Europe is escalating its antitrust campaign against Silicon Valley, and the next tech deal in its sights is Facebook’s planned acquisition of customer interaction platform Kustomer.
The European Commission is expected to open an in-depth investigation on Monday into the social media giant’s deal to buy Kustomer for a reported $1 billion, according to two people familiar with the matter.
The move by EU competition chief Margrethe Vestager signals a more aggressive stance on takeovers of promising startups — known as “killer acquisitions” — by the tech giants that could further entrench their digital dominance.
Facebook’s takeover of a relatively small company in another line of business would have raised little antitrust attention a few years ago, when competition authorities were focusing on deals between direct rivals. U.S.-based Kustomer’s sales also do not meet the traditional threshold to trigger an EU competition investigation.
But as tech giants keep growing and using their power to conquer new markets, political pressure on both sides of the Atlantic is building to rein in deal-making that could stifle competition. And the mindset of antitrust authorities is shifting accordingly.
“Regulators are much more aware of the potential negative impact on competition stemming from ‘killer acquisitions’ by global digital platforms like Facebook,” said Michael Dietrich, a competition lawyer at Clifford Chance. “They are much more in the spotlight now if and when they give such deals their green light.”
Antitrust regulators are blamed for having been too lax on Big Tech’s initial buying spree, allowing Facebook to acquire Instagram in 2012 and WhatsApp in 2014, acquisitions that helped the company grow into today’s behemoth that dominates people’s online interactions.
But the tide is turning. The U.S. Federal Trade Commission in December sued Facebook for “illegally maintaining its personal social networking monopoly,” requesting a forced spin-off of WhatsApp and Instagram. The case was dismissed in first instance by the court, which left open the possibility for the FTC to refile. The agency hasn’t said how it plans to proceed after the ruling.
In Europe, in addition to stepped-up antitrust scrutiny, policymakers are crafting new rules to better deal with the growing market power of the digital giants — known as the Digital Markets Act (DMA). Vestager has also moved to vet more startup deals by encouraging national regulators to refer such transactions to the Commission — a controversial procedure that would allow the Commission to look into deals that would otherwise escape EU jurisdiction. In the case of Kustomer, Austria referred the file to Brussels, and was joined by other governments.
With the acquisition of Kustomer, Facebook says it wants to improve the customer interactions for businesses it hosts on its platforms. Last year, it introduced Facebook Shops, where brands can upload and sell their products directly on their Facebook and Instagram pages. Users can ask any questions to shopkeepers or other businesses on Facebook over WhatsApp, Messenger or Instagram.
Kustomer’s technology, which allows companies to streamline and gather data from interactions with customers on different platforms, would help build Facebook’s capability to manage those contacts.
But there is another reason why Facebook boss Mark Zuckerberg may be interested in Kustomer. The way Facebook gathers data from across the internet for its main business of online advertising is under threat from privacy regulators. According to Joshua Nekes, a co-founder of customer relations platform Simon’s Data, the way Kustomer collects data is more “defensible” from a privacy perspective, which could allow Facebook to keep gathering data without breaking the rules.
But it remains to be seen if the EU’s privacy and competition regulators will agree with that assessment.
After the Commission’s much criticized approval of Google’s acquisition of Fitbit in late 2020, Facebook’s Kustomer purchase will be another test for how the EU handles transactions that involve sensitive data.
Kustomer generates valuable data that could further strengthen Facebook. Through Kustomer’s services, which include a chatbox, users can pass sensitive personal information, for example, to health care or education companies. That could help the social media giant bolster user profiles for advertisers.
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