nast, its former parent company, to expand and maintain its business, say people familiar with the internal workings of Reddit, who declined to be named because of continuing ties to the company.

In 2011, Reddit was spun out as an independent company; Condé Nast remains a majority shareholder. A Condé Nast spokeswoman said Reddit currently operates independently by design.

At the moment, others may monetize Reddit's content even better than Reddit. Staff members at the website Buzzfeed routinely mine Reddit for popular photos and memes, then repackage that content into so-called "listicles" that go viral. Buzzfeed boasts more than 130 million monthly visitors - more than Reddit. Last year, Disney considered acquiring Buzzfeed for nearly $1 billion.

For Reddit, the effort to make money is part of other changes happening at the company. It has slowly started to introduce new features, like "trending sub-Reddits," to make the site easier to navigate. It also has plans to eventually release its own smartphone apps.

"All things change," and Reddit is "powerless like the pebbles being swept up in the fast-moving river," wrote Yishan Wong, the company's chief executive, in a recent Reddit post. (Wong declined to be interviewed for this article.) "Our goal is to make it change that you like, like when you go back to a mall you really liked when you were a kid and find that it's become really awesome."

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