Reddit offers a number of ad formats, such as promoted posts, video ads, and homepage takeovers that can be targeted based on options like keywords, audience interests and demographics, or specific subreddits. Most recently, Reddit rolled out a native format called free-form ads that look like users’ posts.

“Advertising on Reddit is rapidly evolving, and we are still in the early phases of growing this business,” Reddit wrote in its IPO filing. The company said advertisers were attracted to Reddit due to its “high-intent” audience, much of which is hunting for product recommendations. Plus, it said users like the ad model because it’s based on context rather than tracking them based on their personally identifiable information.

But despite being around for nearly 20 years, Reddit hasn’t taken off in a big way with marketers. Reddit users are notoriously skeptical of marketing content that appears to be disingenuous and are quick to call brands out in the comments — and discussions on Reddit aren’t always to every marketer’s taste.

“The true challenge for Reddit, with its IPO on the horizon, lies in developing an advertising model that aligns with its user-focused ethos and addresses content moderation complexities,” said Brad Kay, founder and CEO of Chief Brand Advisory.

And even marketers that aren’t as cautious about the platform’s user-generated content said Reddit needs to work harder to prove it can drive sales if it is to capture more of their ad budgets.

Reddit didn’t immediately respond to a request for comment.

Reddit wants to diversify its advertiser base, but major brands haven’t gone all-in

Reddit said 26% of its ad revenue last year was derived from its 10 largest customers, but that it wants to diversify that customer base. By contrast, the success of Alphabet and Meta has been largely driven by its thousands of small advertisers.

Figures from Guideline, a third-party measurement company that derives its data from agency invoices, found that spending from the major advertising agency holding companies and largest agencies on Reddit rose 24% year-over-year. But its share of investment from big agencies among the major social platforms has hovered at around 2% to 3% since 2020, while Meta has remained at around 60% of spending, and TikTok has risen from 2% to 17% in that time.

“It does face a fundamental barrier that many senior marketers do not use it personally, and to use it well it isn’t just a copy and paste from other feed and display platforms,” said Jerry Daykin, a marketing consultant and former head of global media for alcohol giant Beam Suntory.

Still, marketers who take their time to understand the Reddit community and its nuances will find it rewarding, Daykin said.

“The r/whisky subreddit was a great personal education in my previous role, and also a rich space for alcohol brands to positively engage through AMA — ask me anything — deep discussions,” he added.

Reddit is touting recent improvements to its ad offering and bolstered its sales team, but faces tough competition

Reddit said in its S-1 filing that it hopes to build its ad business variously by expanding internationally, making enhancements to its search product, increasing the amount of monetizable content on its platform, and improving its automation and measurement tools.

But these types of offerings have long been table stakes for most marketers, experts said. For example, brands are looking for more performance features from Reddit that help drive goals like sales, said Carly Carson, head of integrated media at the digital ad agency PMG. And elsewhere, Reddit doesn’t have the kind of e-commerce structure that Meta, TikTok, and Google have built, experts said.

“Selling shampoo is a great example: That budget has got to get through PPC, Amazon, Meta, TikTok, and max all those out before Reddit is even a consideration,” said Anthony Macro, head of display, video, and social at the digital agency Croud.

Reddit has made a considerable effort in recent months to bolster its teams that support marketers and to launch useful tools, experts said.

It has poached ad talent from companies like Pinterest and Meta to grow its ad business. Under chief revenue officer and former Pinterest exec Harold Klaje, Reddit’s ad team had quintupled since 2020, Klaje told Business Insider last year. Also last year, Jim Squires, a former longtime Meta ad exec, joined Reddit in a new role as EVP of business marketing and growth.

There has been a lot more interest from clients of the creative agency Mekanism in developing a Reddit strategy this year than in prior years, the agency’s social strategy director Jeff MacDonald said. That’s been in part helped by the launch this month of Reddit Pro, a suite of free analytics and data tools designed to help businesses grow their presences on the platform.

MacDonald said such tools “open up our chances of doing more work on the platform, as we now have a better tool for understanding our role there.”

A big challenge for the platform is moving marketers from spending in tactical bursts to having year-round Reddit strategies. PMG’s Carson, for example, described the agency’s work with Reddit as “tests” to diversify brands’ social budgets.

For all its recent improvements, experts said it’s unlikely Reddit will ever duke it for a position at the top of the ad spending leagues with Google, Meta, Amazon, and, increasingly, TikTok. ByteDance-owned TikTok caught the eye of marketers after meteoric user growth, coupled with a big-spending owner that had a ready-made ad video ads platform in its Chinese sister app Douyin.

“With the power and scale of Meta and YouTube and TikTok, with all the will in the world, when you look at the numbers — whether it’s CPMs, clicks, conversions — Reddit won’t perform as well just because of how finely tuned the others are, even though it probably is a good place to be,” said Croud’s Macro.

It’s not just a Reddit problem, he added, it’s the battle against advertisers’ tendency to “put it all in Meta, and the platform will figure it out.”