In our increasingly artificial digital age, sometimes internet denizens desire an actual human touch.

Enter Reddit.

Sure, unlike Instagram, you won’t find your real-life friends on Reddit posting pics of their new puppy or snapshots from their epic vacation to Ibiza. And unlike Facebook, you won’t be able to keep tabs on nearly lost friends from grade school (though, on Reddit, you also won’t learn too much about your uncle’s political leanings). Unlike TikTok, Reddit won’t offer all that much insight about the latest real-world dance trends. And unlike X-née-Twitter, you won’t find up-to-the-minute insights and opinions from leading news and tastemakers (as far as we know, Reddit has never been the medium for presidential decrees, either, though President Obama did sit for an Ask Me Anything session in 2012).

But the platform does have its power: Just ask the folks who worked at Melvin Capital, which lost some $6.8 billion in 2021 after a merry band of Reddit posters rallied to squeeze the now-defunct hedge fund’s short position on GameStop stock.

These days, however, the company’s brand has successfully transcended its association with basement-dwelling posters. It’s the very same populist bent behind r/WallStreetBets that has made Reddit a fascinating business story since its IPO just over a year ago: Day One adopters of Reddit stock have seen the value of their holdings jump some 430%.

And why? In a world of AI chatbots and increasingly fruitless Google searches, Reddit has carved out a niche unmatched nearly anywhere else on the internet: a place to find real answers and real discussion from real human users. In fact, the platform has emerged as something of a People’s Search Engine, with its scores of topic-specific forums, called subreddits, providing internet users invaluable debate and discourse on everything from the best types of kitchenware to identifying the creepy-crawly that just scuttled under your oven.

In other words, its army of human users is an alternative to ChatGPT. All the while, the company finds itself riding the AI wave anyhow.

But is that enough to turn the longtime social media also-ran into a tech giant?

Ask Reddit Anything

Reddit’s status as an alternative search engine is no joke — though also a bit of a misnomer. As Google searches increasingly become dominated by sponsored results and sites seemingly designed to game the engine’s SEO rules, savvy internet users now often append their search queries with “Reddit” (Examples: Google searches for “how to spot a fake Labubu reddit” or “best hip flexor stretches reddit” or “could rotten egg smell be a gas leak reddit”).

It’s not just a microtrend. Data recently seen by New York Magazine suggested that traffic from Google to Reddit increased from 57 million in July 2023 to 427 million in April 2024. Reddit co-founder and CEO Steve Huffman even bragged in an interview with The Motley Fool last year that “Reddit” was the sixth-most Googled term in the US.

It’s enough to create a symbiotic relationship between the two companies, each now dependent on the other. Case in point: According to a study by SearchEngineLand last year, Reddit pages appear in more than 97% of Google product review queries, no “reddit” addendum necessary, suggesting the search engine has picked up on how sought-after Reddit’s user discourse is to its search users.

“People trust people more than they trust algorithms,” Ben Dutter, chief strategy officer of marketing, consulting and data intelligence firm Power Digital, told The Daily Upside. “Spaces like Reddit provide lived experiences, context, and debate they can then use to inform their decisions that Google’s [search results] and most AI chatbots struggle to replicate.”

Live By the Algorithm, Die by the Algorithm

That does leave Reddit vulnerable to the shifting whims of the Google algorithm, something it already knows all too well. The company reported slower-than-expected user growth in its fourth-quarter earnings call in February, which it blamed on a “periodic algorithm change” at Google; the search giant had recently rolled out its AI Overview answers, which had triggered sharp traffic declines for many web publishers.

The miss prompted a wave of “sell” ratings from Wall Street analysts, and an epic 50% share price skid from a recent high (it has since recovered the losses, with its share price up roughly 8% from its February high).

