Back in 2020, Facebook said it going to buy popular GIF search engine Giphy for about $400 million but as of now, the acquisition seems to be a bust due to an antitrust probe by the UK’s Competition and Markets Authority. The CMA published a preliminary findings report yesterday where it is specified that the deal is should be unwound because it will “negatively impact competition between social media platforms.”
CMA wants to block the acquisition with the following reasonings:
“Millions of posts every day on social media sites now include a GIF. Any reduction in the choice or quality of these GIFs could significantly affect how people use these sites and whether or not they switch to a different platform, such as Facebook. As most major social media sites that compete with Facebook use Giphy GIFs, and there is only one other large provider of GIFs – Google’s Tenor – these platforms have very little choice.
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 CMA has put aside the logic that someone would switch to Facebook just because of GIFs by arguing Giphy was in the process of building up an ads business that would have competed with Facebook. CMA claims Facebook made Giphy end those plans by publicly announcing the deal and thereby reducing competition.
Facebook refuted this idea in past submissions to the CMA. Back in May, Facebook wrote in a filing to the watchdog that Giphy had “no meaningful audience of its own” and was already “reliant on Facebook for a significant proportion of its user traffic.”
Giphy is around 8 years old and so far it has raised around $150 million in funding but is yet to turn it into a profit. According to people familiar with the matter, Giphy was eventually running out of money at the time of the deal.
It seems after failing to raise funding, Giphy agreed to be sold for less than the prior valuation it had been given by the investor. A Facebook spokesperson said, “We disagree with the CMA’s preliminary findings, which we do not believe to be supported by the evidence”. The spokesperson noted that Facebook “will continue to work with the CMA to address the misconception that the deal harms competition.”
Unfortunately, after this deal, Giphy’s more than 100 employees have been stuck in a holding pattern. They have not been allowed to become Facebook employees though Facebook paid Giphy’s bills to keep the company running.