UK competition watchdog launches investigation into Facebook’s $400M acquisition of Giphy

Facebook wants to be the go-to platform for all of your social needs, but a big move it made last month to take ownership in the world of GIFs — the short, looping videos that people use to convey sentiments in online conversations — may not go as it hopes. The UK Competition and Markets Authority — the country’s antitrust watchdog — today announced that it has launched an investigation into Facebook’s acquisition of Giphy, the popular GIF repository and search engine that it announced last month it would be acquiring, reportedly for $400 million, to integrate into its Instagram team. Specifically, it’s looking to see how and if the deal will lessen competition in the two companies’ respective markets.

“The Competition and Markets Authority (CMA) is considering whether it is or may be the case that this transaction has resulted in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services,” it notes in the announcement.

The CMA is now opening up the case for comments from third parties, to be submitted by July 3, 2020.

The CMA further noted that while its investigation is ongoing, Facebook can’t continue with activities related to the acquisition, unless it has prior written approval from the CMA. This includes integrating the products, integrating the teams, working on business deals or contracts together. Facebook and Giphy both have confirmed to the CMA that they are complying with the order.

GIFs are so ubiquitous on the web, and so easy (and free) to import and use, that the business model behind them is not that immediately obvious, and so it might seem odd to hear about an antitrust complaint related to the acquisition of a GIF platform. However, this is Facebook — a company that’s long been in the crosshairs of competition regulators both in the US and in Europe — and for what it’s worth, even without big money involved (yet), Giphy is huge when it comes to searching for and using GIFs.

And GIFs stand to occupy a big role in the business of the internet, both in general and more direct ways.

On the direct side, while Giphy up to now has not made any money, there is an obvious opportunity to move into the area of sponsored GIFs, and more services to create and disseminate GIF-based content. For a company like Facebook ever looking for more innovative and varied advertising formats that work in a social media context, the allure of a popular platform to fill out that commercial vision is obvious.

On the more general side, they are a key way to create more engagement in social media, another major goal of Facebook — again, as a route to fuelling more audience and eyeballs to drive more ad business. The two already had an integration before Facebook ever made a move to buy it: a full 50% of Giphy’s traffic came from its integrations with Facebook properties Instagram, Messenger and WhatsApp, as well as Facebook itself, speaking to just how linked the use cases already are for the two.

Facebook has had mergers investigated by the CMA before, although it’s never really been given a hard ride through any of them. Perhaps most notably was the company’s $19 billion acquisition of WhatsApp, the hugely popular messaging platform: given how both platforms, and others at Facebook, have continued to grow, you could argue that there was some antitrust regret over the no-strings-attached nod that the deal got when it closed — which has led to fines after the fact. So it will be interesting to see if the CMA exercises more foresight, or at least better hindsight, with this deal rather than just going through the motions.