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The real reason Facebook bought Giphy for $400 million

Facebook may want to turn Giphy into the next phase of its advertising business. But that probably isn’t its main ambition for the internet’s favorite GIF search engine.

The real reason Facebook bought Giphy for $400 million
[Source video: Videvo]
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When Facebook confirmed that it had acquired Giphy last week for a cool $400 million, the reasons weren’t immediately apparent. Giphy has only the seeds of an advertising business, and GIFs aren’t a revolutionary advertising product. