How did the acquisition unfold?
Facebook acquired Giphy on May 15th 2020 for $400mn. Facebook previously tried to buy Giphy in 2015, however the platform rejected the offer back then. Giphy was then valued at $600m in 2016 and has raised about $150m in venture capital funding.
The acquisition (at a significantly lower price than the valuation in 2016) by the world’s largest social media group represents a part of the larger move by the Big Tech which is seizing the opportunity to buy stakes in companies at a discount during the Coronavirus crisis.
What is Giphy?
Giphy is a company that supplies social media and messaging platforms with animated GIF images that users can embed in posts and messages.
Users search for a GIF using a keyword and then choose from among the resulting images. They can copy and paste the image into a text message or share it on social media. Giphy recently released an app for easier access on phones.
Giphy has also grown on the content creation side of the business. For example, they recently introduced a Giphy CAM app that lets users make their own GIFs with videos recorded with their phones. Users can then upload videos to the site, where Giphy provides tools for creating the GIF, and then share their creations anywhere.
Their database and the number of users have grown significantly since they were set up in 2013, with as many as 65 million users viewing more than 3 billion GIFs per month.
What’s their business model?
Interestingly, Giphy hasn’t generated any revenue to this point. It does not charge any money for the use of its apps. It is currently operating off the millions of venture capital money.
Giphy has been trying to get licensing deals with media producers and music companies to become a major content distribution company. With millions of visitors a month, Giphy has attracted advertisers ready to use their platform.
What are the possible benefits of the acquisition?
End market
Both companies have the same end market, the social media industry. That is why prior to acquisition, Facebook’s apps already accounted for more than 50% of Giphy’s traffic. As result of the integration Facebook will be able to leverage their knowledge of the social media users and work more closely with content developers to create GIFs “that are in demand” on their platforms, enabling users to express themselves creatively through visual means.
Market intelligence
Giphy’s database is also used by rival groups such as Twitter and Slack. As result, Facebook will be able to add to the pile of data it already collects about users and their online behaviour to better target advertising (which accounted for 98.5% of revenues in 2019).
Facebook will also have access to data about how Giphy’s API (integration tool that third parties can plug into their systems) is operated by other platforms. They will be able to access information such as the volume of requests made by users, enabling it to better understand user’s behaviours.
Enhanced and expanded service offering
Facebook will also be able to take advantage of the economies of scope created by the deal as it acquires a service that is complementary to their operations. This will accelerate a further integration of the GIF library into Instagram, WhatsApp, Facebook and other apps owned by Facebook, enabling users to better express themselves. This may in turn create potential revenue synergies as more users may start using Facebook’s apps due to their enhanced functionalities.
Sponsored GIFs
As mentioned above, Giphy will potentially significantly enhance Facebook’s ads revenue stream through more detailed analytics and understanding of the user’s behaviour. However, another way Facebook could monetise Giphy is through sponsored GIFs which can then be embedded into Facebook’s platforms, such as the Instagram where the integration is said to be the fastest and most significant.
Market power
Apart from Google’s Tenor there aren’t many significant competitors in the market for GIFs. Even with Tenor, most social media platforms are using Giphy. The large market share and “absence” of competitors may be yet another benefit in favour of Facebook because it may have the “first movers advantage” in monetising the market for GIFs with sponsored content and marketing power of Facebook.
Prepared and written by
Aron Adamski, BSc Economics @ LSE
M&A Hub
