Reddit Competes With Meta and Google Using Topic-Based Advertising — Not Your Data
![Reddit Competes With Meta and Google Using Topic-Based Advertising — Not Your Data](https://news7g.com/wp-content/uploads/2024/08/Reddit_1686334122198_1724647899105-780x470.jpg)
Reddit Inc. has spent more than a decade known as the internet’s edgy message board, a site where mostly anonymous users can post memes and share wild opinions on topics ranging from investment advice to Taylor Swift’s love life. It’s also a service that many advertisers tend to avoid.
Now, six months into its public existence, Reddit is winning over advertisers by demonstrating that it’s different from other internet platforms, which typically 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 connect 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’s users are largely anonymous. That means the company can’t always rely on personal information like gender or location to deliver the ideal ads to the ideal customers.
Read more: Reddit Bans Microsoft Edge, DuckDuckGo, and Most Search Engines Other Than Google: Here’s Why
But users who don’t identify themselves tend to be more open and honest about their posts and interests, said Jen Wong, Reddit’s chief operating officer. “When people come to Reddit, they reveal things about themselves that they wouldn’t reveal on other platforms,” said Wong, who joined Reddit in 2018 after holding the same title at Time Inc.
The site’s topic-based discussion forums give Reddit the opportunity to match advertisers precisely to those interests. That could mean adding a financial services ad to a group about investing, or a car ad advertising extra cargo space in a camping forum. Reddit has more than 100,000 such communities organized around topics ranging from skin care to parenting tips, and more than 90 million people visit the site every day.
Reddit executives hope that contextual or interest-based advertising, as the approach is called, will help the site stand out in a crowded digital advertising industry dominated by Meta and Google. Early returns from that strategy have been promising. The text-based site easily beat expectations in its first two earnings reports this year, reporting strong sales and projecting better-than-expected growth. Shares have risen 66% from their initial public offering price of $34 in March.
In addition to targeting subreddits, the company can also use specific keywords to sell what it calls conversational ads. If a Redditor in r/HydroHomies—a community about the benefits of drinking water with more than 1.2 million users—asks for advice on a particular brand of water bottle, an ad for that exact product might appear next to that user’s post. The company says these conversational ads are the fastest-growing ad format on the platform.
They also give marketers a chance to appear on subreddits where customers are already talking about them. “We want to engage with our community where the traction is already there,” said Aaron Jones, vice president of e-commerce and communications for Liquid IV, a Unilever Plc brand that makes powdered drink mixes and has been advertising on Reddit since 2021.
Selling ads using this interest-based approach can be challenging, as targeting based on a user’s identity has become expected on so many other digital platforms. While Reddit can use a person’s gender and location to target ads, users don’t have to share those details, although Reddit can still infer a user’s general location using their IP address.
Wong admits that this is a limitation for advertisers. “For a long time, a lot of the digital economy was based on demographics and personal profiles.”
The platform’s tumultuous history can also complicate its pitch to marketers. Redditors are known for being loud, outspoken, and unafraid to speak their minds. The site’s users have publicly protested past executives, taken their subreddits offline over unwanted policy changes, and threatened to bet against Reddit’s IPO. The site has also had a reputation for being the Wild West of the internet over the years. Reddit’s forums have been known to host a range of unsavory content, such as racism or nonconsensual pornography, which has kept advertisers and investors away.
Marketers are often reluctant to buy ads if those messages could end up alongside something unpleasant. Social network X, for example, saw its ad revenue drop nearly 50% after Elon Musk bought the site and cut back on content moderation, scaring off image-conscious brands.
But those passionate users can also be beneficial. “You can actually reach people that no other channel can reach,” says Jack Johnston, senior director of social innovation at performance marketing firm Tinuiti, which buys ads on Meta, Pinterest, X, and Reddit. He points out that an estimated 52% of Reddit users don’t use X, for example.
Despite being around for nearly 20 years, Reddit only began investing heavily in its advertising business in 2018, and is now hoping that marketers and investors are ready to acknowledge that the site has evolved. Executives often point to its unique form of content moderation as evidence that it’s a safer place for brands than other sites. Reddit relies heavily on a team of more than 60,000 moderators—users who volunteer to police content—to flag or remove objectionable content. On top of that, the site has a voting system so users can rate the quality of content.
“From everything we’ve seen, 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 few years ago.”
Those improvements have paid off. 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. The site made nearly $800 million in ad sales last year and counts big-name brands like Toyota, Disney, Samsung, and Ulta Beauty among its advertisers.
This year, analysts expect Reddit’s overall advertising revenue to surpass $1.1 billion, and the company could hit $2 billion in sales as early as 2027, according to data compiled by Bloomberg. To get there, Reddit will also need to attract smaller marketers. The company gets more than 25% of its revenue from just 10 advertisers, meaning any sudden exit from a key partner could have a significant impact on the company’s business, said Dan Salmon, principal analyst at New Street Research. “This army of small businesses—that’s the most important thing for all of these platforms, for Reddit, for Pinterest, for X,” he said.
Reddit touts smaller advertisers, including Cotopaxi, Mint Mobile and DraftKings, as being able to tap into entire communities of people passionate about their businesses. Advertisers large and small said they planned to spend more on Reddit in the coming quarters.
“We’ve seen significant growth in investment on Reddit,” said Tinuiti’s Johnston. In the first half of the year, Tinuiti’s clients spent more than three times as much on advertising on Reddit as they did a year ago, he said.
“We’re organized into 100,000 communities, all of which are niche interests,” says Reddit’s Wong. “So for each community, there’s a segment of advertisers that we know are relevant to those communities.”
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