Reddit tests ads in search results as AI reshapes search advertising

Reddit starts testing search ads

Reddit said on Tuesday that it had started an initial test of ads in its search results. The test is open to a select group of eligible advertisers. The company called it an "initial test" in a blog post, Engadget reported.

Ads will match what people type. Reddit's own examples: a search for "espresso station" could return ads for machines, beans or mugs. A search for "home office setup" could surface monitors, desks and chairs. Engadget reported that screenshots shared by the company showed ads near the top of results.

Reddit did not say how often the ads will appear, and it did not give prices. The company said only a limited group of advertisers gets access in the first phase. It suggested the format would expand later.

The traffic problem behind the test

The test lands days after Reddit warned investors about declining search traffic and a weaker revenue forecast. Global daily active users were flat quarter over quarter. They stood at 130.3 million in the third quarter, according to TechCrunch. US daily active users fell from 53.2 million in the second quarter to 50.7 million, down 2% year over year. Reddit said the figure could decline by a low double-digit percentage in the fourth quarter.

Guidance came in at $1 billion to $1.03 billion, below the $1.05 billion analysts expected. Reddit said last week that Google's AI mode has led to significant declines in search traffic, Engadget reported. Its response is to close the door. Reddit will soon hide most content from logged-out visitors. CEO Steve Huffman said the change would improve ad targeting because logged-in users give the platform more signals.

That is the trade Reddit is making. Fewer anonymous visitors, more data on the ones who stay.

Google's AI summaries hit its own ad sales

The same pressure is visible at the top of the market. Alphabet lost just over $500 billion in market value on Thursday 29 October. The BBC reported that the drop followed the company's disclosure that its own AI summaries were eating into search advertising revenue. Shares fell more than 12% to a six-month low. That took Alphabet's value to $3.46 trillion from $3.97 trillion the day before.

Total revenue still grew 25% to $127.6 billion in the three months to the end of September. The advertising arm missed analyst forecasts anyway. Chief business officer Philipp Schindler said AI mode, which answers questions conversationally, was cutting into the money Google makes from ads placed next to traditional results.

OpenAI builds a search ads business

OpenAI is building the alternative. Adam Fry, its consumer product lead for ChatGPT, said at a press event on Monday that search queries run through ChatGPT now equal 20% of the volume run through Google, according to The Verge. Fry did not specify the source of the Google search volume number.

For scale, Microsoft CEO Satya Nadella said during Google's 2023 antitrust trial that Bing held about 3% of the search market. That was after more than a decade of trying. OpenAI's ad business is younger and already wider. ChatGPT Ads expanded to 26 new countries, reaching 89 markets. OpenAI says more than 100,000 advertisers have run campaigns. Ads appear only on the Free and Go plans, and OpenAI says 1.2 billion people use ChatGPT each week.

What happens next

Reddit says it will watch how users respond and refine the format. The shift to logged-in access will be gradual and will start outside the US, TechCrunch reported.

Reddit will not say what the inventory costs. It has not disclosed how often search ads will appear or what advertisers will pay. The traffic decline it is trying to offset has not stopped.