- The FTC is investigating Reddit’s data-licensing practices prior to its IPO.
- Reddit disclosed receiving a letter from the FTC regarding its sale or sharing of user-generated content for AI training.
- The company aims to go public with an offering price between $31 to $34 per share, valuing it at around $6.5 billion.
- While Reddit’s revenue primarily comes from advertising, it’s exploring data licensing as an additional revenue stream.
- Reddit anticipates potential regulatory challenges and costs associated with its data-licensing business.
- Google’s expanded partnership with Reddit highlights the value of Reddit’s data platform for training AI models.
- The FTC’s inquiry and Reddit’s response have implications for the company’s operations and regulatory compliance.
Main AI News:
The Federal Trade Commission (FTC) is currently conducting an investigation into Reddit’s AI data-licensing strategies ahead of its highly anticipated Initial Public Offering (IPO). Reddit confirmed on Friday that it had received correspondence from the FTC regarding its practices in selling or sharing user-generated content for the purpose of training AI systems.
In an updated IPO prospectus, Reddit disclosed, “We received a letter from the FTC advising us of a non-public inquiry focused on our sale, licensing, or sharing of user-generated content with third parties to train AI models.” The company, which filed for an IPO in February, aims to trade on the New York Stock Exchange under the ticker symbol “RDDT.“
Despite its primary revenue source being online advertising, Reddit is exploring additional avenues for monetization, particularly through its “early stages” data licensing initiatives, as stated in the filing. Reddit assured stakeholders that these endeavors align with its core values and respect the rights of its users and moderators, referred to as Redditors.
As Reddit prepares to go public, it seeks to raise funds with an offering price ranging from $31 to $34 per share, valuing the company at nearly $6.5 billion. The move comes amidst a sluggish period for tech IPOs, with the last significant venture-backed debuts occurring in September.
Although Reddit’s revenue experienced a 20% increase last year, reaching $804 million, the majority (98%) was derived from advertising. However, the company is also engaged in data licensing, accounting for the remaining 2% of its sales.
The filing acknowledges potential regulatory challenges associated with data privacy laws and intellectual property regulations. Reddit recently entered into data-licensing agreements worth $203 million over the next two to three years, anticipating revenue recognition of at least $66.4 million in 2024.
Meanwhile, Google’s expanded partnership with Reddit, announced concurrently with the IPO filing, underscores the value of Reddit’s growing data platform for training AI models. Reddit expressed confidence in the significance of its data for training large language models (LLMs), positioning it as an additional revenue stream.
In response to the FTC’s inquiry, Reddit emphasized its willingness to cooperate while asserting its compliance with fair trade practices. The company anticipates potential impacts on its operations, including substantial costs and regulatory changes.
Reddit’s data-licensing business previously sparked controversy among moderators, particularly regarding pricing changes affecting third-party developers using its API to build apps. While Reddit defended these adjustments as necessary for fair compensation, developers voiced concerns about the financial burden, impacting their ability to maintain Reddit-related applications.
Conclusion:
The FTC’s inquiry into Reddit’s data-licensing practices, coupled with its disclosure in the IPO prospectus, underscores the increasing scrutiny and regulatory complexities surrounding data usage in the tech industry. This investigation, along with Reddit’s efforts to diversify revenue streams and concerns raised by stakeholders, could impact market sentiment towards the company’s IPO and further shape regulatory discourse on data privacy and fair trade practices. As the tech landscape evolves, investors and industry participants will need to closely monitor developments in this space to navigate potential risks and opportunities effectively.
