On Tuesday, the UK’s Competition and Markets Authority did what other regulatory bodies around the world have thus far only dreamed of: order Meta (née Facebook) to spin off one of its many subsidiaries. The UK regulators ruled that the company must undo its acquisition of Giphy, a popular search engine for GIFs. Yes, that’s right, one of the first major antitrust enforcement actions against Meta is about memes and animated stickers. We’re here to break it down for you.
Can you explain Giphy to me like I just crawled out of a bunker?
Sure! Giphy is one of the largest repositories of GIFs on the internet, and was founded in February 2013 by tech entrepreneurs Alex Chung and Jace Cooke. The company originally operated a web crawler that searched for GIFs on the internet. After getting $1 million in seed funding, Giphy began setting up licensing agreements with the movie studios and broadcasters whose content was being used for the company’s GIFs. The company also set out to strike up deals to integrate its GIF search engine with platforms like Slack and Tinder. Giphy raised tens of millions of dollars in multiple funding rounds in the first few years after its founding. All that investment has allowed Giphy to become the first name in finding the perfect GIF. But it hasn’t made the company profitable.
So how did Faceb—Meta come into the picture?
Meta was already heavily reliant on Giphy for its services like Facebook Messenger, WhatsApp, and Instagram; in fact, the company claimed that its platforms accounted for 50 percent of Giphy’s traffic. Meta acquired Giphy in May 2020 for $400 million with the goal of more fully incorporating the search engine and its massive GIF library into Instagram. Tech commentators also posited that Meta could track usage of certain GIFs across the internet, including on competitors’ platforms, to identify trends and create custom stickers. Google had also acquired another GIF platform called Tenor in 2018, so buying Giphy may have been a way for Meta to counter one of its biggest competitors. Considering that Meta had previously paid $19 billion for WhatsApp and $1 billion for Instagram, Giphy wasn’t a particularly big acquisition for the company. The UK’s Competition and Markets Authority (CMA) launched an investigation into the sale a month later, in June 2020. The CMA fined Meta a record £50.5 million ($70 million) in October 2021 for allegedly breaking rules over the course of the investigation, such as failing to provide updates and information after multiple warnings, though the company denied any deliberate wrongdoing. This is the first time that the CMA has tried to undo an already completed acquisition by a tech company.
Why do regulators think GIFs are such a source of potential anticompetitiveness?
Other platforms besides Meta’s also use Giphy, such as Twitter, Snapchat, and TikTok. Though Meta had previously promised that these outside platforms would still have the same access to Giphy’s GIFs, the CMA wasn’t willing to take the company at its word. Regulators pointed out that Meta could still restrict outside platforms’ access to Giphy at some point in the future, which could drive more traffic to Meta’s services. They were also concerned that Meta could change the terms of service so that Twitter or TikTok would have to hand over data from their users in order to keep their Giphy access.
The CMA further found that Meta was neutralizing a potential competitor through the acquisition, since Giphy was doing things like promoting Dunkin’ Donuts in GIF form, which could have challenged Meta’s own business in the digital ad space. As regulators noted, Meta shut down Giphy’s advertising operations after the acquisition, which they argued would stifle innovation in digital ads. Meta already controls almost half of the $9.4 billion display ad market in the UK. “By requiring Facebook to sell Giphy, we are protecting millions of social media users and promoting competition and innovation in digital advertising,” CMA investigator Stuart McIntosh said in a statement.
So you’re saying the CMA was worried Meta could potentially make it so that the only platform you’d be able to easily post Homer retreating into the bushes would be Facebook and its ilk.
Yep.
That would suck! What was Meta’s response?
Over the course of the investigation, Meta submitted proposals for other actions it could take to remedy the antitrust concerns that would stop short of having to sell Giphy, such as selling a white label version of the GIF library or committing to maintaining open access. Regulators rejected these proposals, contending that the remedies would have to be “structural” instead of “behavioral.” Meta was predictably displeased with the CMA’s final decision:
We disagree with this decision. We are reviewing the decision and considering all options, including appeal. Both consumers and Giphy are better off with the support of our infrastructure, talent, and resources. Together, Meta and Giphy would enhance Giphy’s product for the millions of people, businesses, developers and API partners in the UK and around the world who use Giphy every day, providing more choices for everyone.
Meta has four weeks to appeal the decision.
Is Giphy just the beginning, or was it simply low-hanging fruit for regulators?
The U.S.’s Federal Trade Commission has tried to get the antitrust ball rolling stateside, without much progress so far. It filed an lawsuit against Meta in December 2020, claiming that it is maintaining an illegal monopoly and engaging in anticompetitive practices. The FTC sought a permanent injunction forcing Meta to spinoff WhatsApp and Instagram, and to cease practices that allegedly prevent third party developers from creating competitive products. A federal judge threw out the case in June, ruling that prosecutors failed to demonstrate that Meta had a social media monopoly. The FTC then filed another suit in August, alleging that Meta has exhibited a pattern of extinguishing competition by buying up potential rivals. The company filed a motion in October requesting that the court again dismiss the revised suit.
OK but is GIF pronounced with a hard G or a soft G?
How can you even ask?
