The many challenges Reddit faces as an advertising business

When user rebellion at Reddit culminated in a change at the top, the outlook for the social news site as a media business was thrown into question. As a company, Reddit is fraught with conflicts. Its users have a reputation for being highly engaged and cutting-edge — qualities that are attractive to marketers. But Reddit’s commitment to free speech and loose organization means that commentary can tread into offensive, obscene territory.

Newly installed CEO (and Reddit co-founder) Steve Huffman admitted that Reddit is “a very weak business model right now.” But in taking $50 million in VC funding, Reddit clearly is headed toward trying to be a real enterprise.

Like other publishers, Reddit has tried to diversify beyond advertising. It sells Reddit Gold, a $3.99-a-month membership program, which gives members special features like discounts from marketers and the ability to turn off ads; and Reddit-branded apparel and plush toys in its online store. But membership dues and T-shirt sales nary a media business make.

“They’re not closing big deals,” said Ian Schafer, CEO of digital agency Deep Focus. “And in order to be a premium publisher, you need more of those. It’s still a scarier place for advertisers than it should be.”

Its users, or Redditors, have been known to mercilessly trash ads on the site (if they’re not blocking them altogether using ad blocking software). The site is limited to discreet ads, doesn’t allow user targeting, and eschews the rich media embraced by advertisers.

Even Reddit’s formats that are positioned as ad friendly, like the Ask Me Anything Q&As, can have unintended consequences. Actor Woody Harrelson found this out the hard way when he was raked over the coals in his 2012 AMA for trying to promote a movie he was in.

“If you’re trying to promote your company or product, especially if you’re a big brand, in a secret or underground way, you’ll be called out and dumped into the subreddit /r/hailcorporate,” said Keane Angle, senior strategist at 360i. “The [AMAs] have since become a little dry as most marketers see it as ‘just another tactic,’ and the AMAs usually end up being too short and underwhelming.”

All this explains why current advertisers listed on the site include Vice and Adam & Eve, not Procter & Gamble. (A handful of big brands like Nissan and Marriott have had success with Reddit, though those ads are more the exception than the rule.)

With all these issues, it’s easy to see why some, including Fred Wilson, would make the case for Reddit to adopt a different model altogether.

To broaden its appeal to brands, Reddit would have to make some fundamental changes to how it operates.

The site could start by hiring moderators who are paid to keep the community in check. Reddit could also publish original content that advertisers could sponsor and offer better and more varied ad formats, Schafer said, noting that Twitter has introduced ads and users haven’t fled.

“If they want to mature it into a commercial success, they will have to implement some rules,” he said. “Maybe they have to walk back the idea that Reddit is the most important place on the planet.”

Brands also should consider exploring areas beyond the AMA like subreddits that are most relevant to them where they can provide honest, inside information or help members of specific communities, Angle said. Two such examples are the subreddits Random Acts of Pizza and Personal Finance, where people post requests, respectively, for food and money advice.

Others hold the view that Reddit’s user engagement is too attractive for advertisers to ignore. “The Reddit scandal will fade away,” said Ben Kunz, vp of strategic planning at Mediassociates. “If you want response, go to where audiences are attuned — and I’d suggest Reddit is it.”

The question is whether Reddit is willing to carve out a space that’s safe, said Rebecca Lieb, a digital consultant and author. “They have some of that now. But I don’t think they’ve tried hard enough to productize it. If a zone safe enough for the president of the United States can be carved out, brands have their own challenges and risks, but Reddit has proved it can attract brands and still come out unscathed.”

Photo courtesy of Shutterstock.