×

Reddit’s plan to become a real business could fall apart pretty easily

Alexis Ohanian, Co-Founder and Executive Chair of Reddit.
Getty Images
Alexis Ohanian, Co-Founder and Executive Chair of Reddit.

The promise of Reddit's business has always been that it brings in millions and millions of eyeballs, hosts content that other websites use for themselves and has a highly engaged community that advertisers would love to reach.

Now Reddit says it has bolstered its sales staff and put its energy toward actually making money from digital ads. Additionally, it's cutting ties with one high-profile project that wasn't bringing in significant cash.

More from Re/code:
FTC investigating Venmo over 'deceptive or unfair practices'
GoFundMe says it will match donations for teachers
Google is building a new hardware division

The Information's Amir Efrati reports that the Reddit-owned Reddit content farm Upvoted is officially dead, and that Reddit's $20 million 2016 revenue projection is well below its ambitious $35 million goal. But he and Fortune's Dan Primack, who wrote a lengthy profile of Reddit's leadership that also dropped today, suggest that there are signs of life in the company's sales unit, as big-name brands have started buying ads on the site.

But even if Reddit is able to ink deals with big-name advertisers, as the two say, another scandal on the level of the celebrity nude hack or Gamergate could easily send those advertisers running.

The core operations of Reddit are still run by unpaid moderators, who are responsible for maintaining the quality of Reddit's various subreddit forums. Last summer, many of these same moderators shut down the site in protest of how the company handled the firing a support staffer whom the mods adored. Though Reddit told Primack that the company keeps 70 percent of its advertisers from quarter to quarter (and mentioned high-profile brands like Google and Coca-Cola), how many of them would stick around if stolen nude photos of Hollywood celebrities began resurfacing in the community?

Earlier this month, Reddit revealed that it was introducing a "block button," a basic anti-abuse and anti-harassment feature that critics of the company have long been calling for. When then-interim CEO Ellen Pao was replaced by co-founder Steve Huffman, engineering chief Bethanye Blount quit shortly thereafter, telling Re/code that she believed the new leadership was making promises it couldn't keep to the Reddit community about anti-harassment and moderation tools.

Though things have been relatively quiet on Reddit — there haven't been any major scandals in the last few months — incremental changes to the platform don't really mean too much. Reddit is still at the mercy of thousands of moderators that it doesn't employ, and there are still plenty of people on Reddit who could create significant headaches for advertisers.

In a statement provided to Re/code, which you can read in full below, sales VP Zubair Jandali (formerly of Google) addressed the Upvoted shutdown and the company's business prospects. He says that Upvoted was never about making money, but about supporting Reddit's "growth strategy," and that the company is very proud of the six million unique visitors the site brought in over four months. For context, Reddit says that it had over 240 million unique visitors across the service last month.

As for Reddit's current cash situation, the company last raised over $50 million in late 2014 at a $500 million pre-money valuation. In the Fortune piece, Huffman flicks at the possibility of an eventual IPO, and hinted that another funding round could come within the next 12 months.

Here's the company's statement, attributed to Jandali:

Upvoted was created to support our growth strategy, not our revenue strategy. We were thrilled that it did well, attracting over six million unique users in four months. The change we're making will see Upvoted folded into Reddit.com, and is intended to make the user experience more seamless.

Reddit's sales team has more than doubled since the beginning of this year, and will continue to grow as we launch new products and scale our mobile audience.

When it comes to our ads business, the 10 percent fill rate reported in The Information is from over one year ago. Now, with full-fledged sales, product and leadership teams in place, this has dramatically increased — and we're just getting started."

By Noah Kulwin, Re/code.net.

CNBC's parent NBC Universal is an investor in Re/code's parent Revere Digital, and the companies have a content-sharing arrangement.