Giphy Game Over for Facebook: CMA toughens up over merger
September 7, 2021
2 min read
What's going on here?
Facebook purchased Giphy for $400m in 2020. The Competition and Markets Authority (CMA) are now concerned that the merger breaches competition rules.
What does this mean?
Giphy was founded in 2013, the platform is a database which contains thousands of short GIFs (moving images without sounds). The popularity of GIFs has grown alongside social media communication, with users sending GIFS as part of instant messages or online comments.
Over half of all GIFs are sent via an app owned by Facebook (such as Instagram and WhatsApp). Facebook eyed up the opportunity to further grow and dominate in this area and made an offer to purchase Giphy’s platform for $400 million. The merger was underway until the CMA got involved in June 2020. It launched an initial investigation into the deal and served Facebook with an enforcement order which stalled the merging process. The CMA has just released their report into the matter and found the merger would “increase Facebook’s market power which is already significant” as the site could restrict other social media platforms from using GIFs. Facebook countered the allegations saying “we disagree with the CMA’s preliminary findings” and that “this merger is in the best interests of people and businesses in the UK and around the world”.
What's the big picture effect?
Since GIFs were first developed in the 1980s, they have only grown in popularity and monetisation potential. If Facebook were to continue with the merger, they would essentially own and control Giphy’s content. This is the basis of the CMA’s concerns; they fear the merger will limit competition and allow Facebook to prevent other sites such as TikTok and Snapchat from having access to Giphy’s full catalogue of GIFs. Giphy is the largest platform of its kind with over 10 million GIFs being accessed by 700 million users daily.
The CMA has also realised this deal may reduce opportunities within the £5.5bn digital advertising market. Before their sale to Facebook, Giphy was involved in lucrative advertising deals with companies such as Pepsi and Dunkin Donuts who began to create promotional GIFs. However, if Facebook were to continue with the merger, any profits would flow straight to Facebook only increasing its 50% share in the advertising market. The CMA expressed its discomfort at Facebook’s growth as it explained “our initial view [is] that the only effective way to address the competition issues that we have identified is for Facebook to sell Giphy”.
The CMA is hot on this deal as they are attempting to make the digital marketing space as open as possible, including challenging efforts from companies such as Facebook to totally monopolise the market – users already spend 70% of their time online on Facebook-owned apps. The CMA is not the only national regulator unhappy with Facebook’s recent moves, with the merger also currently being scrutinised in Australia and Austria.
Facebook has staunchly countered the CMA’s verdict and have until 2 September 2021 to formally challenge the findings before a final decision is made. The CMA has made their stance clear – the regulator wants the social media giant to sell. Unless Facebook can persuade the CMA otherwise, it looks like they will have to gif up control over the platform.
Report written by Amber Allen
Share this now!
Check out our recent reports!