The end of GIFs?

Facebook acquires Giphy. Giphy is the software behind all the GIFs you use and love. Will this change how we use GIFs forever? Let’s explore! 

Giphy… what is it? 

Have you ever sent a GIF over WhatsApp? If so, you have used Giphy. Let me explain. 

Giphy has a huge library of searchable GIFs. When you search for a GIF in WhatsApp, you are actually sending the search to Giphy’s servers and they return the suggested GIFs. They integrate with Facebook, WhatsApp and Instagram — which together is 50% of their traffic.

Giphy’s business model is genius. It’s based around them giving away their searchable GIF library and in return they get nothing. You read that right. They. Don’t. Make. Any. Money. 

They have, however, raised ~$150M in venture capital, which has been fueling their expansion until now. 

Sounds like a great business — why did Facebook acquire them? 

Already on Facebook’s radar.

The two companies already worked closely together for a long time. Because of this, Facebook was comfortable acquiring them pre-revenue. 

Facebook pays $400M for Giphy. That’s a steep price for a company still to make any money. You might wonder — how did they decide on that price? Let’s break it down.

Pricing a company without revenue.

Typically, a company is valued on a multiple of its revenue. Obviously, this is not applicable for Giphy. Let’s dig a bit deeper.

Giphy’s most recent valuation was $600M and they raised $150M in total from investors. Facebook knew they wanted to pay somewhere in between those two numbers. Less than $600M since they knew Giphy had not performed as well as expected or had a hard time raising money. Remember, Facebook was their largest partner. However, more than $150M to ensure both investors and the founders would accept the deal. (If they paid less than $150M investors would lose money and founder would get nothing — that’s a hard sell.)

How they got to $400M exactly is impossible to tell. However, it’s probable they could have closed the deal for less. My best guess is that there was either other bidders, other mechanics we cannot see, or Facebook simply wanted to close quickly. Most probably a mix of all three. 

What does Facebook plan to do with Giphy?

I see three main reasons for Facebook to acquire them.

  1. They think they can monetize it. With more than 100 million active daily users on Giphy, Facebook is paying $4 per daily active user. Facebook’s ad revenue is ~$30/user annually and therefore it’s not a stretch to imagine they could squeeze out a few dollars for your eyeballs at Giphy, e.g., brands could pay for relevant sponsored GIFs to show up in your search. But if it’s that easy to monetize it, why has not Giphy already done so?
  2. Get valuable data outside of their main apps. Since Giphy is integrated with multiple apps, e.g. Slack and Microsoft Teams, it could help Facebook track the popularity of other platforms. Giphy, however, doesn’t get data on individual users. Facebook could only understand broad trends from the data. I’m unsure what other insights Facebook could draw from it and how valuable it actually is. Is it really valuable to know what GIFs are trending right now? (Famous last words)
  3. Defensive move. Giphy is popular on Facebook products. They want to acquire them before any competitors snatch them up.

My guess is a mix of (3) and the potential for a large upside were the main reasons. They might not crack the nut on how to monetize it, but if they do, it can be huge. If they don’t, the price they paid was small in the grand scheme of things.

How valuable is the data really?

How does this impact you? 

You might see worse GIFs on platforms outside of Facebook since other platforms might decide to stop using it. Depending on your dependency on GIFs, this might be the right time to panic.

Sincerely,
Henrik