After a two-year wrangle with regulators, Meta has finally agreed to sell off GIF platform Giphy. In 2020, Facebook bought US based Giphy for $400 million. Giphy is a platform that hosts billions of GIFs which are integrated into social media apps including Twitter, Snapchat, TikTok and Facebook. Since then, Facebook, now Meta, has been engaged with the UK Competition and Markets Authority (CMA) over their concerns about the deal. Giphy was a Meta competitor in the display advertising market and there was concern that Meta could limit rival apps’ access to the GIF platform. Meta stood firm and did not offer much in terms of concessions.
In October 2021, Meta was fined £50.5m for “deliberately” refusing to supply information regarding its takeover during the CMA’s investigation. After Meta’s unsuccessful competition appeal tribunal ruling, in October 2022, the Competition and Markets Authority issued its final verdict, ordering the deal to be unwound. This article will explore why the CMA blocked the deal and consider what is next on the cards for Meta.
Why did Meta want Giphy?
Giphy is the largest GIF platform, which allows social media users to send videos and animated images. Founded in 2013, the platform provides access to over 10 billion different pieces of content to 700 million daily users. Giphy platform is integrated into iMessage, Twitter, TikTok, Snapchat as well as all of Meta’s apps. Giphy is also a competitor to Meta in the digital advertising space.
Although Giphy is not one of Meta’s largest competitors and 50% of its traffic comes from Meta’s social media platforms, it still obtains valuable data. The data is evidently the main reason for Meta’s move for the company. Giphy would give Meta access to consumption habits around GIFs and key personality data points.
Additionally, the purchase would have enabled Meta to get a larger piece of the high growth sections of social media. Facebook has a whopping 2.91 billion users, but its growth is slowing. Meta is keen to diversify its income to ensure the business stays ahead of the curve. Clearly, Meta is betting heavily on the growth of the Metaverse. Meta believes that the metaverse is the next big thing and is pumping billions into development. CEO Mark Zuckerberg does not anticipate that the sector will generate any profit for years. Conversely, Giphy is integrated into all major social media platforms, including the fastest growing major social media platform, TikTok. Acquiring Giphy would provide them control over the internet’s favourite GIF platform, a steady new source of income and crucially data.
Why did the CMA block the deal?
The UK CMA blocked Meta’s purchase of Giphy for two main reasons. Firstly, because of the risk that Meta could limit its competitors’ access to the platform. Secondly, Giphy was a significant competitor in the display advertising market and the acquisition will reduce competition.
With Giphy being the largest GIF platform, limited access would impact the attractiveness of competitor social media sites compared to Meta’s. Meta’s pledge not to limit rivals’ access to Giphy was not sufficient. Their proposal would need constant monitoring to ensure they adhere to the terms of this pledge. This was simply not practical, and competitors could be left open to harm. Additionally, there was still the risk that Meta could request more data from its rivals to maintain current service levels or limit access in other ways. Meta had already acknowledged that it would gain valuable usage pattern data from Giphy.
Giphy is a notable player in the UK’s digital display advertising space and was due to expand its offering before the deal. Shortly after the merger however, Meta terminated Giphy’s advertising platform. Facebook alone already holds around 50% of the £7 billion display advertising space in the UK. Meta’s total removal of a competitor is significant, and the CMA said this development was worrying and contributed to its final decision.
What next for Meta?
It appears Meta will go back to the drawing board after the failure to get CMA approval for its deal. The CMA has the power to investigate mergers of businesses that turnover £70 million in the UK or hold 25% of a given market. Meta’s platforms, Facebook, WhatsApp and Instagram account for 73% of time spent on social media in the UK. Regardless, the UK CMA’s ruling just affects the parts of the business in the UK. Typically, companies divest only the relevant parts of the business. Interestingly, Meta will be selling off the entire global Giphy entity. This could be due to concerns that such a ruling could be replicated in other jurisdictions following a partial divestment.
This ruling by the CMA indicates the growing regulatory clampdown against tech giants. The CMA blocking a deal entirely and ordering divestment is a significant move. It is likely however, to become more common as regulators seek to limit the dominance of big tech firms. Over the coming decade, we are likely to see further blocks and action against big tech firms that seek to buy out smaller competitors. Fundamentally however, Meta will remain steadfast in its search for new businesses to acquire and add to its huge portfolio. Meta owns 94 companies and is undoubtedly keen to add more to retain its position at the top of its sector.
