INSIGHTi

Facebook Inc.’s Acquisition of GIPHY:
Potential Competition Issues
May 28, 2020
On May 15, 2020, Facebook Inc. announced its acquisition of GIPHY, an online database and search
engine for short looping videos without audio, known as GIFs. The proposed deal is raising concern for
some that GIPHY could increase Facebook Inc.’s access to consumer data and provide insight into users’
activities on competitors’ platforms, both of which could potentially give it an advantage in the digital
advertising market. Facebook Inc. is currently under scrutiny by Congress and antitrust authorities.
The Impact of Facebook Inc.’s Acquisitions on Its
Position in the Digital Advertising Market
Facebook Inc., founded in 2004, is primarily known for Facebook, a website and app where users can
share information, photos, and other content with other selected users or the general public. Its revenue
comes primarily from selling ad placements to advertisers who wish to reach users of its platforms. In
2019, advertising accounted for 98.5% of its $71 billion of revenue. Because advertisers can target
individual users with digital ads, owners of websites and apps, such as Facebook Inc., have incentives to
collect consumer data to improve ad targeting by better identifying users who are likely to be interested in
a particular ad.
Facebook Inc. has expanded its business with at least 85 acquisitions since 2004. Some of its well-known
acquisitions include Instagram, a photo-sharing platform, in 2012, and WhatsApp, an encrypted
messaging platform, in 2014. Facebook Inc. is reportedly spending $400 million to acquire GIPHY. The
amount is relatively small compared to some of its past acquisitions: it spent $19 billion for WhatsApp
and $1 billion to purchase Instagram.
Acquiring additional platforms may give Facebook Inc. greater access to users’ information. It can collect
information from more users if the acquired platform’s users do not use its other platforms. Acquisitions
can also help it obtain richer data about individuals by combining information obtained across its
platforms. However, GIPHY’s business design may make it difficult for Facebook Inc. to obtain
individual user data.
Congressional Research Service
https://crsreports.congress.gov
IN11411
CRS INSIGHT
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Consumers primarily use GIPHY through other platforms, such as Apple, Inc.’s iMessage, TikTok, Slack,
and Twitter. Users can search for and share GIFs in GIPHY’s database through other platforms after
installing its app on their smartphones or downloading its extension to platforms on their computers. For
example, they may search for a GIF of a dog waving from GIPHY’s server and share it with friends
through iMessage. The owners of platforms that are used to share GIFs may seek to prevent GIPHY from
receiving individual user data and send aggregate usage data instead, but the effectiveness of these
measures is unclear.
Some of these other platforms could be considered competitors to Facebook Inc., both for users’ time and
for advertising revenue. One potential competitive concern is that by controlling GIPHY, Facebook Inc.
may be able to learn when users tend to be active on its competitors’ platforms, how frequently
individuals use those platforms, and other information that could help it compete for advertising.
Ownership of GIPHY also might improve Facebook Inc.’s ability to identify new platforms that are
gaining popularity and could become competitors.
GIPHY may also provide Facebook Inc. with a new outlet for displaying digital ads, strengthening its
position in the digital advertising market. In 2019, Facebook Inc. was estimated to have a 22% share of
the U.S. digital advertising market, ranking second to Google (37%) and ahead of third-ranking Amazon
(9%). Prior to being acquired by Facebook Inc., GIPHY explored obtaining revenue through digital
advertising by hosting GIFs for commercial brands. Facebook Inc. may be able to further develop this
business, which could potentially increase its revenue from digital advertising. In addition, GIPHY could
expose trends and shifts in users’ interests based on which GIFs are searched for, created, and shared,
which may help improve Facebook Inc.’s digital advertising across its platforms.
Department of Justice and Federal Trade Commission
Investigations
The U.S. Department of Justice and the Federal Trade Commission (FTC) are reportedly investigating
potential anticompetitive behavior by Facebook Inc. as a part of a broader investigation of “Big Tech” that
includes Alphabet, Inc. (parent company of Google), Apple, Inc., and Amazon.com, Inc. At least 47
attorneys general from U.S. states and territories are also investigating Facebook and Google for possible
antitrust violations. Since June 2019, the House Judiciary Committee has been investigating competition
in digital markets, which may involve Facebook Inc. Separately, the FTC has been concerned about
Facebook Inc.’s collection, use, and sale of consumer data, particularly with respect to whether the
company misrepresents the extent of consumers’ ability to control access to their information.
Some Members of Congress have raised concern about Facebook Inc.’s acquisition of GIPHY,
particularly given the investigations that are reportedly under way. Senators Josh Hawley and Amy
Klobuchar—both members of the Senate Committee on the Judiciary Subcommittee on Antitrust,
Competition Policy, and Consumer Rights—have criticized the transaction; according to Senator Hawley,
“Facebook wants GIPHY so it can collect even more data on us. Facebook shouldn’t be acquiring any
companies while it is under antitrust investigation for its past purchases.” Other Members of Congress
have proposed halting mergers and acquisitions during the coronavirus pandemic. A spokesman for
Senator Elizabeth Warren termed Facebook’s acquisition “yet another example of a giant company using
the pandemic to further consolidate power.”
It is unclear how these investigations might affect GIPHY’s future. Facebook Inc.’s acquisition of
Instagram in 2012, in particular, has received attention for its possible antitrust implications. If that
acquisition is determined to have been anticompetitive, one possible remedy could be requiring the
company to divest either its Facebook platform or Instagram. If that were to occur, antitrust authorities
might need to determine whether GIPHY should be considered part of Instagram, should remain with

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Facebook, or should be divided in some other way. Similar questions may be relevant to other recent
Facebook Inc. acquisitions.

Author Information

Clare Y. Cho

Analyst in Industrial Organization and Business





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