Facebook announced 15 months ago that it would buy Giphy, a popular GIF search engine, for approximately $400 million. The UK's Competition and Markets Authority has launched an antitrust investigation into the acquisition and may now declare it a failure.The CMA published preliminary findings Thursday and stated that the deal should not be finalized as it would negatively affect competition between social media platforms.CMA's reason for blocking the Giphy deal was as follows:GIFs are now used in millions of social media posts. GIF quality and choice could have a significant impact on how users use these sites, as well as whether they choose to switch to Facebook. Giphy GIFs are used by most social media sites, including Facebook. There is also only one large provider of GIFs Googles Tenor. These platforms have little choice. CMA has determined that Facebook's ownership of Giphy could mean it can block access from other platforms to its GIFs. It could also change the terms of access. For example, Facebook could ask Giphy customers (TikTok and Twitter) to provide more data to gain access to Giphy GIFs. These actions could boost Facebook's already substantial market power.The logic behind someone switching to Facebook for GIFs is not supported by the CMA. The CMA claims that Giphy ended those plans when Facebook announced the deal, which lowered competition in the market.In past submissions to CMA, Facebook refuted the idea, citing internal documents Giphy and it both submitted to agency for investigation. In May, Facebook submitted to the CMA a file stating that Giphy didn't have a meaningful audience and relied on Facebook for a large portion of its user traffic.According to sources familiar with the matter, Giphy had raised $150 million in funding over its eight-year history but was still struggling to make a profit. It also ran out of cash at the time it signed the deal with Facebook. It agreed to be sold at a lower price than the valuation it was given by investors, indicating that it was no longer viable as an independent company.A Facebook spokesperson stated that they disagree with the CMA's preliminary findings and do not believe that they are supported by evidence. He added that the company will continue working with the CMA to correct the perception that the deal is harmful to competition.Giphys employees were stuck in a holding patternSince the announcement of the deal with Facebook, Giphys over 100 employees have been in a holding mode. According to someone familiar with the arrangements, they have not been permitted to become Facebook employees. However, Facebook has been paying Giphys bills to keep company running. Facebook already paid for the majority of Giphys stock under the terms of the deal, but a portion that was withheld to ensure employee retention is still in doubt. (A Facebook spokesperson declined comment to discuss financial matters with Giphy.The scrutiny surrounding this deal, regardless of whether Facebook allows Giphy to be bought by them, shows that the era of Facebook's social media-related acquisitions is over. The company's latest $1 billion acquisition of Kustomer, which is a platform that provides customer service for businesses, has been subject to antitrust scrutiny in several countries. It could also be stopped. Facebook's augmented and virtual reality initiatives are the only type of acquisitions it has been able get away with over the years.CMAs final report regarding the Giphy deal is due by October 1.
