Reddit — one of the world's most popular websites — is trying to cash in through advertising

Key Points
  • Reddit has been actively luring advertisers as it attempts to take advantage of its vast audience to build its business.
  • The company owns one of the most popular sites on the internet but hasn't topped $100 million in annual revenue until this year, according to people familiar with the matter.
  • Reddit has indicated it wants to increase advertising across the site, including more display and mobile ads and sponsored opportunities.
Reddit founders Alexis Ohanian (L) and Steve Huffman (R)

Reddit, the controversy-laden social media company, has become such a popular place for discussions on gaming, politics, pornography and celebrity gossip that it's now one of the five most-trafficked U.S. websites.

But unlike the other top sites — Google, Facebook and Amazon, Reddit has a diminutive business limited primarily to banner ads and promoted posts. The 13-year-old company is now trying to expand and is making an aggressive push to get advertisers on board.

In recent weeks, including at last month's Cannes Lions International Festival of Creativity, representatives from a half-dozen ad agencies told CNBC they've been pitched by Reddit within the past year about the company's plans to help brands target users. CNBC also obtained a 28-page presentation that Reddit has been sharing with advertisers, detailing the types of ad units the company is offering, with case studies from clients including Duracell, Toyota, Coca-Cola and JetBlue.

Reddit calls one of its new ad types a "top post takeover," which allows brand content to appear on the coveted front page. In the slide deck, it says companies can "own Reddit's most valuable advertising real estate for 24 hours. When users visit Reddit, your brand will be seen in the top ad slot in their feed and throughout the sidebar."

To date, the business side of Reddit hasn't been much of a focus. The company will top $100 million in revenue in 2018, according to two people with knowledge of its finances who declined to be named because the numbers are confidential. Reddit declined to comment on its financials. Twitter, which has about the same amount of active monthly users, pulled in $655 million in ad revenue during the first quarter alone.

Google, meanwhile, reeled in $95 billion in ad sales last year, and Facebook reported revenue of about $40 billion. Even Amazon, which gets almost all of its sales from e-commerce and cloud computing, has a much bigger ad business than Reddit, pulling in roughly $2 billion in the latest quarter.

For Reddit, luring advertisers makes perfect sense. The company has more than 330 million monthly active users and attracts upward of 18 billion page views per month. Its users comment on current events, share articles and participate in AMA (Ask Me Anything) interviews with celebrities and influencers. Microsoft founder Bill Gates held his sixth AMA in February, and 105,000 people voted the session up or down. Then-President Barack Obama held the most viewed AMA of all time, in 2012.

Zubair Jandali, Reddit's vice president of brand partnerships, said in an interview that his team has grown from eight people in 2015 to 90 this year, as more advertisers chase opportunities to reach the company's expansive audience, which has doubled in the past three years. Advertisers are coming to Reddit, rather than vice versa, he said.

"There are simply more users on the platform," Jandali said. "More communities are represented, and by extension there are more brands interested in working with us."

Reddit co-founder Alexis Ohanian on the Disney-Fox merger
Reddit co-founder Alexis Ohanian on the Disney-Fox merger

Not only is Reddit's audience massive, but the company says users spend over 16 minutes a day on the site in niche communities ranging from makeup artists to Toyota RAV4 enthusiasts. (For comparison, Twitter users spend a little over six minutes daily on its site, per web traffic data company Alexa. Facebook comes in at more than 10 minutes.) That gives Reddit the kind of engagement that big brands relish, especially as they look for places to diversify their ad spending away from Google and Facebook. The online duopoly controls a combined 57 percent of the U.S. digital ad market, according to eMarketer.

However, Reddit is a complicated beast. Its forums operate with little control from the company and function as self-moderating groups of "Redditors," who are often dogmatic about the company's laissez-faire approach to content.

Big companies with brands and images to protect aren't so enthused by that approach. They don't want to be linked to hate groups, leaked celebrity nude photos, or vigilante misreporting on breaking news incidents like the Boston Marathon bombing.

"What makes it attractive to consumers, which is the free and open ability to post, makes them scary to advertisers," said Jeff Ratner, chief media officer of digital marketing agency iCrossing.

Reddit has no choice but to grow up and address the tension directly. A year ago, the company raised $200 million at a $1.8 billion valuation from Silicon Valley heavy hitters including Andreessen Horowitz and Sequoia Capital. Other investors include Y Combinator's Sam Altman, angel investor Ron Conway and celebrities Snoop Dogg and Jared Leto, That kind of money brings with it a commitment to revenue growth.

