Facebook’s $400 million acquisition of Giphy last year turned a lot of heads including antitrust regulators CMA, FTC, and Australia’s ACCC, all of which are probing the deal. The UK-based CMA concluded its preliminary investigation against Facebook and found the deal to be detrimental to competition. Facebook may have to sell off Giphy, pending a final review by the CMA.
The United Kingdom’s competition watchdog has assessed after a provisional anticompetition probe that Facebook’s acquisition of GIF trailblazer Giphy will “negatively impact competition between social media platforms.†The Competition and Markets Authority (CMA) is yet to make a final decision but it looks like the $400 million deal could come to nothing.
CMA is concerned that Facebook could deny access to GIFs (Graphics Interchange Format), those short, animated image clips that users send to express an emotion or a message, to its competitors. CMA also believes that the acquisition could decisively kill off competition between the two in online display advertising, an area where Facebook is the second biggest player after Google.
“Millions of people share GIFs every day with friends, family and colleagues, and this number continues to grow. Giphy’s takeover could see Facebook withdrawing GIFs from competing platforms or requiring more user data in order to access them,†Stuart McIntoshOpens a new window , chair of the independent inquiry group carrying out the phase 2 investigation saidOpens a new window .
“It also removes a potential challenger to Facebook in the £5.5 billion display advertising market. None of this would be good news for customers.
See Also: What’s Going Wrong at Apple These Days?
Giphy and the Facebook Deal
Giphy is a platform to create and distribute GIFs. It has a daily user reach of over 700 million peopleOpens a new window making it the biggest GIF distribution company, ahead of Google’s TenorOpens a new window . It is a free service that was founded in 2013 as a GIF search engine. Soon, it’s evolution led the company to bringing the highly expressive digital media files to other platforms. Later, Giphy also ventured into digital advertising.
Presently, Giphy can be integrated with and its GIFs embedded on nearly all social media platforms Facebook, Twitter, Instagram, TikTok, etc; messaging platforms WhatsApp, iMessage; and even workplace communication and productivity platforms Slack, Microsoft Teams, Trello; and dating apps among others. So even if you’ve never used Giphy’s services, there’s a high chance that you’ve come across a GIF created and distributed on it.
Enter 2021. Facebook comes knocking at Giphy’s door to take over what’s possibly one of the most essential elements of present-day internet communication. This was Facebook’s second attempt at buying the non-profitable Giphy. Facebook had initially proposed to acquireOpens a new window the GIF giant through one of its subsidiaries WhatsApp in 2015 which Giphy rejected. Back then, Giphy had raised a total of $23.9 millionOpens a new window in its two funding rounds as compared to the total $150.9 million it has raised until now.Â
Concerns
Ghosts of Acquisitions Past
Not only does the acquisition give Facebook an edge over its social media competitors who are reliant on Giphy for GIFs (Tenor hasn’t achieved Giphy’s scale yet), it also enables Facebook to have unique insights into the usage of GIFs.
Naturally, privacy advocates, antitrust regulators, and a part of the tech community were concerned. The timing of the acquisition didn’t help either. Although it is hard to remember when Facebook wasn’t under regulatory scrutiny, the Giphy deal came at a time last year when Sen. Elizabeth WarrenOpens a new window (D), and Rep. Alexandria Ocasio-CortezOpens a new window (D), proposed the Pandemic Anti-Monopoly ActOpens a new window .
The primary intention of the bill was to “stop large corporations from exploiting the coronavirus pandemic to engage in harmful mergers.†If passed, the act would’ve put Facebook and other companies with a revenue of $100 million or more under moratorium. Facebook’s acquisition of WhatsAppOpens a new window in 2014 among others was cited as an example of how Big Tech’s financial power aided in monopolizing the domain.
To quell the outcry, Vishal ShahOpens a new window , VP of product at Instagram saidOpens a new window , “People will still be able to upload GIFs; developers and API partners will continue to have the same access to GIPHY’s APIs; and GIPHY’s creative community will still be able to create great content.†Looking at CMA’s assessment, Shah’s assurance didn’t work.
CMA said Giphy’s acquisition by Facebook could limit choice of different social media platforms. It could impact platform usage patterns of users if, let’s say, Giphy under Facebook decides to reduce GIF choices or quality on a competing social media platform. While GIFs do add sheen to a platform, there isn’t any data that validates the hypothesis that users may switch platforms due to lack of GIFs alone. Unless of course CMA has it and makes it available.
