Reddit has been around for a while, but these days it seems like the next big thing. By some accounts, up to 6% of the online, adult U.S. population checks out the Reddit domain at least once a month. While that won’t put it in league with sites like Twitter or Facebook, it definitely demonstrates a steady and rapid rise in readership.
The Bottom Line
So that growth must be good for business, right? Well, not exactly.
Reddit has never actually achieved profitability. The site has some ads and an option to buy a monthly “gold” membership, but these revenues have never quite broke ahead of administrative and server-related costs. Reddit’s increased popularity only led to more server issues, but the infrastructure investment required to keep the site operating well hasn’t been paid back yet.
While it might seem a little counter-intuitive, it can be really tough for the biggest and most visited websites to stay profitable. Server costs scale rapidly, and the more diverse your userbase becomes, the tougher it is to match them with products they’re interested in. A single shared hosting account can run a dozen small niche sites that turn a profit on 50-250 visits per domain, but the main reason they’re profitable is because that niche traffic can be extremely focused for relevant products and services. Total traffic stays low, but conversion rates and revenue per thousand impressions (RPM) goes through the roof.
Flying Even Closer to the Sun
So Reddit must have a plan to moderate growth and contain costs while they work on revenues, right? Of course not, they’re still trying to fly ever closer to the sun. The current strategy actually seems to be intent on building an even larger – and more mainstream – audience.
Every non-registered visitor and new member is automatically subscribed to a certain set of subreddits, and this default list is basically the public face of Reddit. Unless you’re registered and curating your own sub list, the image you see of the site is entirely based on what the admins pick to be default. In July, Reddit made some changes to the default list, and it is already having a huge impact on what people see when they see Reddit. This, in turn, affects the number of registrations and the type of users who are registering.
- Downplaying controversy and activism – While the admins claim /politics/ and /atheism/ just weren’t “up to snuff,” they were actually two of Reddit’s most active and socially involved subs. They were also controversial, and controversial social activism isn’t a good way to build a mainstream audience. Activists confronting controversial topics are more likely to make powerful enemies then they are to make money.
- Focus on mass media culture – Reddit might have had it start in topics related to politics, secularism, and technology, but the new “text based” subReddits are devoted to television and books. Unfortunately now that it is a default and the primary age demographic of Reddit continues to fall, /books/ will probably start to look like /highschoolbookreports/ before long.
- More visual content, less reading – One of Reddit’s great strengths is its text-based approach to content. There’s no flashy UI or smart comment scripts – and a lot of people hate that. So, two new visual-content based defaults were added in /earthporn/ and /gifs/ (don’t worry, /earthporn/ isn’t X-rated, it’s just pictures of nature)
The trend is pretty hard to ignore: controversy & activism is being pushed to the back-burner, while mainstream & easily-accessible content is in.
Great Plan – If Websites Were Old Media…
The strategy makes perfect sense to the magazine-publishing parent company, Condé Nast. Their business model in the print world has revenues and costs that scale perfectly with readership. If they have 10,000 subscribers, they can charge advertisers for the 10,000 pairs of eyeballs that will cross their page. If they have 20,000 subscribers, they can charge twice as much.
It just doesn’t work that way online, and economies of scale tend to work against you. Doubling pageviews rarely doubles your revenue, unless you’re always able to maintain the quality of those pageviews. The more you’re dealing with, the harder it is to manage that quality, and all of a sudden, you’re looking for some investors to bail you out. Don’t get me wrong, that is a great way to make a ton of money – but the cases are few and far between, and investors aren’t as enthusiastic to own the next Myspace or Bebo as they used to be.