"It's almost a little strange why marketers and advertisers are so apprehensive" about Reddit, said Amanda Parker, an account supervisor for digital marketing agency PMG. "Marketers chase scale, and Reddit has it. I think they have an old-fashioned view of who Redditors are."

Advertisers are noticing a distinctive change in the company's approach. Last year, Reddit attended the advertising conference Cannes Lions for the first time, and in April the company hired Jen Wong, a senior executive at Time Inc., as chief operating officer. Agencies say Reddit is more aggressively pitching them with new sponsorship and ad opportunities and about trying to lock up bigger deals. The programmatic approach to digital advertising is being replaced by more of a focus on direct sales and branded content. This year, it vastly expanded its program that allows companies to own their own Reddit pages.

Reddit's ads are best "when they are driving engagement and starting conversations with its users," Jandali said.

In its slide deck to agencies, Reddit has a section called "ad offerings," which details its "layered targeting approach" of how it plans to weave sponsored content into its forums. The company will launch topics in relevant subreddits (or subcategories) so ads reach the most specific audience possible. After that, it will widen sponsored posts to other related subreddits. The ads that perform the best will then be extended more broadly on the site.

To tie everything together, Reddit has a brand strategy team that helps write "Reddit-friendly" posts so sponsored content is placed in the proper subreddits with the right language. In addition to promoted posts on desktop and mobile, Reddit is letting marketers take over the front page of the site or a subreddit for a full day with the combination of promoted ads and banner ads on the top and side of the page.

Ask me anything

Reddit is also letting brands promote an AMA on the front page and across the site to potential clients. One agency that bought front page placement for an AMA on behalf of a client said it spent $100,000 to $200,000 for a month of advertising.

AMAs that start on a brand page don't need to be labeled as advertising (see this AMA with actress Elizabeth Banks that was sponsored by Audi). Once the AMA becomes promoted by the company elsewhere on Reddit, it is labeled as an ad in accordance with federal regulations.

For AMAs on branded pages, moderators from the company have full control over which comments get approved and removed, and they have the ability to ban users.

Past attempts to grow Reddit haven't always been well received. Ellen Pao, the former venture capitalist who was Reddit's CEO from 2013 to 2015, resigned after the firing of a popular employee led to user revolts. There were also disagreements with the board over how to expand the user base. Pao later said her efforts to help clean up the site led to her enduring "one of the largest trolling attacks in history."

Reddit's co-founders Alexis Ohanian and Steve Huffman, who both left the company in 2009, have returned in recent years. Ohanian took over as executive chairman in 2014, and Huffman succeeded Pao as CEO the following year. The company has since made a more public pronouncement to get rid of bad actors, banning 944 accounts tied to Russia's Internet Research Agency (IRA) and blocking Nazi groups and other violent content.

Jandali said that all social media companies goes through this sort of evolution.

"Every emerging platform has made a passage through a perception journey," he said. After running thousands of campaigns, Jandali said that in his experience, "after the first campaigns, we tend not to hear about brand safety."

Steve Huffman, CEO of Reddit, delivers remarks on 'Redesigning Reddit' during the Web Summit in Lisbon, Portugal, Nov. 8, 2017.
Horacio Villalobos | Corbis | Getty Images

By its sheer size, Reddit has the potential to be a force in digital advertising. It ranked as the third most-trafficked website in the U.S. in February, according to Alexa, and is currently fifth behind Google, YouTube, Facebook and Amazon. ComScore, which analyzes traffic differently by aggregating all of the sites a company owns together, ranks Reddit 40th.

At the same time, Reddit is taking proactive steps to help clients protect their brands. In addition to its system of volunteer moderators and upvoting as a way to police content, three agencies that spoke with CNBC about Reddit said the company has discussed investing in technology like natural language bots to find questionable posts and hiring more people to monitor the threads.

Reddit's ad deck has a section dedicated to "brand safety," where it explains how it places advertiser content in "white-listed" categories that are safe and has a team that watches over it.

"Our dedicated account team constantly monitors Your Reddit Ad to ensure engagement is relevant and positive — creating a ‘walled garden’ of conversation you can moderate or ban as needed," the slide says.

However, Jandali said Reddit isn't making these changes to placate advertisers. Rather, he said that for the sake of its users, the company is investing in trust and safety, including with technology.

Reddit's growth demands a delicate balance. The company needs to find a working business model without alienating its passionate user base. It has to put limitations on certain types of content to make advertisers and brands comfortable, but all without turning off Redditors.

"You're talking about a site that has not welcomed any advertising," said Oscar Garza, global director of programmatic at digital agency Essence. "So if you're going to slap 10 banners on a page, that's not going to be a welcome experience."

— CNBC's Ari Levy contributed to this report.