Subsequent earnings reports have shown a return to strong user growth (the company claimed 110.4 million global daily active users in its second-quarter earnings report in late June, up 21% year-over-year and beating consensus expectations). Meanwhile, the company has vowed to improve its internal search engine, while pointing out that its AI-powered Reddit Answer tool, launched in December, had grown to 6 million weekly active users from just 1 million the quarter prior.

r/MadisonAvenueBets

But can Reddit monetize its curious visitors? Like the rest of the social media world, Reddit relies on advertising for the majority of its revenue. Ad revenue rose 84% year-over-year in its most recent quarter, to $465 million, with the company saying it’s performing especially well among smaller businesses seeking direct sales rather than larger ones seeking impressions.

That puts it at about half the ad revenue of Pinterest, and below Snap’s roughly $1.3 billion in ad sales in its most recent quarter. It’s ultra-small potatoes compared with the approximately $47 billion in ad sales Meta posted in its most recent quarter.

But Reddit still posted a larger profit than Pinterest, while Snap posted a net loss. Meanwhile, experts told The Daily Upside that Reddit’s topic-based structure and inherent authenticity mean its ad business still has room to carve out an industry niche.

“Reddit is attracting marketing spend through its highly engaged, interest-based communities that enable targeted, context-rich ad placements — a clear contrast to broad, algorithm-driven platforms,” Ido Caspi, research analyst at Global X ETFs, told The Daily Upside. “While it’s difficult to rival the scale or diversification of Meta or Google, its niche audience targeting may help buffer it from some macro ad headwinds.”

“[Reddit] will need to determine a unique competitive position to overcome larger players who provide broader reach opportunities for advertisers,” Matt Voda, CEO of cross-channel marketing firm OptiMine, told The Daily Upside. “It does have some advantages: precise targeting based on millions of topics, micro-targeting based on geo-specific topic areas, and search-like buying-intent signals that traditional social media players do not have.”

The Training Data Gravy Train

Reddit has another ace up its sleeve, thanks to the authenticity of its user discourse: AI companies can’t get enough of it.

In its most recent quarter, the company reported $35 million in revenue from sources other than ad sales, which include fees from licensing its real-time data to both Google and OpenAI. Both use the endless user discourse as valuable training fuel for their respective AI models. (Separately, Reddit filed a lawsuit against Anthropic in June, claiming the firm was illegally scraping its data to train its AI models.)

A recent report from AI research firm Profound found that Reddit was the most cited source in Google’s AI Overviews, and the second-most cited source in ChatGPT answers behind Wikipedia.

“Reddit has one of the deepest, most diverse archives of structured human conversation anywhere online. Every comment thread is a mix of questions, answers, counterpoints, and context,” Dutter said. “It’s the exact kind of data large language models (LLMs) crave.”

In other words, Reddit is having its AI-era cake and eating it too, simultaneously offering a human-centric alternative to the chatbot experience and selling that experience back to authenticity-starved AI chatbot companies.

Bot Not So Fast: However, Reddit’s authenticity appeal comes with a major “but.” Or should we say bot — and not one, but potentially many.

In May, the company was hit with a scandal when researchers from the University of Zurich revealed they had flooded a popular political subreddit with bots designed to debate users; the bot swarm left more than 1,700 comments. Meanwhile, ad industry executives recently told the Financial Times that their brands were increasingly interested in posting on Reddit, with the hopes that chatbots trained on Reddit data would eventually regurgitate their marketing.

Suffice to say, Reddit risks becoming less authentic in the AI age.

While it remains unclear just how active bots are on its platform, Reddit has vowed to bolster its human-verification tools in the wake of the University of Zurich research, which the company called an “improper and highly unethical experiment.”

Still, we’re sure it’s tough for Gabe Plotkin — a.k.a. the founder and CEO of Melvin Capital — to hear that bots could have played a significant role in the GameStop short-squeeze rallying cry. Though that prompts a rather existential question: Sure, some r/WallStreetBets users may have been bots, but did those bots also have Robinhood accounts?

We’ll get back to you on that after consulting our favorite subreddit.