Why the Front Page of the Internet Is Still Losing Money

The Citizen's Guide to the Future
July 19 2013 12:32 PM

Why the Front Page of the Internet Is Still Losing Money

Reddit in the red
It isn't just old-media companies that are struggling to turn a profit online.

Being popular has never been Reddit’s problem. The hard part has been capitalizing on that popularity.

Will Oremus Will Oremus

Will Oremus is Slate's senior technology writer.

This week, the social-news bulletin board tweaked its front page, demoting two controversial subreddits—/r/politics and /r/atheism—from the default category list and replacing them with several others, including /r/gifs and /r/explainlikeimfive. In a blog post, the site explained that the demoted subreddits “just weren’t up to snuff.” But some users—probably the same ones who have made /r/politics and /r/atheism so insufferable, come to think of it—didn’t buy it, and insisted there must be some conspiracy.

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So Reddit CEO Yishan Wong followed up with a post reiterating that the move had nothing to do with advertisers or money. In the process, Wong ended up providing one of the clearest updates in quite a while on the state of Reddit’s business model. For those who follow the site, the full post is worth reading, but here are the three main ways that Wong says it earns revenue:

  • It runs ads, albeit not too many, and not in a flashy way. But because its users tend to organize themselves into topic-based subreddits, it can target these ads somewhat effectively without having to know anything about the individual users.
  • It sells Reddit gold, a subscription-based membership program that offers users perks both on the site and off.
  • It runs a gift marketplace.

That’s it. Kind of refreshing in an era where the biggest Internet companies make their billions by doing God-knows-what with people’s personal information. But not, as it turns out, particularly lucrative. Asked by a user whether the site is still in the red—i.e., losing money—Wong gave a straightforward answer:

Yep, the site is still in the red. We are trying to finish the year at break-even (or slightly above, to have a margin of error) though. […] There is a common misconception that we are "part of a billion-dollar conglomerate" and/or "already very profitable, so why keep giving them money" that is kind of frustrating for us: reddit was given its freedom when we were spun out, so the price of freedom is paying our own way and no one else is paying the bills.

For a new-media darling (albeit one owned by Advance Publications), Reddit’s financial position sounds a lot like that of many older-media properties—which is a little dispiriting, when you consider that it has 70 million readers. A ZDNet blogger recently touted Reddit as a model for the future of the newspaper business. But a business that struggles to break even with 70 million readers is not a particularly inspiring model for newspaper sites that would count themselves lucky to draw one-tenth that number.

The fact is that making money online as a media company remains extremely difficult. As long as Internet users expect to get their information for free, it will be the data-gatherers—the Googles and Facebooks—who reap the profits while the content companies scrape by. Which is why we shouldn’t be surprised that, as BuzzFeed’s Charlie Warzel observes, the golden age of the free Internet may finally be winding down. The question is whether “freemium” models that charge only a site’s power users will prove sufficient to sustain a business, or whether eventually everyone will have to pay. For now you can get the full Reddit experience without buying gold, and the New York Times paywall is leaky. But perhaps not for much longer.

Future Tense is a partnership of SlateNew America, and Arizona State University.

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