Social media giant Reddit has announced that it is under investigation by the Federal Trade Commission (FTC) over its data licensing practices for artificial intelligence training. The disclosure comes as the company prepares for its long-awaited initial public offering.
The disclosure was made in an amended S-1 registration statement filed with the Securities and Exchange Commission yesterday, a day after the FTC investigation.
“On March 14, 2024, we received a letter from the FTC stating that FTC staff has issued a non-public notice focusing on the sale, licensing, or sharing with third parties of user-generated content for training AI models.” We have notified you that we are conducting an investigation,” Reddit said in its filing. “Given the novel nature of these technologies and commercial arrangements, we are not surprised that the FTC has expressed interest in this area.
“We do not believe that we have engaged in unfair or deceptive trade practices,” the filing states.
The FTC investigation follows Reddit’s $60 million annual deal with Google in February, which gives the search giant access to Reddit’s vast user data to train its AI models. . The deal deepens the relationship between the two companies, with Reddit increasing its visibility on Google’s platform in exchange for valuable data.
“The Reddit Data API will give Google more efficient and structured access to fresh information,” Google said at the time of the announcement. “It also provides enhanced signals to help you better understand Reddit content and view, train, and otherwise use it in the most accurate and relevant ways.”
Reddit boasts over 100,000 active communities, averaging 1.2 million posts and 7.5 million comments each day, and we believe that data is a key asset in the rapidly growing AI market. “We believe our growing platform data will become a key element in training leading large-scale language models (“LLMs”) and serve as an additional monetization channel for Reddit,” the company said in its prospectus. There is.
However, licensing AI user data has raised concerns among privacy advocates and regulators. Reddit acknowledged in its filing that its data licensing efforts are still in the early stages and subject to evolving regulations.
“These programs may expose us to evolving approaches to the regulation of this data, involving complex and evolving data privacy and data protection, misappropriation, and intellectual property laws, rules, and regulations.” said the company.
This isn’t the first time Reddit’s AI ambitions have made headlines. As part of its IPO plans, the company said it invested in Bitcoin and Ethereum as part of its balance sheet strategy ahead of the IPO. The filing also revealed that Reddit acquired Ethereum and Polygon (MATIC) to pay for virtual goods on its platform.
“We invested a portion of our surplus cash in Bitcoin and Ether, and also acquired Ether and Matic as a means of payment for the sale of certain virtual goods. This may continue in the future,” the company said. Stated.
Reddit’s foray into the world of AI and cryptocurrencies comes as the company seeks to tap into the growing market for these technologies. Reddit cited estimates from the International Data Corporation that the global AI market, excluding China and Russia, is expected to reach $1 trillion by 2027, with a compound annual growth rate of 20%. I pointed out that there is.
But the FTC’s investigation highlighted the regulatory challenges facing Reddit as it attempts to capitalize on the AI boom. While the company is confident it hasn’t broken any laws, Reddit acknowledged that the investigation could be long and unpredictable.
“Any regulatory involvement could incur significant costs to us, and could also result in reputational damage, fines, or the discontinuance of our products, services, features, or capabilities. changes may occur or require changes to our policies or divert practices, management and other resources from our business or otherwise affect our business, results of operations, “It could have an adverse effect on our financial condition and prospects,” Reddit said in its filing.
