Just three years after Meta first acquired the online database and Graphics Interchange Format platform Giphy for $315 million, Meta announced it will sell the company to stock photography company Shutterstock at a loss of $262 million. The decision comes on the heels of a United Kingdom’s Competition and Markets Authority (CMA) order that Meta fully divest from Giphy. The CMA claims that the previous acquisition has the potential to reduce competition in advertising and harm social media users. However, this new sale is far more problematic because there is more market overlap between Giphy and Shuttershock than there ever was between Meta and Giphy.
The Meta-Giphy controversy first arose in May 2020 when Meta decided to buy Giphy. At the time of the purchase, Meta decided not to notify the Competition and Markets Authority beforehand, concluding that since Giphy had no operations in the United Kingdom and that the acquisition was considerably smaller than previous purchases, there would be no issue. Unfortunately, they were wrong.
After an 18-month investigation, the CMA ordered Meta to fully divest from Giphy. While Meta appealed this divestment order to the UK’s Competition Appeal Tribunal (CAT). The CAT soon issued a judgment largely siding with the CMA and ordering Meta to fully unwind the already completed deal. After considering its options, Meta reluctantly agreed to comply with the order, announcing that while they were “disappointed” with the final verdict, they would nonetheless comply.
However, Meta should never have had to sell Giphy.
The CMA based its decision on weak arguments. The CMA argued that, before the acquisition, Giphy’s advertising services had the potential to compete with Meta in the UK and therefore increase competition. However, Giphy had no sales in the UK at this time and was struggling financially to stay afloat. It’s not at all clear that Giphy would have been capable of mounting a serious competitive challenge to Meta in the UK advertising market. In addition, Giphy, like other social media platforms, has quickly fallen out of favor with younger audiences who now prefer to use other platforms like TikTok. Therefore, far from harming competition, Meta’s purchase of Giphy likely gave the GIF platform a fighting chance to stay relevant and potentially even expand into the UK market.
The CMA also argued that the acquisition could produce harmful effects on the market by giving Meta the ability to limit other platforms’ access to Giphy or change the terms of service. Yet, the CMA provides no evidence that Meta would act in such a manner. It merely speculates that Meta’s motivation behind acquiring Giphy was driven by its desire to squash competition.
It’s ironic that Giphy has been sold to a company that shares far more market overlap than it did with Meta. Shutterstock, like Giphy, maintains a large online image database for users to search for images to share with others. Both have also sought to monetize their product offerings in the image space.
In contrast, Meta is a large multinational technology company that offers a range of products and services that go well beyond stock photos and GIFs. These include popular social media services like Facebook and Instagram, as well as instant messaging applications like Messenger, which allows users to communicate over vast distances. Giphy only represented a very small sliver of Meta’s large assortment of holdings. The same cannot be said for Shuttershock.
The CMA’s enforcement action against Meta also appears arbitrary and inconsistent with the agency’s previous silence on much larger Meta purchases. Meta previously completed multibillion-dollar purchases of WhatsApp in 2014 and Instagram in 2012. However, neither acquisition was blocked by the agency despite the most recent Giphy purchase being just a fraction of the cost. Giphy itself had also previously expressed support for Meta’s acquisition and urged the CMA not to block the deal, explaining that full divestment comes with “considerable risks.” Unfortunately, this plea fell on deaf ears.
The CMA is wrong to have forced Meta to sell Giphy. While the CMA, like many regulatory agencies, has a role to play in protecting consumers, unwinding Meta’s purchase of Giphy does no such thing. What it does do is discourage Big Tech companies from making similar future investments and deny important product innovations to consumers.
