Reddit faces FTC probe over AI data practices ahead of IPO

Reddit mentioned in the filing that it is not surprised by the FTC’s interest in this area due to the unique nature of these technologies and business agreements.

Social media giant Reddit has revealed that it is being investigated by the Federal Trade Commission (FTC) over its data licensing practices for artificial intelligence training. The disclosure comes amid the company’s preparation for its long-awaited initial public offering.

The disclosure appeared in an amended S-1 registration statement filed with the Securities and Exchange Commission on March 15, 2024, submitted the day after receiving the FTC inquiry.

Reddit mentioned in the filing that it is not surprised by the FTC’s interest in this area due to the unique nature of these technologies and business agreements. However, Reddit insisted it had not engaged in unfair or deceptive trade practices.

However, the FTC scrutiny underscores Reddit’s regulatory hurdles amid the AI surge. While Reddit believes it hasn’t violated laws, it admits the investigation might be prolonged and uncertain. Reddit disclaimed in the filing:

“Any regulatory engagement may cause us to incur substantial costs, and it is possible for any regulatory engagement to result in reputational harm or fines, cause us to discontinue or modify our products, services, features, or functionalities, require us to change our policies or practices, divert management and other resources from our business, or otherwise adversely impact our business, results of operations, financial condition, and prospects.”

The FTC launched an investigation after Reddit struck a $60 million yearly agreement with Google in February, allowing the tech giant to utilize Reddit’s extensive user data for AI training. This deal strengthens ties between Reddit and Google, with Reddit receiving increased exposure on Google’s platform in return for its valuable data.

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Using user data for AI has sparked worries among privacy advocates and regulators. Reddit conceded in its filing that its data licensing initiatives are nascent and subject to evolving regulations.

Reddit’s AI aspirations have previously garnered attention. In its IPO preparations, the company disclosed investments in Bitcoin and Ethereum as part of its financial strategy. Additionally, the filing disclosed Reddit’s acquisition of Ethereum and Polygon (MATIC) for virtual transactions on its platform.

Reddit’s venture into AI and cryptocurrency aligns with its aim to capitalize on the expanding market for these innovations. Referring to projections by the International Data Corporation, Reddit highlighted that the worldwide AI market, excluding China and Russia, is projected to hit $1 trillion by 2027, boasting a 20% compound annual growth rate.