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License to Sell

Christophe Carugati

2 Dec 2021

The UK Majesty’s competition service ordered the behemoth social media Facebook to divorce with its spouse, the titan GIF provider Giphy in November 2021, following a 17-months investigation by M. The first license to sell in digital markets. The first license to kill a killer acquisition against Facebook. Shocking. Positively shocking, I think he got the point, said agent 007 James Bond, a former MI6 agent, now working for the competition service. The license to sell is a clear signal that competition services worldwide will now act vigorously to maintain and restore competition in digital markets.

Facebook Meta, the social platform planning to blur the real and virtual world in a metaverse world, acquired the GIF provider Giphy in May 2020. At a time where competition services worldwide are closely watching big tech, Facebook decided to complete the acquisition anyway. Facebook and Giphy thus celebrated the wedding without inviting competition services to the party. But, Mister Bond, James Bond, sent secretly by M, was there to find a James Bond girl and drink a Martini. Shaken, not stirred. After several Martini and nights with the beautiful lady to review more than 280 000 documents from the nascent couple, Bond acted. M ordered the license to sell. They have to divorce and celebrate another party, with this time, James Bond as the best man.

Indeed, there's a saying in England: where there's smoke, there's fire. Here, the smoke is the union between two titans that offer complementary and substitute services. Before the wedding, Giphy offered innovative digital advertising services in the United States and planned to expand them worldwide. But, here is the fire, Facebook decided to discontinue the services after the union—what Q and his competition expert team call “killer acquisition.” The Majesty’s service considered that the discontinuity removed a potential innovative competitor in the display advertising market where Facebook already owns nearly half of the market in the UK. The wedding would have deprived advertisers of an alternative and competitors a source of competitive pressure. Moneypenny likes definitely to do some things the old-fashioned way because this concern is not new at all. The Majesty’s ex-spouse, the European Commission, already investigated a similar theory of harm if the couple were to start collecting and using data from the lucky spouse to strengthen its position in advertising in the context of the second major Facebook’s wedding with the messaging service WhatsApp in 2014. The Commission found no competition issues because it considered that a sufficient number of alternative online advertising service providers will remain. Did Bond drink too much Martini, whereas alternative advertising providers exist?

However, Bond always enjoyed studying a new tongue. Giphy provides complementary services to social media providers, including Facebook, Instagram—first Facebook’s major spouse in 2010—, or Tinder, where Bond tries to find a lovely wife for life (but without success due to too much choice).

So he went into the beauty of whether Facebook would prevent its new spouse Giphy from having some fun with third parties, including social media competitors, by depriving them access to Giphy services—what Q called “input foreclosure.” Here, the wedding would have denied competitors an important user engagement tool because users frequently use GIFs with their virtual community, thereby steering users to use Facebook to share GIFs. The theory of harm is not new. Again, the Commission investigated this scenario in the recent union between the search engine Google and the wearable fitness device manufacturer Fitbit in 2020. It found similar competition concerns and required Google to ensure competitors’ access to Fitbit services. Again, did Bond drink too much Martini, whereas users can share alternative content, especially at a time where competitors constantly innovate to retain users on their platforms, such as short videos?

Bond also explored whether Facebook would allow Giphy and third parties to play together in exchange of competitors providing more user data. A beautiful threesome. The concern at the intersection of antitrust and privacy is familiar to Facebook. It promised no data-sharing with its spouse WhatsApp and late spouse virtual private network service Onavo Protect. Still, it did it to support its business activities and market research activities, including to identity future competitors, respectively. The behaviors raised competition, consumer protection, and data protection concerns worldwide. The wedding would have provided Facebook access to relevant data for targeted advertising because users use GIFs to share ideas and emotions. Data would also have provided a way to identify new trends and potential competitors because third-party providers offer GIFs to their users.

Now, Bond is enjoying the divorce. But the party would need more aspirin than Martini because Facebook already consummated the union and moved together. So it must now restore the competition structure before the wedding. This is what happens when a nascent couple wants to have fun too fast without prior approval by the competition service—what Q loves to call—A golden gun-jumping.

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