An analyst on Slack is staring at a Bloomberg terminal. The RDDT ticker is flashing red, sliding downward in a steady, rhythmic bleed. He opens a Chrome tab to see why the sentiment has soured, types a query into Google, and is immediately greeted by an AI Overview. The summary is perfect. It synthesizes the exact Reddit thread he was looking for, providing the answer in three neat bullet points. He closes the tab without ever clicking a link to Reddit.
This is the paradox of the modern data licensing deal. You get paid a lump sum to let a giant ingest your archives, but in exchange, the giant builds a product that makes visiting your site unnecessary. Steve Huffman, Reddit’s CEO, seems to have finally hit the wall on this. According to Ars Technica, the “win-win” that was promised in the Google partnership is still missing. Huffman is essentially questioning whether the check Google is writing is enough to offset the loss of the users who used to provide the actual value of the platform.
(And the market is clearly not buying the optimism).
The logic behind these deals was always a bit flimsy. The pitch was that AI Overviews would act as a funnel, providing a teaser that would drive high-intent traffic to the source. But that’s not how LLMs work. LLMs are designed to satisfy the user’s intent as quickly as possible. If the intent is “find out if this specific GPU is compatible with this motherboard,” and the AI Overview provides the “Yes” and the reason why, the user’s journey ends there. Why would anyone click through to a thread of 400 comments when the LLM gives them a three-bullet summary?
This isn’t just a traffic problem; it’s a fundamental failure of the business model. Licensing your data to the entity that controls the gateway to your site is like a restaurant selling its secret recipes to a food delivery app, only for the app to start selling the recipes as meal kits so customers never have to visit the restaurant. You might get a nice payout upfront, but you’ve effectively subsidized your own obsolescence.
The friction here is visceral. We are talking about a platform built on the volatility of human discourse—the “lived experience” that makes Reddit valuable. When Google strips that context away to provide a sanitized summary, it removes the very thing that keeps users engaged with the original site. Reddit becomes a headless content farm for Google’s index, providing the raw materials for a product that actively discourages people from interacting with the community.
It is a terrible trade.
The only way out of this is to stop treating data as a commodity to be sold in bulk and start treating it as a service to be billed by the impression. If Google wants to display a Reddit-sourced summary, Reddit should be getting a cut of the ad revenue for that specific interaction, not a flat licensing fee that expires in a few years. The current model is a legacy holdover from the SEO era, where a link was a prize. In the AI era, a link is a chore.
The industry is currently pretending that “brand awareness” is a substitute for “active users,” but the stock price suggests otherwise. Investors don’t care if Google’s AI is “aware” of Reddit; they care if people are actually using the site to see ads.
Reddit will be forced to tear up the current licensing structure and move to a per-query revenue-share model by Q1 2027. They have no other choice. If they continue to accept lump sums while their traffic is cannibalized by the very models they trained, they aren’t a social media company anymore—they’re just a very expensive library for Google’s LLM. Or maybe they’ve already accepted that fate and are just waiting for the check to clear before the lights go out. (I doubt it, given the ego involved in running a platform like Reddit).
