Reddit Redux? New Funding Means New Pressure to Sell Ads

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Credit: Illustration by Daniel Hertzberg

A day before Reddit co-founder Alexis Ohanian and tennis superstar Serena Williams welcomed the birth of their first child, Ohanian was tackling errands at his home outside San Francisco, preparing for parental leave. "Thank you for making this time work with your schedule," he said, apparently as nice and likable as the gossip sites say (though he and Williams did keep their daughter's due date secret, he said, "so I don't have to punch a photographer at the hospital").

Now he just has to convince marketers that Reddit is as friendly as he is. After a $200 million investment in July from big-name venture capitalists such as Andreessen Horowitz, tripling Reddit's valuation to $1.8 billion, and with a major redesign due by year-end, it's time for the company to live up its potential. It has long called itself the front page of the internet, but it's home to more than that: news that's blowing up or is about to, style you need to know, users voting headlines and comments up or down, passionate arguments, discoveries from the reaches of the web and some very unsettling conversation threads. Cash in hand, Reddit feels it now has a plan to satisfy brands that its more toxic elements won't brush up against their ads.

"What Reddit is saying to people is it's not a place where a bunch of trolls hang out—no, no no," says Zain Jaffer, CEO of the ad-tech company Vungle. "It's saying this is going to be a place that captures ad dollars."

If it can pull that off, it might have a shot in the sweepstakes to become a significant advertising alternative to Google and Facebook. But it's been clearing its throat on this subject for a long time. (See "Can Reddit Grow Up?," The New York Times, 2014; "Reddit Is Finally Mounting a War Against Trolls," Business Insider, 2015; and "How Reddit Plans to Become a 'Real' Business," Fortune, 2016.)

Today its "subreddits" on topics such as news, fatherhood and cooking still keep company with sections such as "Incels," where men discuss how much they hate women and some members say the government should subsidize their visits to prostitutes.

"When we talk about the darker side of the internet, that population is a vanishingly small amount of our own users—less than .1 percent," says Steve Huffman, Reddit's CEO and other co-founder. "It is not something that really affects our business."

That's debatable.

"Maybe it's a perception issue, but I have unwavering faith that nothing super-controversial will stay up on YouTube for very long," says Steve Piluso, head of media and integration at planning and buying agency Media Storm. "But I do see stories on Mashable about something horrible that came from Reddit."

Facebook, Google and others are "a lot more public about banning hate groups," adds David Buklarewicz, executive VP at media agency Marc USA. "They're laying out action plans and steps to tackle that. I haven't seen anything overt from Reddit as far as 'This is what we're doing to combat the problem.'"

When Reddit has eliminated controversial sections such as r/fatpeoplehate in 2015, users have complained from both sides—that Reddit's either doing too much or still not doing enough.

Reddit says it will soon update its terms of service to more clearly define harassment, hate speech and other unwelcome conduct, then ban users and subreddits that repeatedly violate those terms.

Credit: Illustration by Daniel Hertzberg

"It's frustrating because I know what Reddit is and I know the positive impact it has on people's lives," Huffman says. "But I also know that the company has been through a lot and we haven't been very effective at what we do and why we do it."

Huffman says Reddit has been deliberately quiet about fighting hate groups on the site ("They thrive on attention," he argues), but has been in the fight nonetheless. "Take the events that happened in Charlottesville," he says, referring to the clashes between white supremacists and counter-protesters in Virginia last month. "Facebook, Google had to ban a lot of groups that we banned a year ago. We've been on the front lines with these sorts of questions and debates for years now."

Yet if Reddit wants a chunk of the $73 billion digital ad market, it has to not only put forward a neighborly face but build its relations with agencies from virtually nothing. Many media buyers say they're unaware that Reddit shows ads only on "whitelisted" sections where thriving communities exist and the chances of anything unsavory popping up are vastly diminished. And you can't blame them for not knowing. Asked whether Reddit has staff whose sole job is to build bridges with agencies, Huffman says, "Yes-ish."

"I'm 90 percent certain we do," he adds. "We had a handful of people doing that as a tactic as part of their job."

In reality, Reddit doesn't have anything remotely close to the outreach teams employed by Google, Facebook or even many publishers. Those outfits have poached savvy executives from the "buy side" of advertising—agencies, marketers and ad-tech purveyors catering to buyers—to drum up business. Huffman admits Reddit doesn't have enough employees like that, but says it's hiring similar people on both coasts to "cultivate senior-level management at agencies."

