How Redditgifts is making money on altruism

July 12, 2013
July 12, 2013

People are sending millions of dollars worth of presents to strangers from the internet. Just yesterday, I came home to find a painting of a goat waiting for me. The week before, it was a hand-blown glass octopus. My favorite snacks. Star Trek earrings. Fifty vintage stamps with mushrooms on them. Now, this anonymous gift-giving is the center of a growing online business.

Redditgifts, a secret Santa community for users of the social news and entertainment website Reddit, was founded in 2009 when web developer Dan McComas suggested the concept on Reddit. Soon, he found himself building the gift exchange from the ground up. He set up a server and created Redditgifts.com, and then wrote a program for accepting addresses and spitting them back out at random, allowing each participant to receive the information of their gift recipient and, in turn, be set up with a “Santa,” or gift giver. Through a process that McComas calls “friendly stalking,” users found out their recipients’ likes and dislikes based on the information given, which included their Reddit username, then sent them an anonymous present—laptops, lobsters, plush sharks stuffed with toys and t-shirts, cruises, and even the odd serenade from Jimmy Fallon. In the first exchange, there were 4,375 participants from 62 countries, and they spent $183,118 on gifts for each other. To sign up is to trust a stranger with your mailing address—not everyone follows through with a gift (the follow-through percentage, gifts actually shipped, hovers in the high 90s) though no one’s had any trouble to date.

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When the internet sends you a shark full of presents, you get out your surgical tools
When the internet sends you a shark full of presents, you get out your surgical toolsReddit User Believeinfacts

McComas quickly learned that the phenomenon of a gift exchange could exist without Christmas behind it. To test the gift-giving spirit, he  created a new holiday—Arbitrary Day—in June of 2010. When that was nearly as successful (with 3,808 participants) as Christmas had been, he realized that Redditgifts could be boiled down to more generic terms. “We facilitated a direct connection between strangers on the internet to do something nice for each other,” he said in an interview with Quartz. And that, he felt, was something that could eventually be turned into a business.

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Sometimes, you get a box of lobsters.
Sometimes, you get a box of lobsters.Reddit User dsc123

But why the heck did it work? During the first exchange, McComas worried that people would send each other boxes of trash. Instead, gifts were thoughtful (if not always quite as thoughtful as a new laptop) and personal. In a TED talk this past May, McComas tried to figure out what Redditgift’s “secret” is. He pointed to the research of  Harvard Business School’s Michael Norton, presented in a TED talk called “Money Can Buy Happiness.” Norton gave students envelopes full of cash, including instructions to spend the money on either themselves or others by the end of the day. At the end of the day, the self-spenders weren’t any happier than they’d been in the morning, but the gift-givers were—whether they’d had $5 to spend on coffee for a stranger in Starbucks or $20 to give to charity. “What he learned,” McComas told the crowd, “is that you can buy happiness with money. You just have to spend that money on a stranger.” The warm-and-fuzzies a Santa gets from spending their cash on someone they’ll never meet are only amplified by a few of the site’s features: Recipients post pictures and descriptions of their gifts, so a Santa knows just how happy she’s made them—plus, each Santa knows that she’ll eventually get a surprise of her own in the mail.

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You never know who your Santa might be.Reddit

As the exchanges grew—from 4,375 participants in Christmas of 2009 and 17,056 in 2010—McComas and Jessica Moreno, his wife and cofounder, felt pressure to make money from running the site. “We were at a breaking point,” he said, with what had once been a hobby turning into full-time work, “and it was time to either make it a business or let it die.” A 2011 acquisition by Reddit did the trick, giving them the resources to expand. Since then, they’ve transitioned to almost year-round exchanges, most of them themed (yarn, make-up, snacks, Arrested Development, and the latest: NSA data mining). And the Redditgifts Marketplace, which facilitates easy gift buying and sending for exchanges, is the key to the site’s monetization.

Since last Christmas, users have been able to use the Redditgifts Marketplace to buy and ship gifts for the exchange. The interface centers on anonymous gift exchanges, making it easy for users to send gifts without juggling shipping and billing addresses. A single click makes the gift anonymous, with an option to include a name of your choosing for the sender (your first name only, or your Reddit username) or none at all. The vendors vary widely—from Squishable, a popular maker of stuffed animals, to less mainstream stores like Hugstrosity, which sells teddy bears with tentacles on them—and McComas hopes that it will soon be the go-to place for all online present shoppers.

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Different strokes for different folks
Different strokes for different folksHugstrosity, Squishable

“Our end goal is to be like the Amazon Marketplace of gift-giving,” McComas said.

The marketplace has avoided collecting flat fees from its vendors in an effort to keep things fair—but the 15%-25% cut they take (with the higher end reserved for products that use Reddit logos and other licensed references to the site) is nothing to sneeze at. Amazon Marketplace charges a similar percentage, and an additional $0.99 fee per sale (except for subscribed sellers, who pay a flat $39.99 on top of their sales cuts). But Redditgifts sellers have gone on the record as saying that the smaller marketplace has top-notch service, and will outshine Amazon if it stays that way as sales scale up.

In the meantime, McComas and his team have the benefit of a uniquely devoted customer base. This year’s Christmas exchange saw nearly $2 million spent on anonymous gift-giving, and the growth shows no signs of stopping. Above all, Redditgifts is a community—just like Reddit is. Six percent of all online adults use Reddit, and together they’ve done everything from paying for medical treatment  to donating massive quantities of pizza to emergency responders during disaster. When the Reddit community gets behind something, it usually happens—so Redditgifts is bound to keep flowing into the mainstream, and their Marketplace is likely to follow.

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