Nearly a year ago, British regulators issued an order to Facebook parent Meta Platforms (META).
The U.K. Competition and Markets Authority (CMA) told the social media giant that it had to sell GIF-sharing platform Giphy, which it purchased in 2020 for a reported $400 million.
The agency said the acquisition could harm social media users as well as U.K. advertisers.
Meta, which also owns Instagram and WhatsApp, appealed the decision, but the ruling was upheld by the Competition Appeal Tribunal in July on five of the six of the challenged grounds.
The tribunal only found in Meta’s favor on a procedural ground relating to the sharing of third-party confidential information.
'A Potential Challenger'
In light of that finding, the authority said it reconsidered its decision and conducted an expedited review. Over the last three months, an independent CMA panel analyzed additional third-party evidence and new submissions from Meta and Giphy.
The authority said in an Oct.18 statement that it had found Meta’s "takeover of Giphy could allow Meta to limit other social media platforms’ access to GIFs, making those sites less attractive to users and less competitive."
It also found the deal "removed Giphy as a potential challenger in the UK display advertising market, preventing UK businesses from benefiting from innovation in this market."
"This deal would significantly reduce competition in two markets," said Stuart McIntosh, who chaired the independent inquiry group. "It has already resulted in the removal of a potential challenger in the UK display ad market, while also giving Meta the ability to further increase its substantial market power in social media."
A Meta spokesperson said the company was "disappointed by the CMA’s decision but accept today’s ruling as the final word on the matter."
'Significant Market Power'
Among other things, the CMA said Meta "would be able to increase its already significant market power" by denying or limiting other social media platforms’ access to Giphy GIFs.
This would push people to Meta-owned sites, the authority said, which already make up 73% of user time spent on social media in the UK.
Meta would also be able to change the terms of access, the CMA said, such as requiring Giphy customers like TikTok, Twitter (TWTR) and Snapchat, to provide more data from UK users in order to access Giphy GIFs.
The CMA also found that Giphy’s advertising services had the potential to compete with Meta's, and would have encouraged greater innovation from Meta and other market players.
"However, Meta terminated Giphy’s advertising services upon acquisition, removing a potential ad tool for UK businesses," the agency said. "The CMA considers this particularly concerning given Meta controls almost half of the £7 billion display advertising market in the UK."
'A Public Blow'
The ruling is yet another blow to Meta Platforms and CEO Mark Zuckerberg, who has seen both his company's stock and his personal wealth sink over the last year, as his massive investment in the metaverse has yet to pay off.
Raji Srinivasan, a marketing professor at the University of Texas' McCombs School of Business, said the decision was "a big deal."
"This is a bit of a public blow to Meta Platforms and I think also it prevents them from chasing other targets for acquisition," she said. "I don't think in the immediate short term it's going to make a big difference, but I think strategically these kinds of acquisitions might be tools for Meta Platforms to increase their audience engagement."
Srinivasan noted that Meta is getting squeezed right now as Facebook users become older and the company faces antitrust issues, "especially from markets outside of the United States."
She added that European regulators have always had a deeper interest in anti-trust and privacy issues than their American counterparts.
"They are more aggressive towards US tech companies in general and to some extent it's because these companies are very, very large monopolies and they have a lot of cash on hand," Srinivasan said
Niklas Myhr, a marketing professor at the Argyros School of Business and Economics at Chapman University, said the ruling "may be the final nail in Meta’s decade-long Innovation-by-Acquisition strategy."
'Making Serious Bet'
"From now on, they simply have to resort more exclusively to internal innovation," he said. "Clearly, they are making serious such bets already such as in the Metaverse."
Myhr, also known as "The Social Media Professor," said "the challenge will be to change the investors’ mindset from betting on relatively speaking proven concepts and technologies such as their acquisitions and subsequent integrations of Instagram, WhatsApp, Oculus, etc, to getting them on board with a patient, and more risky investment that may pay off only a decade from now."
Giphy, which has roughly 700 million daily users, did not immediately respond to a request for comment.
"We will work closely with the CMA on divesting GIPHY," Meta's spokesperson said. "We are grateful to the GIPHY team during this uncertain time for their business, and wish them every success. We will continue to evaluate opportunities - including through acquisition - to bring innovation and choice to more people in the UK and around the world."
Giphy has proven to be a bit of a headache for Meta. In October 2021, the CMA fined Meta nearly $70 million for failing to provide required information during the Giphy investigation.
The authority said it was the first time a company had been found to breach a so-called initial enforcement order by consciously refusing to report required information
"Given the multiple warnings it gave Facebook, the CMA considers that Facebook’s failure to comply was deliberate," the agency said at the time. "As a result, the CMA has issued a fine of £50 million for this major breach, which fundamentally undermined its ability to prevent, monitor and put right any issues.
The agency fined Meta $2 million in February over certain requirements related to Giphy by failing notify the regulator that key staff had left the company.
