Key Points:
- Reddit faces an FTC inquiry over its data-licensing practices related to AI model training ahead of Reddit’s IPO as the company seeks to diversify revenue.
- Reddit’s revenue increased by 20% last year, with advertising accounting for 98% of its sales and data licensing making up the remaining 2%.
- The FTC’s interest highlights the complex regulatory environment surrounding data privacy and intellectual property laws.
- Despite regulatory scrutiny, Reddit remains optimistic about the growth potential of its data-licensing business.
Reddit, the popular online platform, disclosed on Friday that it had received a letter from the Federal Trade Commission (FTC) regarding its data-licensing practices related to training artificial intelligence (AI) systems. The news comes as Reddit prepares for its initial public offering (IPO) and seeks to diversify its revenue streams beyond advertising.
The FTC’s inquiry focuses on Reddit’s sale, licensing, or sharing user-generated content with third parties for AI model training purposes. While Reddit’s core business heavily relies on online advertising, the company has been exploring other avenues for revenue generation, including data licensing efforts that are still in their early stages.
In its updated IPO prospectus, Reddit assured its users, known as Redditors, that its data licensing initiatives do not conflict with its values or the rights of its community members and moderators. The company aims to monetize its growing platform data by leveraging it for AI model training, which it views as an additional monetization channel.
Reddit’s IPO filing indicates plans to sell shares at $31 to $34 each, valuing the company at approximately $6.5 billion. The filing also reveals that Reddit’s revenue increased by 20% last year to $804 million, with advertising accounting for 98% of its sales and data licensing making up the remaining 2%.
The FTC’s interest in Reddit’s data-licensing business underscores the complex and evolving regulatory landscape surrounding data privacy, protection, and intellectual property laws. While Reddit believes it has not engaged in any unfair or deceptive trade practices, it acknowledges the potential for regulatory scrutiny and the associated costs and impacts on its business operations.
Despite the FTC inquiry, Reddit remains optimistic about the growth prospects of its data-licensing business. The company recently entered into data-licensing agreements with a total contract value of $203 million, expecting to recognize at least $66.4 million from these deals in 2024.
However, Reddit’s data-licensing business has not been without controversy. Earlier protests from Reddit moderators erupted over platform pricing changes affecting third-party developers using its API. Reddit justified the price hike as compensation for data usage by tech companies like Google and OpenAI for AI model training. Still, developers raised concerns about the financial burden imposed on them.
As Reddit navigates the regulatory landscape and potential challenges ahead, it remains committed to its mission of providing a platform for diverse communities to engage and share content.
