The business model of Reddit

  • Business Model Shifts

It is hard to imagine that the World Wide Web was released just under thirty years ago. Its release signified a new industrial revolution, humanity was set on a path that has led to exponential progress. Within a few years the content on the internet was entirely controlled by businesses and advertisers. In a world where people wanted higher quality content that they could more actively engage with, there was definitely a gap to fill. Fast forward a few more years to 2006 and the internet became so popular that it has begun to see websites like YouTube, Twitter and Reddit taking over by storm. These companies sought to make the internet an interactive place, where users could create and react to their own content.

 

Let’s interact

Take a second and think about what websites get the most traffic. According to Alexa.com in 2018 the frontrunners were Google, YouTube and Facebook. Reddit took the 4th place. That is a heck of a lot of traffic. How can a site that people have barely heard of be one of the world’s most popular internet destinations? To the avid user of the website, Reddit remains one of the world’s last undomesticated melting pots. “We called ourselves the front page of the Internet. These days, I tend to say that we’re a place for open and honest conversations—‘open and honest’ meaning authentic, meaning messy, meaning the best and worst and realest and weirdest parts of humanity.” said CEO of Reddit Steve Huffman.

 

The Business model canvas of Reddit

Business Model Canvas Reddit

 

Sense of belonging

The idea of the site is that users post any type of content and other users either give it an upvote or a downvote. Otherwise people simply share their opinions on the content in the comment section. The website is basically a discussion site which is arranged in a crudely designed bulletin board layout. How has a fairly simple concept grown to become one of the most visited websites in the world? Through the creation of communities. Reddit has over one million individual communities on the platform. These communities are referred to as “subreddits”. From the /r Pokemon subreddit for the users that gotta catch’em all to the /r Entrepreneur subreddit for the entrepreneurship enthusiasts. All these communities are user led and there is a strong sense of belonging felt amongst all the members. Some subreddits are home to just four members while others are bustling with over twenty million users.

 

Ads that don’t get in the way

The website has been selling advertising space on its platform since 2009. Advertising is the website’s primary revenue stream. However, Reddit has heavily managed how it advertises and collects data. Reddit does not require email addresses and does not track personal information. By not collecting this information, the platform continues to make its users very happy. At the same time the company doesn’t want to lose out on a lot of advertising income. The platform is quite literally sacrificing profits in order to keep their customers happy. Furthermore, all auto-play ads are disabled on the website which keeps Reddit whitelisted from a lot of ad blockers. Is the income that lost from the lack of data collection recovered through their unblocked ads? We do not know for sure. But Reddit users are incredibly happy with the platform. Another revenue stream is Reddit Gold. A premium service that users pay a monthly subscription for. Reddit Gold unlocks ad-free browsing and extra editing features. Brands also offer their services for free to Reddit Gold users in exchange for exposure. Reddit Gold also provides a much less intrusive way to generate income that the traditional advertising model.

 

Speak your mind

Reddit has always aimed to be a place where people come to be thrust into a multimedia enabled alternate reality. A place where people come to explore the realms of the human mind with little to no censorship. So the platform tends quite relaxed when it comes to topics discussed. This encouragement of free speech has strengthened the site’s appeal to users. It is this appeal that fuels the creation of the seemingly limitless supply of user-generated content that builds the foundation of the platform’s core value proposition. The individual communities have their own admins and nearly all the subreddits have codes-of-conduct, allowing for self-moderation. However, the Reddit administrators will intervene if there is a breach of human rights or of their websites terms and conditions. Users feel a lot of ownership of the subreddits they are a part of, these users also end up recruiting new users to join their little slice of the internet. Which in turn benefits Reddit as a whole. The simple yet effective concept of word of mouth has helped Reddit grow exponentially.

 

In more recent years, Reddit continues to find new ways to keep fresh and give their users more value. The Reddit Public Access Network, is a video streaming service that allows users to broadcast themselves. By staying ahead of the trend Reddit is able to continue strengthening the customer relationship.

The bottom line is that Reddit is not eager to focus solely on the monetization of its users. The main focus lies on creating an environment where absolutely any internet user can discuss almost anything. By going against the trend of massive data exploitation and still growing so rapidly shows us that one way to achieve exponential impact is by focusing on making the customer, not their data, the biggest asset. A satisfied customer is the best form of advertising.

 

This case is part of the research for our upcoming book Business Model Shifts.

 

Please keep me informed about the new book

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