Meta: After its investigation found it could harm competition
A year and a half after Facebook parent firm Meta initially announced it was purchasing the famous GIF-making and sharing website, the UK’s competition authority has formally determined that the deal should be undone.
The Competition and Markets Authority (CMA) announced the decision after an investigation found that an acquisition could harm competition between social media platforms, and that its concerns “can only be addressed by Facebook selling Giphy in its entirety to an approved buyer,” according to a press release.
According to the CMA, the acquisition might be used to block or restrict access to Giphy GIFs on other platforms, resulting in greater traffic for Facebook, WhatsApp, and Instagram.
It also aroused fears that it may be used to force other sites to divulge additional information in order to view the GIFs.
Finally, the CMA believes Giphy’s advertising services might have competed with Meta’s but were shut down as a result of the transaction.
“The partnership between Facebook and Giphy has already eliminated a prospective opponent in the display advertising industry,” said Stuart McIntosh, chair of the independent investigation committee.
“If nothing is done, it will allow Facebook to further consolidate its substantial market position in social media by restricting competitors’ access to Giphy GIFs.”
“By ordering Facebook to sell Giphy, we are safeguarding millions of social media users while also encouraging competition and innovation in digital advertising,” said McInosh.
According to the Financial Times, this would be the first time the CMA has moved to undo a completed purchase by a tech firm. Although Meta has the option to appeal the verdict, the UK regulator’s decision establishes a significant precedent for future large-scale technology acquisitions.
While the CMA’s decision is significant, it isn’t entirely unexpected given the CMA’s preliminary findings report from August, which stated that the agreement should be unraveled.
Meta’s EU head of policy communications, Robin Koch, responded to the judgment by saying that the business is exploring all of its options, including filing an appeal.
“With the support of our infrastructure, talent, and resources, both consumers and Giphy will be better off,” Koch said in a statement to Ethio Tech.
“By working together, Meta and Giphy would improve Giphy’s offering for the millions of consumers, companies, developers, and API partners that use Giphy every day in the UK and throughout the world, giving everyone more options.”
The UK’s competition
Meta has previously contested the CMA’s competition concerns, claiming that Giphy’s advertising company will never be a viable rival. In response to the probe, the business claimed that Giphy had “no major audience of its own,” and when the deal was announced.
Meta claimed to be responsible for half of Giphy’s traffic. “Developers and API partners will continue to have the same access to Giphy’s APIs,” the statement added.
Meta said that the CMA was “sending a frightening message to start-up entrepreneurs: don’t establish new firms because you won’t be able to sell them” in response to the regulator’s provisional conclusions.
Despite promising to cooperate with the CMA in its inquiry, the regulator recently penalized Meta £50 million ($70 million) for failing to follow the conditions of its original enforcement order.
Meta was “consciously refusing to report all of the required information” about its compliance with the order, according to the regulator.
Giphy had garnered $150 million in capital since its inception, but it had yet to earn a profit and was apparently running out of cash at the time of its acquisition. Was was thought that it sold for $400 million to Meta, which was less than a prior valuation assigned to it by investors and a hint of its financial difficulties.
While the CMA’s investigation is underway, Giphy’s 100+ employees have been unable to join Meta as full-fledged employees, despite Meta apparently paying the company’s costs to keep it afloat.
The CMA’s inquiry is part of a broader trend of scrutiny directed at digital acquisitions in recent years, and it stands in sharp contrast to when Meta was able to easily acquire upstarts like Instagram, WhatsApp, and Oculus.
Several regulators, notably the European Union, are looking into Meta’s acquisition of Kustomer, a commercial customer support platform.
Meanwhile, the CMA has expressed concerns about Nvidia’s acquisition of chip designer Arm, another deal that has drawn antitrust attention from authorities around the world.
Updated at 5:35 a.m. ET on November 30th with Meta’s comment.