Facebook’s Acquisition of GIPHY: Potential Competition Issues

Facebook’s Acquisition of GIPHY: Potential Competition Issues

INSIGHTi

Facebook’s Acquisition of GIPHY:
Potential Competition Issues
Updated April 6, 2021
On May 15, 2020, Facebook announced that it had acquired GIPHY, an online database and search engine
for short looping videos without audio, known as GIFs. Facebook has not integrated GIPHY with its other
online platforms (i.e., websites and apps). An Interim Enforcement Order filed by the U.K. Competition
and Markets Authority (CMA) on June 9, 2020, requires Facebook and GIPHY to operate as separate
businesses during the CMA’s investigation on the effect of the acquisition on competition. On March 25,
2021, the CMA published its initial assessment that the merger raised competition concerns. A letter from
Facebook to Members of the House Subcommittee on Antitrust, Commercial, and Administrative Law
states that a premerger notification under the Hart-Scott-Rodino Act was not filed because the acquisition
did not pass the relevant statutory test. In June 2020, the Department of Justice and the Federal Trade
Commission were reportedly seeking to review the acquisition.
Facebook is now facing antitrust lawsuits, some of which focus on its past acquisitions. This Insight
discusses how Facebook’s acquisitions can affect competition in digital advertising and the potential
implications of the antitrust lawsuits on Facebook’s acquisition of GIPHY.
The Impact of Facebook’s Acquisitions on Competition
Facebook, founded in 2004, is primarily known for its namesake online platform, where users can share
information, photos, and other content with other selected users. The company’s revenue comes primarily
from selling ad placements to advertisers who wish to reach users of its platforms. In 2020, advertising
accounted for 97.9% of its $86 billion total revenue. Because digital advertising allows advertisers to
target individual users, owners of online platforms, such as Facebook, have incentives to collect consumer
data to better identify users who are likely interested in a particular ad.
Facebook has expanded its business with 89 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 is reportedly spending $400 million to acquire GIPHY. The amount is relatively small
compared to some of its past acquisitions: it spent $19 billion to purchase WhatsApp and $1 billion for
Instagram.
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Acquiring additional platforms may give Facebook greater access to user information. It can collect data
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 to obtain individual user data.
Consumers can use GIPHY through other platforms, such as Apple’s iMessage, TikTok, and Snapchat.
Users can search for and share GIFs in GIPHY’s database through other platforms by installing its app on
their smartphones or downloading its extension to platforms on their computers. For example, users 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, both for users’ time and for
advertising revenue. One potential competitive concern is that by controlling GIPHY, Facebook 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’s ability to identify new platforms that are gaining popularity and could
become competitors.
GIPHY may also provide Facebook with a new outlet for displaying digital ads, strengthening its position
in the digital advertising market. In 2020, Facebook was estimated to have a 23.4% share of the U.S.
digital advertising market, ranking second to Google (29.4%) and ahead of third-ranking Amazon (9.5%).
Prior to being acquired by Facebook, GIPHY explored obtaining revenue through digital advertising by
hosting GIFs for commercial brands. Facebook may be able to further develop this business, which could
potentially increase its revenue from digital advertising. GIPHY could also expose trends and shifts in
users’ interests based on which GIFs are searched for, created, and shared, which may help improve
Facebook’s digital advertising across its platforms.
U.S. Antitrust Lawsuits Against Facebook
Some Members of Congress have criticized Facebook’s acquisition of GIPHY. Some have raised concern
that acquiring GIPHY will allow Facebook to collect more user data, and that Facebook should not be
acquiring companies while it is under investigation for past acquisitions. In addition, some have proposed
halting mergers and acquisitions during the coronavirus pandemic.
Members of the 117th Congress have introduced bills that would affect mergers and acquisitions in digital
markets, ranging from increasing funding for antitrust authorities to amending antitrust laws. These bills
could affect antitrust cases against Facebook. On December 9, 2020, the Federal Trade Commission
(FTC) and 46 state attorneys general filed parallel antitrust lawsuits against Facebook. The plaintiffs in
both lawsuits allege that Facebook acquires companies to eliminate competitive threats. In addition,
several class action lawsuits alleging antitrust violations have been filed against Facebook, and the FTC
has raised concern about Facebook’s collection, use, and sale of consumer data, specifically whether the
company misrepresents the extent of consumers’ ability to control access to their information.
It is unclear how these antitrust lawsuits might affect GIPHY’s future. The parallel antitrust lawsuits filed
by the FTC and 46 state attorneys general explicitly mention Facebook’s acquisition of Instagram in
2012. One of the proposed remedies is requiring the divesture or reconstruction of businesses, including
Instagram. If that were to occur, antitrust authorities might need to determine whether GIPHY should be
considered part of Instagram, remain with Facebook, or be divided in some other way. Similar questions
may be relevant to other recent Facebook acquisitions.

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Author Information

Clare Y. Cho

Analyst in Industrial Organization and Business

Disclaimer
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