“The CMA provisionally found that Facebook’s ownership of Giphy could lead it to deny other platforms access to its GIFs. Alternatively, it could change the terms of this access – for example, Facebook could require Giphy customers, such as TikTok, Twitter and Snapchat, to provide more user data in order to access Giphy GIFs. Such actions could increase Facebook’s market power, which is already significant,†the UK-based regulator saidOpens a new window .
Privacy Concerns
Additionally, Facebook’s (dis)repute when it comes to upholding user privacy doesn’t help either. And we’re not even talking about the Cambridge Analytica scandal. Facebook is known to acquire companies that offer a data-driven view into the market to conduct and expand its own business. Remember Instagram, now the fourth largest social network, and OnavoOpens a new window , the now defunct mobile web analytics vendor.
Moxie MarlinspikeOpens a new window , founder of Signal, the privacy-focused competitor to Facebook’s WhatsApp took to Twitter to assuage concerns of its users. Signal hasn’t become a mainstream messaging platform yet but it recently got a bump in its user base after Facebook rolled out a new privacy policy for WhatsApp.
Still users of Signal are primarily those that are sceptical of Facebook-owned WhatsApp. This is why Marlinspike had to personally assure them that searching for GIFs on Signal integrated with Facebook-owned Giphy won’t affect their privacy. Giphy is proxied on SignalOpens a new window , SlackOpens a new window , and others.
I’m not sure what you mean. You can always opt out by not searching for gifs? If you still want to search for gifs, you can do so knowing that your searches are private.
— Moxie Marlinspike (@moxie) May 25, 2020Opens a new window
Facebook was also criticized for collecting data through Onavo Protect VPN app, which was widely termed as a spyware. Onavo Protect VPN was embedded within the Facebook app. It enabled Facebook to harvest data from devices it was installed on to analyze apps usage patterns, web browsing and search patterns, location, email, messages, and the change in trends as time passes.
This particular scenario not only violates user privacy but also kills the competition before it becomes one. Eventually Onavo was sunsetted, but not before widespread criticisms and friction with Apple. The incident gives an idea into Facebook’s conduct and weakens the notion that concerns are unfounded.
See Also: Allegations of Behavior Profiling for Ad Targeting Lands Amazon $888M in Record GDPR Fines
Killing a Digital Display Advertising Competitor
CMA also voiced concerns over a potential competitor in display advertising becoming a casualty of the acquisition. Giphy’s revenue model relied heavily on, like several other silicon valley companies, advertising.
Giphy already had customers such as Pepsi and Dunkin’ Donuts for its paid advertising platform in the United States. These deals generated six- and seven-figure revenues, according to Adam LeibsohnOpens a new window , Giphy’s chief operating officer who told IncOpens a new window .
“The holy grail for a brand advertiser is to be able to directly and uniquely align with the brand value,†Leibsohn told Inc. “If you stand as a brand for ‘joy’ or ‘fun,’ Giphy is uniquely positioned to promote it through paid search–then suddenly people are using your content to express the very emotions you stand for.â€
Brands already organically benefit from creating and uploading GIFs which are ranked according to popularity. If they want to be on top of searches, they’d need to pay.
Facebook, which accounts for over half of the UK’s £5.5 billionOpens a new window ($7.59 billion) digital advertising market, cut short Giphy’s plans to expand into the UK and terminated paid advertising partnerships it made. CMA said this directly affected innovation in the advertising space.
Closing Thoughts
Giphy was a good deal for Facebook, given it was available for $400 million — a price 33% lower than its $600 million valuationOpens a new window . The company certainly hopped on the opportunity that enables the world’s largest social media platform to gain a strategic edge over:
- Other social media companies
- Other messaging platforms
- Other advertisers
Facebook also indirectly protected its position in the UK’s digital advertising sector.
McIntosh adds, “We will now consult on our findings before completing our review. Should we conclude that the merger is detrimental to the market and social media users, we will take the necessary actions to make sure people are protected.†Inevitably, this means Facebook will have to sell off Giphy. This signals one of the bigger actions from a regulatory body outside the US, which have actively intensified the crusade against Big Tech.
Besides the CMA, Australian Competition & Consumer Commission (ACCC) and the United States Federal Trade Commission (FTC) are also conducting separate investigations into the Facebook-Giphy deal since AugustOpens a new window and September 2020Opens a new window respectively.
Update
The U.K. CMA has ordered Facebook, now Meta Platforms, to sell Giphy after concluding that Facebook’s acquisition of Giphy would reduce competition between social media platforms and that the deal has already removed Giphy as a potential challenger in the display advertising market.
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