UK Approves Facebook's Acquisition of Kustomer

Facebook's Kustomer Acquisition Receives U.K. Regulatory Approval

The acquisition of Kustomer, a company specializing in CRM tools, by Facebook has been approved by the competition watchdog in the U.K.

Initially announced in November of the previous year, the deal, valued at approximately $1 billion, was subject to a period of regulatory review before its completion.

Regulatory Scrutiny from Multiple Bodies

The U.K.’s Competition and Markets Authority (CMA) initiated an investigation into the proposed merger at the close of July. Simultaneously, the European Commission commenced its own assessment of the deal’s potential ramifications, launching an investigation in August.

The CMA’s decision to authorize Facebook’s business-to-business (B2B) acquisition was based on a thorough evaluation of several key concerns.

CMA's Assessment of Potential Anti-Competitive Effects

Specifically, the CMA examined whether the acquisition could impede competition by increasing barriers to entry within the online display advertising market.

It also considered whether Facebook might negatively impact the competitiveness of customer service tool providers by restricting or diminishing their access to Facebook’s messaging platforms.

Further analysis focused on the possibility of Facebook hindering the competitiveness of other business-to-consumer (B2C) messaging services by preventing integration with Kustomer’s services.

Finally, the CMA assessed whether Facebook could leverage its advertising revenue to offer Kustomer for free or at a reduced price, thereby undermining the ability of competitors to effectively compete.

CMA Findings and Rationale

After careful consideration of each potential issue, the CMA determined that the acquisition did not meet the threshold for a “substantial lessening” of competition.

The relatively small scale of Kustomer played a significant role in alleviating concerns regarding potential damage to the broader market for business tools.

“The CMA considers that, even if some competitors would struggle to respond to Facebook offering Kustomer on a free or freemium basis, sufficient competitive constraints would remain,” the regulator stated.

The regulator added that larger providers could potentially adopt a freemium model or develop a low-cost CRM product for small businesses, anticipating increased revenue as businesses’ needs evolve.

The CMA emphasized that replicating Facebook’s strategy is not essential for other CRM providers to remain competitive, noting that price is only one aspect of competition.

Facebook's Response

A Facebook spokesperson welcomed the CMA’s decision, framing it as a positive endorsement that would foster competition and innovation.

“We welcome the CMA’s decision, which shows that this deal is good for competition,” the spokesperson stated. “The transaction will increase competition and bring more innovation to businesses and consumers.”

The spokesperson further asserted that the acquisition would lead to improved customer service, offering faster, more comprehensive support whenever and however customers require it.

Ongoing EU Review and Other Investigations

While the CMA has given its approval, the European Commission is still evaluating the Facebook-Kustomer deal.

A Commission spokesperson indicated that the in-depth investigation is ongoing, with a provisional deadline of January 7, 2022, for a decision.

Separately, the U.K. regulator continues to investigate competition concerns related to Facebook’s earlier acquisition of Giphy.

Previous Findings Regarding Giphy Acquisition

Following provisional concerns raised earlier this summer, the CMA proposed remedies that could potentially require Facebook to divest Giphy.

Facebook responded with a strong rebuttal, accusing the regulator of “fundamental errors” in its assessment of the deal’s competitive implications.

Broader Trends in Big Tech Acquisition Oversight

Regulatory scrutiny of Big Tech acquisitions typically centers on assessing potential competitive harms within specific markets, such as the CRM market in the case of the Kustomer acquisition.

Privacy Concerns Surrounding the Acquisition

However, concerns have also been raised regarding the privacy implications of Facebook gaining access to Kustomer’s customer data, particularly given the sensitive information handled in sectors like healthcare.

The Irish Council for Civil Liberties (ICCL) expressed these concerns in a letter to Facebook, questioning how the data would be used and whether it would be integrated with other Facebook data.

The ICCL reported that it did not receive a response from Facebook regarding these privacy concerns.

The Need for Integrated Regulatory Approaches

Despite Europe’s robust data protection framework, competition watchdogs often do not consider privacy implications in their market assessments.

There are increasing calls for greater collaboration between competition and privacy regulators to address the market effects and consumer harms resulting from digital giants’ control over personal information.

Germany’s Federal Cartel Office (FCO) is a notable exception, pioneering an approach that integrates both competition and privacy considerations, as demonstrated in its ongoing case against Facebook’s superprofiling practices.

The FCO is also evaluating whether Facebook’s plans to acquire Kustomer fall under German merger control rules.