CMA vs Meta - For the Future
The Competition and Markets Authority (CMA) investigation into the Meta-Giphy merger might seem like just another page in the ongoing crackdown on Big Tech crackdown; but I believe it is the first chapter of a whole new volume.
To recap: In the summer of 2020 Meta announced it was acquiring Giphy for $300million. Soon after, the UK regulator opened an investigation citing anti-competitive concerns and directed Meta to pause the deal. Fast-forward 18 months: in December 2020 the CMA ordered Meta to unwind the purchase and sell Giphy to an ‘acceptable’ buyer[1]. Let’s get into it:
1. Meta could block competitors’ access to Giphy
Giphy’s looping animations are used on Meta-competitors like Twitter, iMessage, Tik-Tok, and Pinterest – all of which rely on Giphy’s APIs and SDKs to access its library. The merger parties assured the CMA that they would continue facilitating this open-access and even build a white-label gif service, but the authorities were unconvinced that Meta wouldn’t limit third-party access and undermine competitors’ utility[2] – a tactic called input-foreclosure.
Anyhow, these proposed remedies didn’t address the problematic post-acquisition market-structure and only regulated the ongoing behaviour of the merged parties[3] – and even there Meta doesn’t have a stellar record. Famously, the company lied in the assurances it made to EU regulators to secure approval for its purchase of WhatsApp[4].
2. Meta could make competitors’ continued access contingent on their sharing more data
The CMA is worried that Meta would require services to give up more data in exchange for access to Giphy, including information on how gifs are used and who uses them. This would give rich insight into how users respond to content – crucial signals for algorithmic feeds and ad delivery mechanisms that rely on evoking the right emotions.
Also, high-quality data on how users deploy multimedia can be a leading indicator of the evolving ways in which we communicate. This will undoubtedly help future product development.
Sidenote: from a business perspective, such a strategy could prove very valuable. Usage data drawn from competitors is more powerful than being the exclusive dealer of certain Corgi gifs (which will eventually be replicated anyway). For evidence, see how data gathered from Android users flocking to Tik-Tok informed Google’s approach to building YouTube Shorts[5].
Some speculation: At the outset, the CMA issued an Initial Enforcement Order that instructed Meta to press pause on integrating Giphy into its operations, and to keep the regulator updated on its compliance. Meta didn’t adhere, and in September 2020 the CMA fined it £50 million for not submitting complete compliance reports[6] – the first such fine in history. Around the same time, amateur observers on Twitter noted[7] that Giphy had stopped sharing data with all ad platforms other than Google and Amazon. Is it possible that the two developments are linked i.e., that Meta instituted changes benefitting itself and other Big-Tech at the expense of smaller competitors, and that the CMA caught them in the act? I repeat: this is speculation.
3. Buying Giphy forecloses a digital display advertising competitor
Regulators are concerned that the merger could tighten Meta’s stranglehold on the market for digital display advertising by killing a competitor in the crib. This makes sense, except Giphy doesn’t operate display advertising in the UK, at least not yet; and therein lies the rub.
Giphy piloted a display advertising product in the US which ran from 2017 right up until Meta’s acquisition. The CMA is arguing that in the absence of the merger, this program would have continued and eventually been expanded to the UK, where it would compete with Meta’s offerings[8],[9]. In the world of fastidious regulators and their cautious policies, this crystal-ball gazing is noteworthy; and its genesis lies in the updated Merger Review Guidelines (MRG)[10] that the CMA adopted in 2021.
[1] https://assets.publishing.service.gov.uk/media/61a64a618fa8f5037d67b7b5/Facebook__Meta__GIPHY_-_Final_Report_1221_.pdf
[2] Ibid
[3] ibid
[4] https://ec.europa.eu/commission/presscorner/detail/en/IP_17_1369
[5] https://www.theinformation.com/articles/internal-google-program-taps-data-on-rival-android-apps?rc=2b0buf
[6] https://www.gov.uk/government/news/cma-fines-facebook-over-enforcement-order-breach
[7] https://twitter.com/thezedwards/status/1320430166233939968
[8] In the pilot, advertisers would pay to align their advert (which was in the form of a gif users could select) with popular search terms. For what it’s worth, Meta and Giphy deny these future ambitions and argue that the product was doomed for failure because of insurmountable ad measurement and optimisation challenges. The CMA rebuttal is that it interviewed the advertisers who paid to use this product and that they (the advertisers) said it worked as expected. It’s also worth mentioning that Giphy’s advertisement product catered to brand advertising (think TV ads hailing the latest climate-conscious Honda) while Meta’s advertising prowess (and revenue) lies in direct-response advertising (think Instagram ads urging you to swipe up and buy luggage from a Direct-to-Consumer company).
[9] https://assets.publishing.service.gov.uk/media/61a64a618fa8f5037d67b7b5/Facebook__Meta__GIPHY_-_Final_Report_1221_.pdf
[10] https://www.gov.uk/government/news/updated-cma-merger-assessment-guidelines-published
