Reddit’s Ad Experiment Is Good News for Condé Nast. Maybe for Digg, Too.

How do you sell ads on a user-generated content site frequented by people who love technology and hate ads?

Sell ads that look exactly like the content itself.

That’s the strategy that Condé Nast is taking–cautiously–with Reddit, the Digg-like news aggregator it bought a couple of years ago. And it might be working.

So says Josh Stinchcomb, who runs sales and marketing for the “business” group of Condé’s digital properties, which also includes Wired.com, Ars Technica, and Web sites for the likes of The New Yorker and Portfolio. About three months ago, Stinchcomb began running ads that look exactly like the story headlines Reddit users submit and vote on.

The only difference: They sit at the top of the site’s homepage and carry a “sponsored link” tag. Like this (click to enlarge):

The results have made Condé “cautiously optimistic,” says Stinchcomb. You can measure that two ways: Click-through rates for the ads are running at about five percent, which is several times more than the industry average. And readers haven’t revolted.

The latter is a real possibility at a site like Reddit, whose users are fiercely protective of the community they’ve built, and antagonistic toward advertising in general. Stinchcomb says about 20 percent of Reddit’s users have installed ad-blocking software on their Web browsers.

If Condé keeps using the ads–they’ve run them from three sponsors so far and are tinkering with a self-service version that would allow marketers to submit ads on their own–it won’t create a torrent of cash. Right now the ads are priced at a $7 CPM (that’s $7 for every 1,000 eyeballs Condé gets in front of the ads), and Stinchcomb says he’ll probably have to knock that rate down. (He says he may also consider changing ad pricing to a cost-per-click/performance model, which would be a first for Condé).

But even a little bit of money would be a plus for Reddit, which has remained more or less a revenue-free property for Condé, even though traffic has shot up since the acquisition. Stinchcomb says Reddit now attracts five million uniques visitors a month, up from 1.5 million when the publisher bought the site (per usual, third-party traffic meausurements are much smaller).

Just as important, if it works for Reddit, it could have big implications for Digg, which has a significantly bigger audience, but faces the same problems selling ads.

Digg has raised $40 million so far, at a very high valuation, but revenues have been paltry. The site is reportedly planning to start selling ads that will look and feel a lot like the ones Reddit is already trying. High time to start experimenting.

[Note to Techmeme’s Gabe Rivera: Yup, you have sponsored content, too. In fact, we’ve seen versions of this model for as long as we’ve had mass media. I think this iteration is particularly interesting, though.]