Reddit is the go-to place on the internet when you need information on, well, anything.
While browsing the vast resources that Reddit has to offer the other day, I had to wonder: how does Reddit fund this vast community? Come with me as I discover not just how Reddit makes its money, but just how successful they are in generating an income over the years.
How Does Reddit Make Money?
Reddit makes money in a couple of different ways. They employ targeted advertising which means their advertisements appear on subreddits and links of a specific audience.
For example, if I click on a subreddit for knitting, I’m likely to see an advertisement for yarn supplies rather than food or cleaning products. As someone interested in knitting, I’m much more likely to buy yarn than a random viewer.
Sidebar advertising is another form of advertising Reddit employs. This means advertisements from third-party companies pop up on the side of your subreddits.
Another way Reddit makes money is to offer premium memberships to their members for $49.50 a year.
This premium membership allows Reddit users to access the community without viewing any advertisements, a monthly supply of Reddit coins that you can use to reward outstanding subreddits, and a premium-only subreddit (/r/lounge).
If you ever run out of Reddit coins, you can buy more, even without being a Premium member. These purchases generate some additional income for Reddit.
Reddit Main Revenue Sources and Their Business Model Explained
Reddit mainly makes money through its advertisements – bringing in well over $1 million dollars through advertising alone in the year 2020. That is impressive enough, but what I found even more impressive is Reddit’s business model.
Reddit strives to create a community where people are able to connect, no matter what their interests are. The community is the most important aspect of the website for Reddit’s users.
Reddit’s business model states if they are able to create a community where everyone finds their niche, then their users will stay. Reddit views its customers’ trust and loyalty as a priority. Happy customers will not just stay with Reddit; they will tell all their friends about them. The more people who are satisfied with their experience, the more people who will find out about Reddit and join, and the more the company will grow.
Reddit Revenue Growth by Year
Reddit was founded in 2005, but it wasn’t until 2014 when the current business model was introduced that the company started seeing an increase in its revenue.
Starting in 2014, Reddit’s revenue began expanding by nearly double on a yearly basis (2014 -$8 million, 2015 -$15 million, 2016 -$25 million, 2017 -$50 million, 2018 -$80 million, 2019 -$120 million) all the way to generating a staggering 6 billion dollars in 2021!
Is Reddit Profitable?
If you’re anything like me, at this point, you’re probably wondering if Reddit is making a profit. Although Reddit generates an impressive amount of funding, they are a company focused on growth rather than profit.
Therefore, they haven’t recorded a profit as of yet. That being said, due to the recent use of advertising as a funding resource, Reddit may begin to see a profit beginning in 2022.
Reddit Valuation and Growth of Its Valuation
The valuation of a company basically means how much the company is worth. Currently, Reddit is valued at, or considered worth, over $10 billion. This growth is mostly accounted for by stepping up their funding through advertising.
Reddit also plans to go public profile at some point, which will also increase user exposure and experience, though exact timeline for this remains undecided. Once that happens, the value of Reddit is expected to increase even more.
Reddit makes most of its money through advertising and the rest through premium memberships and purchasing Reddit coins. Although this has been effective for generating funding, Reddit is focused on growth rather than profit and its business model reflects this.
Reddit is a community and they are building happy, loyal customers that will stay with Reddit and tell their family and friends about them. This model is clearly working for Reddit as they continue to expand, both in members and income.