Picture Perfect? GIPHY Acquisition Raises Competition Concerns

Picture Perfect? GIPHY Acquisition Raises Competition Concerns​

The Story

The UK Competition and Markets Authority (‘CMA’) announced last week that it had opened a Phase 2 investigation into the acquisition of GIPHY by Facebook. GIPHY is the world’s largest searchable library of graphics interchange format, or ‘GIF’, images and was purchased for a reported $400 million back in May 2020 (Axiom). The CMA’s Phase 1 investigation concluded that there was a ‘realistic prospect’ that the deal would result in a negative outcome for competition in the advertising and social media markets. In its new, more in-depth investigation, the CMA will now assess whether this outcome is ‘more likely than not’ and, if so, what remedial action is required.

GIPHY offers GIF images on its website and app but also through third-party social media sites, messaging services and dating apps. These third parties aren’t charged for access to GIPHY’s library, nor are the end consumers, so the company has to look elsewhere for revenue. In recent years, it has offered a ‘paid alignment’ service; for a fee, advertisers can ensure that branded GIFs appear in response to certain search terms or are promoted in GIPHY’s ‘trending’ feed. Food and beverage brands have been among the first to experiment with GIF advertising; GIPHY is thought to have closed six and seven figure deals with the likes of Absolut Vodka, Pepsi and Dunkin’ Donuts (Inc). It is not hard to imagine the company working more closely with film studios and song artists too; a GIF extract of a new trailer or music video could be shared with an embedded link to the full clip (Digiday). GIPHY has form in this area; it previously partnered with Disney to promote Star Wars: The Force Awakens.

What It Means For Businesses and Law Firms

The CMA’s objections to the acquisition, on which Latham & Watkins is advising, are twofold (The Lawyer). Firstly, there are concerns that competition in the online advertising market has been reduced because, had there been no acquisition, GIPHY might have eventually competed with Facebook. This is a bold claim. On one hand, GIFs have huge potential as an advertising tool; in particular, they are fairly unique in providing a means to insert adverts into the messages people send to each other every day. The GIF advertising concept certainly seemed to sit well with investors; GIPHY raised around $150 million from venture capital firms during its Series A to D fundraising rounds. On the other hand, at present, GIPHY’s advertising business is still a fledgling one. Support from Facebook and its vast advertiser base is probably the best chance the company has of ever turning a profit (Fast Company). After all, GIPHY’s closest competitor, Tenor, is owned by Google.

Secondly, the CMA fears that Facebook could seek to shut out rival services from GIPHY’s GIF library. Around 50% of GIPHY’s search requests come from non-Facebook apps which, without any GIF offering at all, might be less able to “win and retain users” (Facebook; CMA). Again, this objection isn’t wholly convincing. Ultimately, Facebook gains far more from continuing to provide GIFs to rival apps and harvesting data on the most popular search terms – data that it can then sell to advertisers. In this sense, each picture really is worth a thousand words.

II.studio / Shutterstock.com