Reddit’s AI Data Practices under FTC Investigation before IPO

The popular social media platform Reddit has announced that it is currently under investigation by the Federal Trade Commission (FTC) over its data licensing practices for artificial intelligence (AI) training. This disclosure comes as Reddit prepares for its highly anticipated initial public offering. The company revealed the investigation in an amended S-1 registration statement filed with the Securities and Exchange Commission on March 15, 2024, which was submitted the day after receiving the inquiry from the FTC.

Reddit acknowledged in the filing that it is not surprised by the FTC’s interest in this area, considering the unique nature of AI technologies and business agreements. The company firmly stated that it has not engaged in any unfair or deceptive trade practices. The FTC’s investigation highlights the regulatory challenges that Reddit faces in the midst of the AI boom. While Reddit maintains its innocence, it recognizes that the investigation could be prolonged and uncertain. The company warned that regulatory engagement could result in significant costs, reputational harm, fines, changes to its products or policies, diversion of resources, or other negative impacts on its business.

The FTC launched its investigation following Reddit’s $60 million annual agreement with Google in February. This deal allows Google to utilize Reddit’s extensive user data for AI training, strengthening the ties between the two companies. In return for its valuable data, Reddit receives increased exposure on Google’s platform. The use of user data for AI purposes has raised concerns among privacy advocates and regulators. Reddit acknowledged in its filing that its data licensing initiatives are still in their early stages and are subject to evolving regulations.

Reddit’s involvement in AI and cryptocurrency has previously attracted attention. In its IPO preparations, the company disclosed investments in Bitcoin and Ethereum as part of its financial strategy. The filing also revealed that Reddit acquired Ethereum and Polygon (MATIC) for virtual transactions on its platform. These moves align with Reddit’s goal of capitalizing on the growing market for AI and cryptocurrencies. According to projections by the International Data Corporation, the global AI market, excluding China and Russia, is expected to reach $1 trillion by 2027, with a compound annual growth rate of 20%.

Reddit is facing an investigation by the FTC regarding its data licensing practices for AI training. The company maintains its innocence but acknowledges the potential negative consequences of regulatory engagement. Despite these challenges, Reddit is confident in its AI and cryptocurrency ventures, as it aims to capitalize on the expanding market for these technologies.