Reddit is winning over advertisers by showing that it’s different than other Internet platforms, which often rely on users’ identities and personal information to target ads. — Photo by Brett Jordan on Unsplash
Reddit Inc spent more than a decade known as the Internet’s edgy bulletin board, a site where mostly anonymous users could post memes and share wild opinions on topics ranging from investing advice to Taylor Swift’s love life. It was also a service many advertisers tended to avoid.
Now, six months into life as a publicly traded company, Reddit is winning over advertisers by showing that it’s different than other Internet platforms, which often rely on users’ identities and personal information to target ads. Instead, Reddit is targeting people based on their interests, relying on the site’s deeply detailed communities – called subreddits – to match advertisers with potential customers.
Unlike many of its much larger advertising competitors, including Alphabet Inc’s Google, Meta Platforms Inc and Amazon.com Inc, Reddit has mostly anonymous users. That means the company can’t always rely on personal information like gender or location to serve the ideal ad to the ideal customer.
But users who don’t identify themselves tend to be more open and honest with their posts and their interests, said Jen Wong, Reddit’s chief operating officer.
“When people come to Reddit, they reveal things about themselves that they would not reveal on other platforms,” said Wong, who joined Reddit in 2018 after holding the same title at Time Inc.
The site’s themed discussion forums give Reddit a chance to precisely align advertisers with those interests. That might mean adding a financial services ad in a group about investing, or a car ad promoting extra cargo space in a forum about camping. Reddit has more than 100,000 such communities organised around topics ranging from skin care to parenting tips.
Reddit’s executives are hoping that contextual- or interest-based advertising, as the approach is called, will set the site apart in a crowded digital advertising industry dominated by Meta and Google. Early returns on that strategy have been promising. The text-based site easily surpassed expectations in its first two earnings reports this year, disclosing strong sales and better-than-expected projected growth. The stock is up 66% from its US$34 (RM148) initial public offering price in March.
Beyond targeting subreddits, the company also can use specific keywords to sell what it calls conversation ads. If a Redditor in r/HydroHomies – a community about the benefits of drinking water that has more than 1.2 million users – asks for advice about a specific brand of water bottle, an ad for that exact product could appear next to that user’s post. These conversation ads are the fastest-growing ad format on the platform, the company said.
They also give marketers a chance to appear in subreddits where customers are already talking about them. “We want to engage with our community where there is already traction,” said Aaron Jones, vice president of ecommerce and media for Liquid I.V., a Unilever Plc brand that makes powdered drink mixes and has been advertising on Reddit since 2021.
Selling advertisers on this interest-based approach can be a challenge since targeting based on a user’s identity has become expected on so many other digital platforms. While Reddit can use some people’s gender and location, users don’t have to share their gender and anyone can opt-out of sharing their location.
That is a constraint with advertisers, Wong acknowledged. “So much of the digital economy for a long time was based on demographics and profiling.”
The platform’s colourful history can also complicate its pitch to marketers. Redditors are known for being rowdy, free-spirited and unafraid to speak their minds. The site’s users have openly revolted against prior executives, taken their subreddits offline over unwanted policy changes and threatened to bet against Reddit’s own IPO.
For years, the site also had a reputation as the wild west of the Internet. Reddit’s forums were known for hosting a maelstrom of unsavory content, such as racism or nonconsensual sexual images, that kept advertisers and investors at bay.
Marketers are often hesitant to buy ads if those messages could end up next to something distasteful. The social network X, for example, saw its advertising revenue decline close to 50% after Elon Musk purchased the site and cut back on content moderation practices, which spooked image-conscious brands.
But those passionate users can also bring a benefit. “You can actually reach people that no other channel can reach,” said Jack Johnston, senior social innovation director at performance marketing agency Tinuiti, which buys ads on Meta, Pinterest, X and Reddit. He pointed out that an estimated 52% of people on Reddit are not on X, for example.
Despite being around for close to 20 years, Reddit only started investing heavily in its advertising business in 2018, and is now hoping that marketers and investors are ready to acknowledge the site has grown up. Executives often point to its unique form of content moderation as proof that it’s a safer place for brands than other sites.
Reddit largely relies on a group of more than 60,000 human moderators – users who volunteer to serve as a sort of content police – to flag or take down unsavory content. On top of that, the site has a voting system so users can rate the quality of content.
“From everything we’re seeing, they have a level of brand safety and content safety for advertisers that is very comparable to most other social platforms,” Johnston said. “That wasn’t necessarily the case a couple years ago.”
Those improvements have paid dividends. Reddit recently signed new content partnerships with major sports leagues, including the NFL, NBA and MLB, and the majority of Reddit’s advertising revenue comes from Fortune 500 companies. Last year, the site made close to US$800mil (RM3.48bil) in ad sales, and counts marquee brands like Toyota, Disney, Samsung and Ulta Beauty among its advertisers.
This year, analysts expect Reddit’s overall advertising business to eclipse US$1.1bil (RM4.79bil) in revenue and see the company reaching US$2bil (RM8.72bil) in sales as soon as 2027, according to data compiled by Bloomberg. To get there, Reddit will need to court smaller marketers, too.
The company makes more than 25% of its revenue from just 10 advertisers, meaning any unexpected pullback from a key partner could have a significant impact on the company’s business, said Dan Salmon, lead analyst at New Street Research. “This army of small businesses – that’s the most important thing for all of those platforms, for Reddit, for Pinterest, for X,” he said.
Reddit’s pitch to smaller advertisers, which include Cotopaxi, Mint Mobile and DraftKings, is that they can find entire communities of people passionate about their area of business. Advertisers large and small say they’re already planning to spend more on Reddit in the coming quarters.
“We are seeing investment grow pretty substantially in Reddit,” said Tinuiti’s Johnston. During the first half of the year, Tinuiti’s clients spent more than three times as much money on Reddit ads than they did a year ago, he said.
“We’re organised into these 100,000 communities that are all niche interests,” Reddit’s Wong said. “So for each one of them, there is a segment of advertiser that we know matches to those communities.” – Bloomberg
