FTC inquiry into Reddit’s AI data-licensing practices forward of IPO
Reddit stated on Friday that the Federal Commerce Fee despatched a letter to the corporate about its data-licensing enterprise associated to the coaching of synthetic intelligence techniques.
“On March 14, 2024, we obtained a letter from the FTC advising us that the FTC’s workers is conducting a personal inquiry centered on our sale, licensing, or sharing of user-generated content material with third events to coach AI fashions,” Reddit stated in an up to date preliminary public providing prospectus. Reddit filed for an IPO in February, and plans to commerce on the New York Inventory Alternate below the ticker image “RDDT.”
Though Reddit’s core enterprise depends on internet advertising, the corporate is searching for to generate profits in different methods, and is within the “early phases” of its “knowledge licensing efforts,” the submitting stated.
Reddit stated, “the chance doesn’t battle with our values and the rights of our Redditors,” referring to its customers and discussion board moderators.
The 19-year-old firm has filed to promote shares in its IPO at $31 to $34 every in an providing that may worth the enterprise at close to $6.5 billion. Reddit is attempting to hit the general public market throughout a traditionally sluggish interval for tech IPOs. There hasn’t been a notable venture-backed tech debut since Instacart and Klaviyo in September. Earlier than that, the market had been largely shuttered since late 2021.
Reddit’s income rose 20% final 12 months to $804 million. About 98% of its gross sales got here from promoting. The remaining 2% consists of knowledge licensing.
“These applications might topic us to evolving approaches to the regulation of this knowledge and implicates complicated and growing knowledge privateness and knowledge safety, misappropriation, and mental property legal guidelines, guidelines, and laws,” Reddit stated within the up to date submitting.
An FTC spokesperson declined to remark.
Reddit stated it entered into some data-licensing offers in January with a complete contract worth of $203 million over two to a few years. It expects to acknowledge not less than $66.4 million from these agreements in 2024.
The identical week that Reddit filed for its IPO, Google announced an expanded partnership with the corporate, giving the search big entry to knowledge to coach its AI fashions, amongst different makes use of.
“We consider our rising platform knowledge can be a key factor within the coaching of main giant language fashions (“LLMs”) and function a further monetization channel for Reddit,” the corporate stated in its prospectus.
Reddit stated it is “not shocked that the FTC has expressed curiosity” within the matter, contemplating “the novel nature of those applied sciences and business preparations.”
“We don’t consider that we now have engaged in any unfair or misleading commerce follow,” Reddit stated. “The letter indicated that the FTC workers was taken with assembly with us to study extra about our plans and that the FTC meant to request data and paperwork from us as its inquiry continues.”
Reddit famous that any dealings with regulators might be “prolonged and unpredictable” and will lead to “substantial prices” and different probes and product modifications that would “require us to vary our insurance policies or practices, divert administration and different assets from our enterprise, or in any other case adversely influence our enterprise, outcomes of operations, monetary situation, and prospects.”
Reddit’s data-licensing enterprise was on the heart of a widespread protest from Reddit moderators, who have been upset over the summer season when the corporate introduced a pricing change affecting some third-party builders utilizing its software programming interface, or API, to construct apps.
The corporate stated on the time that the API value hike was essential to make sure it was adequately compensated by tech firms corresponding to Google and OpenAI, which siphon large quantities of Reddit knowledge to assist prepare and enhance the capabilities of their AI fashions. However a number of builders complained that the API replace proved too expensive for them to proceed working their Reddit apps, which some Redditors used to assist them reasonable discussions.
