Article by Sarah E. Needleman: “Artificial-intelligence companies were one of Reddit’s biggest frustrations last year. Now they are a key source of growth for the social-media platform.
These companies have an insatiable appetite for online data to train their models and display content in an easy-to-digest format. In mid-2023, Reddit, a social-media veteran and IPO newbie, turned off the spigot and began charging some businesses for access to its data.
It turns out that Reddit’s ever-growing 19-year warehouse of user commentary makes it an attractive resource for AI companies. The platform recently reported its first quarterly profit as a publicly traded company, thanks partly to data-licensing deals it made in the past year with OpenAI and Google.
Reddit Chief Executive and co-founder Steve Huffman has said the company had to stop giving away its valuable data to the world’s largest companies for free.
“It is an arms race,” he said at The Wall Street Journal’s Tech Live conference in October. “But we’re in talks with just about everybody, so we’ll see where these things land.”
Reddit’s huge amount of data works well for AI companies because it is organized by topics and uses a voting system instead of an algorithm to sort content quality, and because people’s posts tend to be candid.
For the first nine months of 2024, Reddit’s revenue category that includes licensing grew to $81.6 million from $12.3 million a year earlier.
While data-licensing revenue remains dwarfed by Reddit’s core advertising sales, the new category’s rapid growth reveals a potential lucrative business line with relatively high margins.
Diversifying away from a reliance on advertising, while tapping into an AI-adjacent market, has also made Reddit attractive to investors who are searching for new exposure to the latest technology boom. Reddit’s stock has more than doubled in the past three months.
The source of Reddit’s newfound wealth is the burgeoning market for AI-useful data. Reddit’s willingness to sell its data to AI outfits makes it stand out, because there is only a finite amount of data available for AI companies to gobble up for free or purchase. Some executives and researchers say the industry’s need for high-quality text could outstrip supply within two years, potentially slowing AI’s development…(More)”.