Reddit undergoes FTC probe over AI data practices amid its IPO preparations and $60 million Google deal.
Reddit, the famous online forum, is undergoing a Federal Trade Commission (FTC) investigation regarding its AI data licensing methods. This scrutiny emerges as the company gears up for its highly anticipated initial public offering (IPO). The inquiry centers on Reddit’s practices of selling, licensing, or sharing user-generated content with third parties to refine AI models. This development was disclosed in a recent amendment to Reddit’s S-1 registration statement with the Securities and Exchange Commission, following closely on the heels of the FTC’s inquiry notice.
Reddit’s $60 Million Google Deal
In a notable $60 million annual agreement made with Google in February, Reddit consented to provide the tech giant access to its extensive user data repository. This data is pivotal for training Google’s AI models, marking a significant deepening of ties between Reddit and Google. Also, Google aims to leverage the Reddit Data API for more structured and timely access to information, enhancing its understanding and application of Reddit content across its platforms.
Reddit’s platform, home to over 100,000 active communities, generates an average of 1.2 million posts and 7.5 million comments daily. Additionally, the company views its data as a vital asset in the burgeoning AI market, projecting it as a crucial element for training advanced large language models (LLMs) and a new revenue stream.
Regulatory Challenges
The licensing of user data for AI purposes has ignited privacy concerns among advocates and caught the attention of regulators. Reddit admits that these data licensing ventures are in nascent stages, subject to the ever-changing landscape of regulations. The company’s involvement in AI and cryptocurrency, including investments in Bitcoin and Ethereum and acquisitions for virtual goods payments, underscores its ambition to explore these innovative markets. Furthermore, citing forecasts from the International Data Corporation, Reddit anticipates the global AI market to hit the $1 trillion mark by 2027, boasting a compound annual growth rate of 20%.
Lastly, the FTC’s investigation casts a spotlight on the regulatory hurdles Reddit must navigate as it ventures into AI and seeks to monetize its data amid IPO preparations. Despite Reddit’s assertion of compliance with the law, the company recognizes the potential for the inquiry to be protracted and its outcome uncertain. The investigation could lead to significant financial costs, reputational damage, or operational changes, underscoring the complex interplay between innovation and regulation in the digital age.