Reddit revealed on Friday that it is under scrutiny by the Federal Trade Commission (FTC) concerning its practices of licensing user-generated data. This inquiry was mentioned in the latest update to Reddit’s paperwork for its planned stock market debut, focusing specifically on how Reddit handles the sale, sharing, or licensing of its content to third parties for training artificial intelligence (AI) systems. With an IPO on the horizon, Reddit aims to list its shares on the New York Stock Exchange with the ticker “RDDT,” setting its share price between $31 and $34. This pricing suggests the company could be valued at around $6.5 billion.
FTC Inquiry into Reddit’s Practices
This move comes as the tech industry sees a slowdown in IPO activities, making Reddit’s attempt to go public particularly bold. With the last significant venture-backed technology IPOs occurring in September, involving companies like Instacart and Klaviyo, Reddit’s move is noteworthy in a market that has seen little activity since late 2021.
Reddit’s financials show a 20% revenue increase last year, totaling $804 million, primarily driven by advertising which constitutes 98% of its income. The rest comes from its budding data licensing business, which Reddit is eager to grow. Reddit asserts that its data licensing initiatives align with its values and do not infringe on the rights of its users and community moderators.
With the FTC’s eyes on Reddit, the company is navigating the tricky waters of regulatory compliance, especially around data privacy and protection laws. Nonetheless, Reddit is forging ahead, recently sealing a deal for data licensing that’s worth $203 million over the next few years, expected to add at least $66.4 million to its 2024 revenue.
Around the same time as this announcement, Google announced an extended partnership with Reddit, aimed at leveraging Reddit’s data for training Google’s AI models among other applications. Reddit views its platform data as crucial for the development of leading large language models (LLMs), offering a new revenue channel through data monetization.
The FTC’s interest in Reddit’s data practices, according to the company, is not unexpected given the innovative nature of the technology and commercial arrangements involved. Reddit is confident in its compliance with fair trading practices, emphasizing its willingness to cooperate with the FTC’s ongoing inquiry.
Reddit Faces Pushback from Its Community
But Reddit’s dive into data licensing has stirred up some discontent within its community. A proposed change to the pricing for accessing Reddit’s API—essential for third-party app developers and community moderators—led to protests last summer.
The intended price hike aimed to ensure companies like Google and OpenAI, which use Reddit’s data for AI training, pay their fair share. However, the backlash highlighted the challenge of balancing fair compensation with keeping the platform accessible for developers.
As Reddit prepares for its IPO, the company acknowledges the potential for regulatory engagement to be a lengthy and unpredictable process, possibly incurring significant costs and necessitating changes in policy or business practices. Despite these uncertainties, Reddit’s venture into the public market represents a critical moment for the company as it explores new revenue pathways while managing the delicate balance between innovation, user rights, and regulatory compliance.
Related News:
Featured Image courtesy of SOPA Images/LightRocket via Getty Images