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Business Operations Business Models

How Does Reddit Make Money (Business and Revenue Model)

The Reddit business model

How Does Reddit Make Money?
Here’s what you should know:
  • What is Reddit, and how does Reddit work?
  • How does Reddit make money?
  • Reddit Premium (Paid Subscription)
  • Reddit Coins
  • Advertising
  • What is the Reddit business and revenue model?
  • Reddit’s funding and valuation
  • Reddit’s profit and revenue

How does Reddit make money if it’s free? Well, here is a full, in-depth, breakdown of their three (3) revenue streams and the different products and services they offer, as well as the Reddit business model, their year-over-year revenue, and how Reddit works.

What is Reddit, and how does Reddit work?

Reddit is a social networking platform where users find interest based groups called “subreddits.” On there, users discuss news and niche topics that get filtered out through Reddits’ community based system of upvoting.

They often refer to themselves to be “the front page of the internet.” And in 2019, rolled out a way to live stream content through the Reddit Public Access Network.

Founded in 2005 by Steve HuffmanAlexis Ohanian, and Aaron Swartz, Reddit has since amassed more than 430 million monthly active users with over 2.6 million subreddits – making it the sixth most popular social networking app in the US.

Some of Reddit’s competitors include Quora and other social Q&A websites.

How does Reddit make money?

Here are some quick Reddit statistics:

Reddit has more than 430 million monthly active users on the site and 52 billion monthly views. Resulting in over 2.6 million subreddits on the platform.

So with all of these users and traffic, how much money does Reddit make?

Below is a breakdown of how Reddit makes money and its revenue model. Including all revenue streams and how much they make off each service.

Here are the 3 ways of how Reddit makes money (in 2021):

Reddit generates revenue for the company in three (3) ways.

#1. Reddit Premium (Paid Subscription)

Reddit Premium is a paid subscription service on the Reddit platform that charges users monthly for additional perks freemium members don’t have.

Some of those perks Premium members enjoy are an ad-free experience, full access to the r/lounge, 700 free monthly coins, among other things.

Reddit has more than 430 million monthly active users. Of them, it’s unknown how many are paid subscription users and how many only have a free account.

Reddit Premium Cost:

  • $5.99 per month
  • $49.99 per year (30% off)
Reddit Premium | How Does Reddit Make Money? | Subscription business model
Source: Reddit Premium

#2. Reddit Coins

Reddit Coins are virtual goods that Reddit users can purchase in bundles and gift to other Reddit users for posts or comments for their contributions and good content.

Other benefits to users holding Reddit Coins include access to the r/lounge. Which is an exclusive subreddit group for Premium members only. But Reddit gives one (1) month of lounge access to users who hold over 1,800 coins ($5.99) and one (1) week of lounge access to users holding 500 coins ($1.99).

Note that, Reddit does a bit of cross selling here by offering 700 free coins per month to Reddit Premium users.

Reddit Coins Cost:

  • Coin bundles cost between $1.99 to $199.99
Reddit Coins | Reddit Business Model | Selling Digital Goods
Source: Reddit Coins

Note: Selling virtual goods has been adopted by many other companies, including TikTok, as a way to earn more revenue. But unlike TikTok Coins, Reddit users cannot withdraw Reddit Coins for fiat money.

[ Related Article: How Does TikTok Make Money? ]

#3. Advertising

Reddit also incorporates advertising into their business model, which they call Reddit Ads.

Reddit Ads are similar to the Amazon and Etsy advertising model, which is an auction based system. Meaning – the highest bidders win the ad placements.

The way it works is: Advertisers set their daily budget and how much they’re willing to pay per bid. And based on what they set, Reddit will estimate how many impressions and clicks your ad can expect.

In 2019, Reddit COO Jen Wong stated they had ad revenue of $100 million, as reported by The Wall Street Journal.

Reddit Ads Cost:

  • minimum daily budget is $5
  • minimum bid per click is $0.10
Reddit Revenue Model | Advertising Business Model
Source: Reddit Advertising

Note: Ad revenue accounts for more than 50% of Reddits’ annual revenue.

What is the Reddit business and revenue model?

Reddit makes money through a few revenue models that they combine within their company, they are:

  • Freemium (upselling) business model
  • Software as a service (SaaS) business model
  • Advertising based business model
  • Transaction based business model
  • Cross selling business model

Reddit’s funding and valuation

According to Reddit’s Crunchbase profile, Reddit has raised $919 million over 8 rounds.

One year after Huffman and Ohanian founded Reddit, they sold it for a reported $10 to $20 million to Condé Nast Publications, a global media company, on October 31, 2006. Today, Reddit is valued to be over $6 billion.

Reddit’s profit and revenue

In 2020, Reddit reported $170 million in revenue but has yet to be profitable.