Why did Facebook buy Giphy?


In May 2020, Facebook bought Giphy for $400 million, and it could be a bargain.

For the uninitiated, Giphy is the Google of GIFs (small looping images) and it’s already integrated into almost every platform and handset you use or own.

Creators can upload their own GIFs or easily make short ones from YouTube videos, but the majority of Giphy’s users are sharing images from its 1 billion strong GIF database with one another in the same amount of time as it takes to type a phrase.

A picture says a thousand words after all, especially if it makes your friends laugh.

According to Fast Company’s interview with Michael Ostrovsky, an economics professor at the Stanford Graduate School of Business, it’s going to take real brainpower at Facebook to turn GIFs into ads, and ads into revenue.

“If Giphy would have been a success as an advertising business, there would have been another zero in the [$400 million] sale price,” Ostrovsky says.

The acquisition might appear to herald the next phase of Facebook’s ad business evolution but the real reason is likely to yield a different currency altogether.

Integration

Long term, Giphy will become part of the Instagram team. “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,” Vishal Shah, Instagram’s VP of product, said in a blog post announcing the news.

So instead of Facebook restricting the Giphy API to get one over on competitors who have adopted the service into their own platform, it is more prudent to continue to operate Giphy as a standalone entity for one fundamental reason: data.

50% of Giphy’s traffic already comes from Facebook’s mammoth suite of apps, including WhatsApp and Instagram, but now the social media giant has access to rivals that use Giphy such as iMessage, Twitter, Slack, Snapchat and TikTok.

This gives Facebook a god’s eye view of sentiments, trends and patterns of which types of GIFs are being shared across different platforms and devices across the globe.

And with that type of knowledge surely monetisation via paid branding partnerships can only be the next step.

An unfair merger?

However the deal hasn’t gone unnoticed with government watchdogs.

The UK Competition and Markets Authority, the antitrust organisation, is investigating whether the acquisition will decrease market competition and if “the creation of [the merger] situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services”.

While the deal is investigated, Facebook is barred from any business activity relating to the merger without the CMA’s approval, including pooling resources, teams and products. Both parties are complying with the order.