Reddit Receives An Inquiry From FTC About Its AI-Related Deals

FTC sent an inquiry letter to Reddit seeking more information about its data licensing deals with AI companies

Reddit signed a deal with Google worth $60 million per year that’ll allow the tech giant to use Reddit’s content for training its AI models

Reddit is also expected to make an additional $203 million over the next 2 to 3 years through other data licensing deals

On Friday, Reddit received an inquiry from The Federal Trade Commission (FTC) about its plans to license its platform to AI companies for training their language models.

The company struck a deal with Google in February to let them use the user-generated content on its platform for training purposes. According to reports, the contract is worth $60 million per year.

Reddit also entered other data licensing deals in January that will earn it a total of $203 million over the next 2 to 3 years. Out of this, the company expects to get at least $66.4 million by the end of this year alone.

It’s believed that Reddit is entering this deal to make up for its low revenue. While the platform itself is doing well, its revenue is nothing in comparison to some of its contemporaries such as Instagram or TikTok.

So far, its main source of income is online advertising. For example, last year it managed to earn a revenue of $804 million (20% more than the previous year). Out of this, 98% of the revenue comes from advertising while the remaining 2% comes from data licensing.

Read More: FTC issues warning about cybercriminals using malicious QR codes

Reddit’s Confident Response to FTC

Reddit feels it’s a win-win deal because this step doesn’t go against the platform’s core values and allows its users to retain their rights while they make an extra income.

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 any unfair or deceptive trade practice.Reddit

As per plans, members of the FTC will meet up with the Reddit team and talk about their AI deals and how they plan to use the content. They might also seek more documents, including the contract itself to get a better understanding of this collaboration.

In the updated security filing, the company assured that they are aware of the responsibilities that come along with this step. It will require them to do the following:

Create new data management policies

Privacy Protocols

Design regulations to ensure the new deal doesn’t conflict with their user’s interests

FTC’s Inquiry Amidst Reddit’s Upcoming IPO

The timing of this inquiry couldn’t be more interesting. After 20 years of its launch, Reddit has decided to go public, making it the first social media company to release an IPO after Pinterest in 2019.

Through this IPO, the company is expecting to raise at least $750 million and reach a total valuation of $6.4 billion.

What makes this IPO even more unique is that a certain percentage of the stocks will be available for the moderators of the platform to buy.

Reddit has always believed in keeping it a user-centric platform and this is its way of showing gratitude to its loyal users.

Some experts are worried about the implications of this move on other investors. Since these users will not have to be in a lock-in period (the period during which they are not allowed to sell the stocks), Reddit’s share value might be very volatile.

But it looks like the company has faith in this step. Despite all criticism, they have refused to budge.

Read More: Reddit includes Bitcoin, Ethereum, and Polygon to its balance sheet ahead of its IPO