Just yesterday, there was significant news with regards to Meta’s $315m acquisition of GIPHY. The latter is a visual search engine and also allows users to create animated GIFs and stickers to use as avatars or when exchanging messages online. As far back as 2013, GIPHY was already being used by Facebook to provide engaging content for their end-users. Twitter, Snapchat, Slack and TikTok quickly followed. Gif usage on the web become largely synonymous with the use of GIPHY. Facebook (now Meta) acquired GIPHY in May 2020. However, the UK Competition and Markets Authority (CMA) seems to have had a change in heart. The CMA has expressed concern over the deal and ordered Meta to divest GIPHY.  

_{Source: CMA Twitter}

Does the CMA’s decision serve to promote innovation and limit the market dominance of a single company or does it send a message to message to entrepreneurs that puts them off growth in the UK market?

What started off with two friends discussing the trend of visual communication mediums over breakfast one morning has now grown to become a multi-million dollar company which has had a transformational impact in terms of how people communicate and express emotions. Alex Chung and Jace Cooke started GIPHY in 2013 as a project that was meant to be shut down after a day. Like a lot of founders with innovative ideas, GIPHY was created on a friend’s couch and Cooke and Chung had no plans to launch a serious startup. However, the site soon gained traction and attracted so many users when it went live that the site crashed. The attention generated made Chung and Cook realise that they were onto something and by May 2014, they had raised $2.4m in a Series A funding round. Cut to today, the company has been acquired by one of the largest tech giants to date and is competitive enough that regulators believe ownership of GIPHY would result in a lack of market competition.

The CMA was created to ensure a level playing field for businesses in the UK when it comes to competition and market conditions. The CMA has been protecting consumer rights and interests since 2013, when it was formed to protect consumer rights, educate businesses and enforce fair competitive practices. In the GIPHY-Meta saga, the CMA has a list of concerns which include the fact that GIPHY was a serious competitor to Facebook in regards to advertising services. GIPHY had launched innovative advertising services in the US and was planning to expand to other markets, including the UK. The acquisition, in the CMA’s eyes, gives Meta greater control over the market, which is cause for concern as Facebook currently controls nearly half of the £7 billion display advertising market in the UK. Aside from restricting competition, the CMA in its statement has recognised that this move would also negatively impact consumers and rival platforms. Ownership of GIPHY means that Meta could deny or limit other platforms’ access to Giphy GIFs and drive more traffic to Facebook-owned sites. These sites, which include Instagram, already account for 73% of user time spent on social media in the UK. Meta could also change the terms of access by requiring TikTok, Twitter, and Snapchat to provide more user data in order to access GIFs, which would make consumers who are already concerned about how their data is used even more cautious. In response to the CMA’s concerns, Facebook suggested a number of behavioural remedies. These include:

• Open access to GIPHY for API partners
• Removing restrictions against ‘commingling’ GIPHY search results with the results of other GIF providers
• Creating a sale and licensing agreement for GIPHY’s content library and algorithms. 

The remedies put forward, however, were not substantial enough and the CMA has decided that the only option is to divest GIPHY and sell its assets off to other parties. Stuart McIntosh, who chaired the independent inquiry into the acquisition stated that “By requiring Facebook to sell Giphy, we are protecting millions of social-media users and promoting competition and innovation in digital advertising,” He added that the acquisition has removed a challenger in the display advertising market and if Facebook is not restricted, its market power will spread further.

The CMA is historically a tough watchdog and has been known to block deals which it believes would restrict competition and harm consumers. Furthermore, the UK has always had a strict stance in regards to Big Tech. However, this verdict is significant for a number of reasons. This is the first time the CMA has blocked a major digital tech deal, signaling that it is not afraid to block power moves by the tech giants. This also indicates how the regulator will approach similar tech deals. The CMA is setting a deadline for Meta to sell GIPHY over the coming months, however, Meta is getting ready to challenge this decision, including a possible appeal to the Competition Appeal Tribunal. Does the CMA’s decision serve to promote innovation and limit the market dominance of a single company or does it send a message to entrepreneurs that put them off growth in the UK market? The CMA’s actions have been criticised in the past, as the UK continues to push itself as a friendly hub for startups and innovation. But has the CMA acted wisely in regards to curbing Facebook’s acquisition of a potential competitor or has it given founders and investors a reason to be pessimistic about the UK market?