Reddit discloses FTC probe into its AI data access ahead of IPO

The social media platform's $60 million deal with Google has come under scrutiny from regulators as it prepares to go public.

Image source: Mark Van Scyoc/Daboost/Shutterstock

Social media giant Reddit has revealed that the company is under investigation by the US Federal Trade Commission (FTC) over its artificial intelligence training data licensing practices. The disclosure comes as the company prepares for its long-awaited initial public offering.

The disclosure appears in an amended S-1 registration statement filed with the SEC yesterday, a day after receiving an investigative inquiry from the FTC. The statement was filed the day after receiving an inquiry from the FTC.

Reddit stated in the filing, “On March 14, 2024, we received a letter from the FTC informing us that FTC staff were conducting a nonpublic investigation focusing on our selling, licensing, or sharing of user-generated content to third parties for The behavior of training AI models." and stated, "Given the novelty of these technologies and commercial arrangements, we are not surprised that the FTC has expressed concern in this area."

"We do not believe that we have engaged in any unfair or deceptive business practices," the filing states.

The FTC's investigation comes after Reddit signed a $60 million-a-year deal with Google in February that gave the search giant access to Reddit's vast database of users to train its AI models. The agreement deepens the relationship between the two companies, with Reddit giving its valuable data in exchange for greater exposure on Google's platform.

In announcing the news, Google said: “Through the Reddit Data API, Google will now be able to efficiently and structuredly obtain updated information and enhanced signals that will help us better understand Reddit content and serve it in the most accurate and efficient way. Present, train and use it in the most relevant way.”

With over 100,000 active communities on Reddit averaging 1.2 million posts and 7.5 million comments per day, we view its data as a key asset in the rapidly growing AI market. The company said in its prospectus, "We believe the growing pool of data available through the platform will be a key element in training leading large language models ('LLMs') and will serve as an additional monetization channel for Reddit."

However, licensing user data to AI has raised concerns among privacy advocates and regulators. Reddit acknowledged in its filing that its data licensing efforts are still in its early stages and subject to changing regulations.

"These projects may expose us to evolving regulation of this data, including complex and evolving data privacy and data protection, misappropriation and intellectual property laws, rules and regulations," the company said.

This isn't the first time Reddit's AI ambitions have made headlines. As part of its IPO plan, the company said it had invested some of its excess cash reserves in Bitcoin and Ethereum ahead of the IPO. The document also revealed that Reddit has made purchases of Ethereum and Polygon network tokens (MATIC) in its business operations to pay for virtual goods sold on its platform.

"We invest a portion of our excess cash reserves in Bitcoin and Ethereum and support the use of Ethereum and Matic as currencies to pay for certain virtual goods sales, and we may continue to do so in the future," the company said.

Reddit's entry into AI and cryptocurrency comes as the company seeks to tap into growing markets for these technologies. Reddit cited estimates from the International Data Corporation that even excluding China and Russia, the global AI market is expected to reach $1 trillion by 2027, with a compound annual growth rate of 20%.

However, the FTC investigation highlights the regulatory challenges Reddit faces as it seeks to capitalize on the AI ​​craze. While the company is confident it didn't break any laws, Reddit acknowledged that the investigation could be lengthy and unpredictable.

Reddit stated in the filing: "Any regulatory involvement could cause us to incur substantial costs, and any regulatory involvement could cause us to suffer reputational harm or fines, which would in turn cause us to discontinue or modify our products, services, features or functionality, requiring us to Change policies or practices, divert management and other resources away from our business, or otherwise adversely affect our business, results of operations, financial condition and prospects."

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