Part of that new $200 million will fund adding 50 staffers to its roster of 250, and the company just signed a lease in "Silicon Beach" in Santa Monica, California, to house more employees. "The extra capital and having a full team will allow us to do things that, frankly, weren't on the table for us before," Huffman says. "We can play a lot more offense than we have in the past and attract more market share, attack things we've previously put on the back burner."

That includes going after Google's YouTube through a scheme to tap Reddit's legion of highly engaged regulars to create videos. Reddit will eventually explore running pre-roll and interruptive ads in video, sharing revenue with makers, but is waiting to fully roll out its video tools and make sure it's got the user experience right, Huffman says.

Reddit brags that it has 330 million monthly active users, up 40 percent from a year earlier, which is slightly ahead of the 328 million Twitter recently reported but far behind YouTube's 1.5 billion. Strikingly, Reddit says it's aiming for 1 billion, a figure that sounds more aspirational than in arm's reach. Expanding users is vital to the ad pitch because "Redditors" are fragmented across the whitelisted subreddits. The gaming area has nearly 17 million subscribers with tens of thousands active at any given time. "Daddit," on fatherly things, has 69,000 subscribers, with only 1,400 or so on at a given time.

All of which puts a lot of pressure on the impending redesign. Visitors seeking the latest theories about "Game of Thrones," for example, can get lost in the Netscape-era design—a river of headlines with small images, spartan navigation tabs such as "top" and "wiki," and a top row of smaller labels including "funny" and "todayilearned."

"I think I'm allowed to shit on it because I made it," Huffman says of the current desktop site, the source of about 80 percent of Reddit's traffic. "The redesign will have a lot of tactical features like giving people their own home on Reddit so they can create their own communities and audiences, and maybe find a way to fit in with other communities." Search will get an overdue upgrade. And moderators will also get tools to customize the look of subreddits and convene discussions more easily.

That will help convert "drive-by" web surfers into devoted users—in theory. Huffman says the numbers already show "strong signs of life," and that eventually reaching 1 billion users would enable unrivaled targeting and engagement.

Face of the internet
Huffman is known for taking playful shots at Ohanian. They met as freshman hall mates at the University of Virginia, roomed together the next year and founded Reddit as seniors in 2005. Asked about Ohanian's relationship with Williams, one of the top celebrities in sports, Huffman says, "As his college buddy who knew him when he had a literal neckbeard, I continue to be amused by the whole situation."

But Ohanian, 35, has a serious part to play in making Reddit the business many people think it could become. The company, which is majority owned by Condé Nast parent Advance Communications, declines to say whether it is profitable, though signs suggest that it isn't where it wants to be. "Alexis' job is to evangelize Reddit," says Huffman, who is 34 and recently returned from his ninth Burning Man excursion. "He is very charming and comfortable in front of an audience. We have him in a role right now that is playing to his strengths."

In the last year, Ohanian has spoken at high-profile events, appeared on ABC's "Jimmy Kimmel Live" and NPR's "How I Built This," and gone to the Cannes Lions International Festival of Creativity as judges considered the company's first entry into the awards, for a Secret Santa gift exchange on Reddit sponsored by FedEx. (Williams, his fiancée, has done her part, posting video of their baby on Reddit this month using Reddit's new built-in video uploading tool.)

Ohanian says Reddit has unique advantages such as rich data on users who are easily targeted by interests and eager to engage. "The discussion and conversations on Reddit are our lifeblood and where the best content is," he says. "And that applies to our ads, where we have ad campaigns that actually get engagement in minutes and not seconds."

In addition to FedEx, brands including Amazon, Coca-Cola, Toyota and Halo Top are buying in. Halo Top CEO Justin Woolverton says he's been a longtime Reddit user—so much so that in the company's early days, Woolverton had "TL;DR: Ice Cream You Can Feel Good Eating" printed on the bottom of his pint cups. "I was so proud of the TL;DR because I was a Redditor," he says. "I was like, 'Man, no package has a TL:DR' ... but we eventually got rid of it because it wasn't cool anymore."

For non-users, though, Reddit can still be intimidating, Woolverton allows. "It can be like, 'Where is my comment, what are these upvotes and downvotes?' Knowing Reddit made me feel more comfortable to say, 'Hey, let's put money into this.'"

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