ECONOMY

UK watchdog’s bite of Facebook leaves a mark

Is Facebook now too big to buy anything? The UK antitrust regulator seems to think so. In killing Facebook’s fairly meagre $315m deal, the Competition and Markets Authority has drawn a line in the sand for any future acquisition the company may make, at least within the social media space. The CMA’s decision to order Facebook to unwind its 2020 purchase of Giphy may ultimately be correct. But it has repercussions for the UK’s business environment, not just for Big Tech.

A company that controls 73 per cent of the social media market buying the world’s biggest provider of GIFs — short looping videos or stickers inserted into messages — was always going to attract regulatory scrutiny. Since the trustbusters of a century ago, economies apply different rules of the game to the biggest players in order for capitalism to work in favour of consumers. That sometimes includes stopping a big company growing.

The CMA blocked the deal because it found Meta (the group that owns Facebook, Instagram and WhatsApp) could cement its dominance in the social media market by absorbing a company that helps keep users on platforms, a key goal of the digital economy. But the way it has framed its argument, over almost 380 pages, is problematic in parts. The CMA argued the deal risks lessening competition between Facebook’s rivals because it may restrict their access to GIFs. The CMA also held that Facebook was eliminating a potential rival in Giphy itself because, left alone, Giphy could grow its display-advertising capabilities.

The first argument is far more convincing. It is true that regulators are more attuned than they were a decade ago to Facebook’s “buy and bury” model to acquire companies it worries most about and to cut off access for others. But the idea that Giphy could grow its advertising to meaningfully rival Facebook is at best a stretch, and the CMA risks credibility in pushing it. The decision affects future Big Tech buyers. And it matters for start-ups that aim to sell themselves to a large platform.

But Facebook has done itself no favours. Even beyond this deal, the CMA has become increasingly interventionist, and particularly since Brexit, as it no longer has to refer larger deals to the European Commission. Since 2019, 69 per cent of mergers marked for in-depth CMA investigations ended up nixed or abandoned, according to Linklaters, the law firm.

Despite knowing this — and the increasingly hostile attitude to Big Tech among politicians and regulators across the world — Facebook antagonised the CMA by not complying with reporting required as part of an order to keep the businesses separate while the deal was investigated. This was a tactical error that landed it a £50m fine. While this is a paltry sum for Facebook, it soured CMA relations and has portrayed Facebook as dismissive of established rules in front of the tribunal to which it must now appeal if it wishes to challenge the Giphy decision.

The CMA’s sweeping powers are not new, including forcing an unscrambling of the eggs in completed deals. Unlike other antitrust regulators whose rules exist to limit consumer harm framed by easily measured benchmarks like rising prices, the CMA has more flexibility in defining that harm. This is important when it comes to the digital economy that provides services ostensibly for free but where consumer data is sold to advertisers. The CMA is lobbying for even more discretion over Big Tech. But it must wield its almost unique powers responsibly, particularly if harm is to be defined in increasingly hazy ways. A watchdog that bites judiciously is the aim.

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