Is Meta’s Giphy deal an antitrust omen?

For years, Facebook and other large technology companies grew into vast digital conglomerates by making so-called killer acquisitions, small deals for companies that could one day pose a competitive threat. Internal emails between executives at Facebook show CEO  Mark Zuckerberg and his executive team were quaking at their keyboards in 2012 as they watched WhatsApp grow to dominate the market for messaging apps and “become the biggest threat we’ve ever faced.” Two years later, Zuckerberg swooped in with a $19 billion offer that was too good for WhatsApp’s founders to refuse.
But those days are done. Even acquisitions of smaller companies, including Facebook’s $315 million purchase of Giphy, a GIF search tool, in 2020, are now under threat of being unraveled.
The UK’s antitrust watchdog ordered Facebook’s newly branded parent Meta Platforms Inc to sell Giphy, marking the first time a global regulator has forced a large technology company to reverse a completed deal. Facebook has said it will appeal the decision. On its face, it looks as if the UK is overreaching on a big old nothingburger. Neither company is based on British soil, and really, who cares about GIFs?
But Facebook is the world’s biggest social media company and Giphy is the world’s biggest provider of GIFs. Inane as they can be, GIFs have become the social fuel of platforms like Facebook, WhatsApp, Slack Technologies and Twitter Inc and a critical part of the digital vocabulary of younger consumers. Bear in mind that no one truly knew how big Instagram was going to get when Facebook bought it for $1 billion in 2012. The UK agency said it was killing the deal because in the future it could “harm social media users and UK advertisers.” That marks a big shift in how it scrutinises tech deals.
Why the change? The previous guidelines were 10 years old and in desperate need of updating. Several independent reviews and academic studies, including a landmark 2019 report by Harvard University economist Jason Furman for the UK government, found chronic under-enforcement by antitrust regulators. In the 10 years to 2018, for instance, the world’s five biggest tech companies had made more than 400 acquisitions, with few scrutinised and none blocked, according to Furman’s study. Tech companies were moving too quickly, and antitrust authorities were dithering.
So the CMA hired an external economic consultancy to review acquisitions it had waved through itself, like Google’s purchase of the navigation app Waze for $1 billion in 2013 and Facebook’s acquisition of Instagram in 2012.
The agency, it found, was being too narrow in how it assessed tech deals. The CMA’s latest order marks an important step toward reining in killer acquisitions that large technology companies have used to assert their dominance, often to the detriment of startups trying to scale up.

—Bloomberg