Reddit’s AI Training Deal: Monetizing User-Generated Content

Reddit Strikes Lucrative AI Training Deal Ahead of IPO

User-Generated Content Now Up for Grabs

In a move that could significantly boost its revenue, Reddit has entered into a licensing agreement with an undisclosed AI company. The deal, reportedly worth around $60 million annually, grants the AI firm access to Reddit’s vast trove of user-generated content. This development comes as the social media platform prepares for its highly anticipated initial public offering (IPO).

Shifting Landscape in AI Training Data Acquisition

Traditionally, AI companies have relied on openly available web data for training their models without explicit permission. However, this approach has come under legal scrutiny, prompting businesses to seek more legitimate means of acquiring data. While the identity of Reddit’s AI partner remains undisclosed, the deal’s value far surpasses the $5 million annual agreements OpenAI has reportedly offered to news publishers. Similarly, Apple has been pursuing multi-year contracts with major news outlets, potentially worth upwards of $50 million.

Reddit’s Assertive Stance and Revenue Challenges

Last October, reports surfaced that Reddit had threatened to block search crawlers from Google and Bing if it failed to secure a training data deal with AI companies. An insider claimed that the platform could thrive without search traffic, highlighting Reddit’s confidence in its negotiating position. This assertiveness was also evident last year when the company successfully weathered the largest protest in its history, sparked by changes to its third-party API access pricing that led to the shutdown of popular Reddit apps.

Despite a 20% year-over-year revenue growth by the end of 2023, Reddit fell short of its $1 billion target set two years earlier by $200 million. As the company gears up for its public debut, anticipated in March, advisors have recommended a $5 billion valuation. This figure is notably lower than the $10-15 billion valuation Reddit might have achieved in 2021 when it initially filed to go public, prior to a market downturn that forced a delay.

Whether or not that’s true — after all, one of the best ways to get around SEO spam in search results is to add the word “Reddit” to your search query — Reddit has shown that it’s willing to play hardball before.

As Reddit navigates the challenges of monetizing its platform and attracting investors, the AI training deal could provide a much-needed boost to its financial prospects. However, the implications of selling user-generated content for AI development remain to be seen, as concerns over data privacy and user consent continue to shape the evolving landscape of the tech industry.