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Home / Opinion / Columns /  The UK smackdown of Meta’s Giphy deal is an antitrust omen

The UK smackdown of Meta’s Giphy deal is an antitrust omen

The UK’s antitrust action on a Facebook deal could deter buy-outs by Big Tech

The future impact of buyouts by Big Tech could be under scrutiny

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For years, Facebook and other large tech companies grew into vast digital conglomerates by making so-called killer acquisitions, small deals for firms that could one day pose a competitive threat. Internal emails between executives at Facebook show its chief Mark Zuckerberg and his executive team were quaking at their keyboards in 2012 as they watched WhatsApp arise to dominate the market for messaging and “become the biggest threat we’ve ever faced." Two years later, Zuckerberg swooped in with a $19 billion offer that was too big for its founders to refuse.

For years, Facebook and other large tech companies grew into vast digital conglomerates by making so-called killer acquisitions, small deals for firms that could one day pose a competitive threat. Internal emails between executives at Facebook show its chief Mark Zuckerberg and his executive team were quaking at their keyboards in 2012 as they watched WhatsApp arise to dominate the market for messaging and “become the biggest threat we’ve ever faced." Two years later, Zuckerberg swooped in with a $19 billion offer that was too big for its founders to refuse.

But those days are done. Even acquisitions of smaller companies, including Facebook’s $315 million 2020 purchase of Giphy, a GIF search tool, are at threat of being unravelled. Last week, the UK’s antitrust watchdog ordered Facebook’s parent Meta Platforms to sell Giphy, marking the first time a global regulator has asked a large tech company to reverse a done deal. Facebook said it will appeal the decision.

But those days are done. Even acquisitions of smaller companies, including Facebook’s $315 million 2020 purchase of Giphy, a GIF search tool, are at threat of being unravelled. Last week, the UK’s antitrust watchdog ordered Facebook’s parent Meta Platforms to sell Giphy, marking the first time a global regulator has asked a large tech company to reverse a done deal. Facebook said it will appeal the decision.

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On its face, it looks as if the UK is overreaching on a nothing burger. Neither company is based in the UK, and who cares about GIFs? But Facebook is the world’s biggest social media company and Giphy is the world’s biggest provider of GIFs, which have become the social fuel of platforms like Facebook, WhatsApp, Twitter and Slack. Bear in mind that no one truly knew how big Instagram was going to get when Facebook bought it for $1 billion in 2012.

The UK agency said it was killing the deal because in the future it could “harm social media users and UK advertisers." That marks a big shift in how it scrutinizes tech deals. The UK Competition and Markets Authority (CMA) revamped the way it assessed digital deals earlier this year. It would start looking at how competition could be warped in the future, not just in the past. This meant, for instance, that it spent more time looking at Giphy’s future plans than it would otherwise have.

Why the change? The previous guidelines were 10 years old and in need of an update. Several reviews and academic studies, including a 2019 report by Harvard economist Jason Furman, found chronic under-enforcement by antitrust regulators. In the 10 years to 2018, for instance, the world’s five biggest tech firms had made more than 400 acquisitions, with few scrutinized and none blocked, according to Furman’s study. Tech companies were moving too quickly and antitrust authorities were dithering.

So the CMA hired an external economic consultancy to review acquisitions it had waved through itself, like Google’s purchase of the navigation app Waze for $1 billion in 2013 and Facebook’s purchase of Instagram. The agency, it found, was being too narrow in how it assessed tech deals.

The CMA’s latest order marks a big step toward reining in killer acquisitions that large technology companies have used to assert their dominance, often to the detriment of startups trying to scale up. In theory, if personal data is an asset class, Facebook should never have been allowed to acquire WhatsApp and Instagram. Not only did it mean that a single outage could knock out multiple tools for billions, as happened in October, it gave Facebook much greater ad-targeting power.

The order should sound the alarm inside the M&A teams of large tech companies. Nvidia’s acquisition of Arm Holdings looks a little more precarious thanks to being scrutinized by UK regulators, who are talking to the US Federal Trade Commission “literally ever week" about the deal, as Bloomberg News reported recently. US authorities have said they, too, are taking a much closer look at smaller tech deals. And anyone who believes Twitter is suddenly in play because of co-founder Jack Dorsey’s departure [for Parag Agrawal to take charge] should probably think twice.

It’s telling that Meta’s high-profile digital currency chief, David Marcus, stepped down from his role last week after the departures of multiple senior executives from the project formerly known as Libra. Governments had bristled at the prospect of Facebook’s crypto [renamed Diem] competing with their sovereign currencies when the project was announced in 2019, and Facebook perhaps anticipates that pushback from governments will be even stronger now. After all, a regulator’s ultimate power isn’t in the actions it takes on deals, but the deals that never get done [in fear of its authority to stop them].

Regulators examine every case on its own merits, but the UK’s new way of looking at how a deal can affect future markets shows they are starting to get out in front of tech companies that, until now, have been too fast to regulate effectively. Like toddlers suddenly realizing their parents actually mean business, big tech firms will take note of what happened to Meta and Giphy and [exercise restraint].

Parmy Olson is a Bloomberg Opinion columnist covering technology.

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