On Friday, Facebook made its fifth-largest known acquisition ever. The company bought Giphy, a database and search engine for the short looping videos known as GIFs, for $400 million. Today let’s talk about some of the reasons, stated and unstated, that Facebook bought Giphy, and then consider what might come next.
The stated reason for acquiring Giphy, as expressed in this blog post from Instagram’s head of product announcing the deal, is twofold. One, Facebook can now build tighter integrations between the products to enhance stickers, stories, and other products. And two, it can make further investments in Giphy’s technology and content library to benefit all the companies that rely on Giphy for GIF supply. Here’s Vishal Shah:
People will still be able to upload GIFs; developers and API partners will continue to have the same access to GIPHY’s APIs; and GIPHY’s creative community will still be able to create great content.
The two companies began talking before the pandemic, I’m told, to explore some sort of expanded partnership. More than half of the GIFs sent through Giphy land on Facebook-owned apps, and half of those land on Instagram specifically. So it’s natural that the two companies would be in regular conversation.
The problem for Giphy is that its business wasn’t working. The 7-year-old company, which had raised $150.9 million, had developed a convoluted advertising model in which it would host GIFs for brands and let them pay to promote them in conversation. That generated some level of experimental revenue from advertisers, but the product failed to take off. Giphy claimed 700 million daily users. Two people close to the deal told me it likely would have gone out of business had it not been acquired, and Instagram chief Adam Mosseri tweeted that Giphy “ needed a home.” (He said a bit more to Dan Primack.)
At the same time, GIFs are a core part of any social app, and Giphy had already built the largest independent GIF library. (Google acquired the other big player, Tenor, in 2018.) There’s obvious strategic value to Facebook in acquiring a tool that is fundamental to the way that people express themselves online. A Giphy ad deck from last spring that someone sent me reported that the company served 7 billion GIFs per day, and so without Giphy in the world Facebook would have to find another way to source 3.5 billion daily GIFs.
Better yet, from Facebook’s perspective, Giphy was available at a discount. The app had last raised funding in 2016 at a valuation of $600 million, and the combination of a failing ad business and pandemic-related uncertainty had given the company a 33 percent haircut. The deal is still large by Facebook standards, though, suggesting that other players may have been competing for it. Giphy integrates with Apple’s iMessage, ByteDance’s TikTok, Slack, Snapchat, and Twitter, among many others, and it’s not hard to imagine any of them putting in an offer. (That said, I imagine $400 million was too steep a price tag for most of them.)
For all these reasons, few scoffed when Facebook announced its purchase. But given the company’s history of brilliant, pricey strategic purchases, there was a sense over the weekend that some greater game must be unfolding. To me it seemed like shrewd dealmaking during troubled times — buy a useful thing for cheap — but I also suspected that there might have been a more anticompetitive motive in play. Sarah Frier explored this question in Bloomberg:
Giphy provides the same search service to many of Facebook’s competitors, Apple Inc.’s iMessage, Twitter, Signal, TikTok and others. The company has a view of the health of those platforms and how often people use them, which is exactly the kind of insight Facebook values most, and has sought in the past. After Giphy joins Facebook, the company will maintain those integrations, and will keep getting data from GIF searches and posts around the internet. […]
Since Facebook doesn’t own a mobile phone operating system like iOS or Android, it has relied on other means to understand competitors’ strengths — sometimes getting in trouble in the process. In 2013, for instance, Facebook acquired Onavo, an Israeli company that made a VPN, a tool to keep online activity private. Just not from Facebook, which analyzed the data to see which apps were getting popular, and then came up with ways to compete with or purchase them. Apple in 2018 banned the Onavo app, declaring that the data collection violated its app store rules.
Mosseri denied this, as did other Facebook executives I spoke with over the weekend. While it’s tempting to imagine Facebook building a sequel to Onavo as an early-warning system for potential threats, at most Giphy would be redundant in this regard. When TikTok arose as a threat in 2018, Facebook could tell because the company was spending $1 billion on ads— many of them Facebook ads. And when smaller threats emerge, Facebook can tell because people post about them … on Facebook.
If a new social app arose that used a Giphy integration, and Facebook could see that it was serving them exponentially more GIFs month after month, that could potentially be useful to the company. But it seems unlikely, given all the other data at Facebook’s fingertips, that it would be all that surprising.
There’s a secondary data question, though, and it’s how all of Giphy’s partners feel about suddenly becoming Facebook customers. An important question is whether Facebook will receive data about individual consumer behavior through Giphy; the answer seems to be no. Ben Thompson, who beat me to many of these points in his newsletter today, explains how (and has a fascinating aside at the end):
The GIPHY API, on the other hand, which allows for a custom-built integration, has no such requirement, and Signal explained in 2017 how GIPHY’s service can be proxied to hide all user data. Slack has already said that they proxy GIPHY in the same way, and I strongly suspect that Twitter and Apple do the same. That means that Facebook can get total usage data from these apps, but not individual user data (and as further evidence that this sort of proxying is effective, Facebook-owned WhatsApp actually uses Google’s Tenor service; I highly doubt Facebook would have tolerated that to-date if Google were getting per-user data).
Meanwhile at The Verge, Jay Peters asks Giphy’s most high-profile partners what they make of the deal, and they responded in two ways: either saying that they had been hiding user data from Giphy, or declining to comment at all. Ultimately, these partners are going to vote with their products. If they come to view Giphy as a data giveaway to Facebook, they’re likely to find alternatives. But if Apple and Snap remain Giphy customers, perhaps skepticism of the deal will subside. (I wouldn’t count on it.)
Among the current skeptics are some members of Congress. Here’s Makena Kelly in The Verge:
In statements Friday, Republican Sen. Josh Hawley (R-MO) and Democrats Sens. Elizabeth Warren (D-MA) and Amy Klobuchar (D-MN) were skeptical of the deal.
“Facebook keeps looking for even more ways to take our data,” Hawley said in a statement to The Verge. “Just like Google purchased DoubleClick because of its widespread presence on the internet and ability to collect data, Facebook wants Giphy so it can collect even more data on us. Facebook shouldn’t be acquiring any companies while it is under antitrust investigation for its past purchases.”
There’s something darkly funny, to me anyway, about Giphy being the Facebook acquisition that rouses Congressional antitrust hawks from their multi-decade slumber party. Is Congress going to assert that Facebook now has a GIF monopoly? What are the barriers to entry to creating GIFs, exactly? We desperately need Congress to enforce antitrust when it comes to social networks acquiring other social networks, but social networks acquiring floundering content libraries seems like it ought to remain permissible.
But you know what they say about generals fighting the last war. Knowing what they know now, it seems likely that Congress would not today approve Facebook buying Instagram or WhatsApp. It would be incredible if, so many years after those purchases, it wound up being Giphy that paid the price for those failures.