Reddit is making moves to steal thousands of data-obsessed advertisers that pour money into Google and Facebook
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Reddit wants to build a big advertising business
- Reddit is rolling out cost-per-click bidding for advertisers, which is aimed at signing on direct-response advertisers that only pay for ads that are clicked on.
- Facebook, Google, and Twitter all offer similar buying options for small and midsize advertisers and Reddit says in tests that its buying option has dropped advertisers' costs by up to 50%.
- Reddit has more than 300 million unique visitors and claims to have doubled its advertising business over the past year.
Reddit has its eyes set on Facebook and Google's roster of direct-response advertisers.
For years, Reddit's ad business has flown under the radar. The self-described "front page of the internet" has more than 300 million monthly unique visitors and sells sponsored posts, videos, and programmatic ads that can be targeted at specific subreddits or on the homepage of the site.
Now it wants to win over thousands of small and midsize advertisers that fuel Facebook and Google's ad business.
Reddit is unveiling its first step toward helping direct-response advertisers buy ads. Reddit is rolling out cost-per-click bidding for advertisers, which allows brands to only pay for ads that are clicked on. Small and medium-sized businesses typically rely on cost-per-click advertising models because it ensures that they're only paying for ads that someone engages with. Up until now, Reddit's advertisers have purchased ads either through cost-per-impression (CPM) or cost-per-view (CPV) models. Facebook, Google, Twitter, Snap, and Pinterest also offer cost-per-click bidding.
Performance marketers represent a growing group of lucrative advertisers to Reddit, particularly direct-to-consumer marketers.
Last year, Reddit formed a nine-person group within its sales team that specifically focuses on performance-based marketing. Earlier this month, Reddit hired Shariq Rizvi as VP of ads products and engineering to build out the site's performance and direct-response advertising. Rizvi reports to Reddit's CEO Steve Huffman.
Reddit wants to prove that its ads convert
Facebook and Google continue to control the bulk of digital advertising budgets, but Reddit hopes that the new bidding tools will open up the number of advertisers willing to experiment with its platform.
"There are marketers - whether it is in retail, gaming, or travel - who will not work with a platform absent CPC as a cost model," said Reddit's VP of brand partnerships Zubair Jandali. "This launch means that they have an entirely new inventory source."
Facebook and Google ads continue to perform well, making it hard for brands to move their spend into other platforms - though they want to, said Meredith Vieira, director of Havas Media's social media agency Socialyse.
"Advertisers and brands are hungry for a little more opportunity to test and learn within other platforms," she said.
Vieira said she hadn't tested Reddit's CPC bidding for clients but did run a CPM-based campaign for a travel client last year that performed similarly to other social platforms.
Reddit has tested cost-per-click bidding with 50 advertisers including Wayfair and mobile gaming company Kabam. In its initial tests, advertisers that previously used CPM bidding reduced their costs by up to 50% to see the same success, Reddit said. The buying option is automatically applied to campaigns set up with app installs, conversions, or traffic goals within Reddit's self-serve advertising platform.
Part of the site's pitch is that some of its more than 330 million monthly users can't be found on other social platforms. According to Comscore, 17% of Redditors don't use Facebook and 33% don't use Instagram.
Jake Silver, paid search director at agency Fetch, added that Reddit has a core base of daily users who interact with the platform on a regular basis.
"While Facebook and Google are must-haves for most multi-platform digital campaigns, it's essential to focus on emerging areas of consumer congregation," he said. "Ask three random people what Reddit is, and you'll likely get one who knows, one who thinks they know, and one who has never heard of Reddit - that one who knows though practically lives there."
Direct-response advertisers want an alternative to Facebook and Google, the bar is high for Reddit to prove strong performance, said Mike Mother, founder and CEO of WPromote, an ad agency that primarily works with direct-response advertisers.
"If the test falls flat, those are the last dollars that are ever going to be spent on Reddit," he said.
Reddit is working to clean up its platform
Reddit has quietly been building an advertising business over the past few years. Reddit declined to say how much money it makes from ads but said that its advertising business has more than doubled year-over-year. Last April, Reddit hired former Time Inc. executive Jen Wong as chief operating officer to beef up the company's revenue.
Of the company's 430 employees, it has a 100-person brand partnerships team.
While Reddit has a sizable audience, the platform has long held brand safety concerns for marketers that do not want to run ads next to objectionable content. In addition to governance policies that the site uses to police content, Reddit also controls where ads are placed through a whitelisting process. The process vets the content of each subreddit before it is eligible for advertising.
There are also negative keyword targeting tools that allow brands to remove ads from appearing next to specific keywords, among other resources for advertisers.
Still, brand safety concerns linger for advertisers.
"The big 'but' with Reddit has to do with the complexity and nuance of Reddit from an audience perspective - that's where we end up spending the majority of the time talking to clients," Mother said.
Reddit's core users are notorious for sniffing out ads, and if brands "don't speak to the audience correctly, if your offer isn't compelling or if the vocabulary rubs people the wrong way, it can backfire in a big way," he said.
For example, a credit-report advertiser's campaign included "thousands of very critical comments" that outweighed the handful of positive comments, Mother said.
That said, the majority of Reddit's users are not its hardcore audience and are people who find content-heavy subreddits through search results, which is typically an area that direct-response advertisers invest heavily in. "The fact that a lot of the traffic originates in Google is by no means a negative thing for Reddit," he said.
Reddit still has work to do in catching up in measurement
Socialyse's Vieira said that CPC bidding is a first step into direct-response advertising, and she'd like for Reddit to improve its pixel technology for advertisers as well. Similar to Facebook, Twitter, and Snap, the pixel is a piece of code within Reddit's website that lets advertisers track actions that someone takes after seeing an ad - like going to a website or buying something.
Reddit's pixel is "a little bit more archaic when compared to the Facebook and Snapchats of the world," Vieira said because advertisers can only track one action. The pixels from other platforms let marketers measure multiple actions to tie together if someone visited a website and bought something after clicking on an ad.
"It's great that Reddit is offering this cost-per-click opportunity - it's pointing them in the right direction to be a stronger player within the social media space," Vieira said. "What we're looking for next from Reddit is for their pixel capabilities evolving to be a little more competitive so we have that visibility and measurement."
