Q&A   //   June 11, 2024

How Reddit is positioning itself as a lower-funnel ad platform

Reddit is trying to redefine itself as a shopping platform — at least on the advertiser side.

Over the last year, the social platform has introduced new ad formats aimed at surfacing relevant products to users. One of its newest products, Dynamic Product Ads, lets advertisers upload their entire product catalog and have items automatically surface to users based on how relevant it is to that specific Reddit community.

Leading this charge is Jim Squires, Reddit’s evp of business marketing and growth. While a lot of his role is creating these new ad products, another major component is explaining to advertisers why Reddit is unique from other platforms. Reddit, he said, “is inherently commercial.” That is, people use it to seek out recommendations from other like-minded users. As such, this move toward more lower-funnel ad products is a natural extension of the business.

These types of new ad products are key to the company’s growth. Reddit went public last March, and at its most recent earnings it reported $243 million in quarterly revenue. Its ad revenue that same period grew 39% year over year, totaling $222.7 million.

Squires spoke with Modern Retail about these latest performance-focused ad products and how the company is retooling its pitch to brands and advertisers.

The conversation has been edited for length and clarity.

Can you talk a bit about the work Reddit has done to focus on more lower-funnel ad products?
We started at the upper part of the funnel with brand advertising. We actually [moved] pretty quickly down into the mid-part of the funnel with traffic objectives and driving traffic from the site. And our focus over the last, I would say, year — and we continue to invest heavily there — is that lower funnel.

It’s very intuitive for advertisers… because this recommendation behavior and this seeking out of products to have is on the platform. Some of the stats that I share: Every second, two people ask for a recommendation and they get 14 recommendations back. So that shows that behavior that’s happening. And, one in five conversations that are happening on Reddit is related to purchase decisions and to product categories…

Getting into our actual products, we’ve got the conversion objective mechanisms [which lets advertisers choose specific conversion goals for ad campaigns] and the formats that drive that lower funnel. And now with product ads — and specifically dynamic product ads — we see that performance actually just gets even that much better. [That’s] because when you’re just using conversion objective, you’re going to have results but when you use a DPA, you’re now taking from tens of thousands, hundreds of thousands of products, matching those up based on consumer behavior to get that most relevant product in front of the user, which then drives up [conversion]. We see as much as 2x return on ad spend when you’re focusing on using DPA relative to the conversion objective on its own.

Can you explain exactly how DPA works?
You’ve got both retargeting as well as prospecting that you can do through the shopping product on Reddit. Tactically, the way it gets set up is, as an advertiser, you upload your catalog so you have access to it. And once you’ve uploaded your catalog into the system, when you’re in the ads manager and going through the flow and doing your campaign setup, you have the option to be able to use this functionality.

From a user perspective, you’re on the site, you’re having conversations — and you’re going to see either a carousel format or a product ad that is pulling from that huge catalog of products the most relevant product for you at that moment. And then you see that product ad and then you’re able to then tap on it and go make a purchase directly through Reddit.

Reddit is a very — shall I say — authentic platform. Can you talk about how advertisers are figuring out how to sell products while also not running afoul of the tones associated with each community?
[Redditors are] discerning shoppers. What I love to frame for Reddit is it is inherently commercial. Even if you think about your hobbies, like some of the most fun [part of a] hobby is actually buying all the gear that’s associated with that hobby…

From a user perspective, what I find is: the more relevant the product is — and the more authentic [and] the more interesting and compelling it is — the better it’s going to be received. And so if you’re putting something that feels too sales-y or tone-deaf with what’s happening [on Reddit] — or not adding value — it just may not see the performance. It’s just not going to be as interesting to people.

But when you have that right product that really matches and fits and it’s relevant and authentic and has the right tone, people really respond to that and it performs quite well.

Can you talk about some of the performance advertising-specific milestones you’ve hit over the last year?
There are front-end things that we do. [These include] the ad formats like the shopping format. Then there’s the optimization [side of things] like DPA and how we’re how we’re doing the delivery. And so we will continue to refine that. And then there’s a lot of back-end work that we do as far as the models and the attribution and the measurement piece.

We’re very focused on: How do we create the value through the formats and through the optimization and through our delivery? And, then how do we communicate that value? That’s really important to the measurement and tying the loop and having the attribution piece.

So there’s an ongoing drumbeat of things — both on the front end as well as the back end — as we focus on lower funnel specifically.

I would say, fast-forwarding over the coming year for shopping, we will continue to build out the types of formats. So you can imagine collection ads that are pulling together different types of products. We have carousel, but we can continue to expand on that. You can imagine merchant platform integrations so that we can bring even more merchants on the platform. That even helps us extend more into the SMB space.

And so we’re just looking for ways to remove friction and streamline that path to purchase in the context of where people are having these conversations and looking for recommendations.

Anything else we should expect to see on the advertising front?
We’re just going to keep leaning into what makes Reddit special and unique, which is that combination of search and social behavior that really only happens on Reddit. The recommendations [part] is one that we’re going to continue to research and dive into more. I can imagine us doing more in that space, just because, ultimately in each community, there are those interesting products and recommendations that bubble up to the top with the upvote. So you can imagine doing something on the recommendations front.

One stat that I love is that 73% of people follow the recommendations that they get on Reddit when they’re making an important purchase. So I was talking before about how many recommendations are happening. The fact that they’re actually following through on those and actually making those decisions based on that further illustrates the behavior and the desire to have this type of connection with businesses on the platform.