By Michael Scott
Social media platform Reddit acknowledged that the Federal Trade Commission (FTC) opened an inquiry into the $60M deal with Google as it edges closer to going public. The FTC probe targets the data licensing practices deployed for artificial intelligence (AI) training.
The disclosure by Reddit comes at a crucial moment when the social media giant prepares for the initial public offering (IPO).
Reddit Acknowledges FTC Probe into AI Model Training
The disclosure emerged in the amended S-1 registration statement that Reddit filed with the US Securities and Exchange Commission (SEC) just a day after receipt of the FTC probe.
Reddit acknowledged the receipt of FTC’s advisory letter on Thursday, March 14, that its officers were conducting a non-public inquiry on its deal with third parties. In particular, the investigation targets the sale, licensure, and sharing of user-generated content to facilitate AI model training.
Reddit revealed in the filing that it is not surprised by the FTC expressing interest given the commercial arrangements and novel nature of AI technologies. Nonetheless, Reddit ruled out committing unfair and deceptive trade practices.
The FTC inquiry targets the $60M annual deal it entered with Google. The agreement would grant the search giant unrestricted access to the vast user data. The access would help the search giant in training its AI models.
Reddit Deepens Google Relationship in Million-Dollar Data Access Agreement
The agreement will deepen the Reddit-Google relationship. The social media company will benefit from greater visibility on the latter’s platform in exchange for granting the vast trove of invaluable data.
The access to Reddit Data API grants Google efficient and structured access to recent information. Besides fresher data, the enhanced signals will enhance understanding of Reddit’s content and display. Such will reinforce training in the most accurate and pertinent ways.
Reddit hosts over 100,000 active communities, and 1.2M posts and 7.5M comments are executed daily. Google considers Reddit data a critical resource in pursuing stakes in the rapidly growing AI market.
Reddit disclosed in its prospectus that the expanding platform data will be critical in training the large language models (LLMs). Granting access to Google will constitute an additional avenue to monetize.
The FTC probe coincides with the privacy advocates echoing regulators’ concerns regarding licensing user data to train AI. The filing profiles the data licensing efforts, which are within the preliminary phase yet subject to evolving regulations.
The company admits that the data access initiatives could subject Reddit to scrutiny and evolving approaches to LLM training. The evolving regulations could affect data privacy, protection, and intellectual property provisions.
Reddit’s AI ambitions have, in the past, made headlines. Previously, the company revealed Bitcoin and Ethereum investments as a balance sheet strategy before the IPO plans. Also, the amended S-1 revealed that it bought Ethereum and Polygon (MATIC) for use in virtual goods payment on the platform.
Reddit indicated it would continue investing in excess cash reserves to acquire Bitcoin and Ethereum.
Reddit Confronts Regulatory Challenges in Pursuit of Opportunities in AI Boom
Reddit’s entry into the AI world and crypto coincides with a period when the company seeks to tap into the rapid market growth realized by the two technologies.
Reddit cites the International Data Corporation (IDC) statistics indicating that the global AI market, excluding Russia and China, will attain a 20% compound annual growth (CAG) rate to surpass $1 trillion by 2027.
The FTC probe indicates that Reddit confronts regulatory challenges as it seeks to capitalize on the AI boom. Although the social media company confidently ruled out violating any laws, Reddit acknowledged that the inquiry is unpredictable and possibly lengthy.
Reddit revealed in the filing that the regulatory engagement may delay the process and cause huge costs. The company highlighted that the regulatory engagement could cause reputational harm and fines.
The filing reveals that the regulatory engagement may compel the modification or discontinuation of Reddit products, functionalities, and services. The company captured a disclaimer in its filing that regulatory actions could prompt policy adjustment and diversion of resources, thus adversely impacting its business, prospects, and operation results.
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