Reddit will allow an unnamed company to use the social media platform’s content to train its artificial intelligence (AI) models as part of a new contract worth $60 million, according to a new report from Bloomberg citing people familiar with the matter. The development comes shortly ahead of Reddit’s potential launch of its long-awaited initial public offering (IPO).
In discussions with potential investors regarding its upcoming IPO, the firm, headquartered in San Francisco, revealed it had finalized a contract earlier this year. This contract, carrying an annual value of roughly $60 million, was established with a major AI company, which remains unidentified. According to sources, this partnership could pave the way for similar future agreements.
Last year during spring, Reddit’s co-founder Steve Huffman said: “The Reddit corpus of data is really valuable. But we don’t need to give all of that value to some of the largest companies in the world for free.”
Last year, Reddit’s revenue exceeded $800 million, marking a 20% growth from its 2022 earnings, according to those in the know. Leveraging the artificial intelligence (AI) trend that’s currently transforming the business landscape could enhance Reddit’s appeal to investors, potentially elevating its IPO.
Bloomberg News has reported that financial advisors have suggested Reddit aim for a valuation of no less than $5 billion for its IPO, which might be initiated as early as next month.
Reddit disclosed plans to begin imposing fees on companies seeking access to user data via its API, a departure from the past when data was available for model training at no cost. This shift towards charging for data licensing not only impacts Reddit but also other text-based sources, influencing the cost of training future AI models.
In their quest for vast amounts of data to refine their algorithms, AI firms have been actively pursuing licensing agreements with content providers looking to unlock new revenue streams. A notable deal was struck in December when OpenAI secured a contract with the German media conglomerate Axel Springer SE, a deal reported by Bloomberg News to be worth tens of millions of dollars for AI training purposes.
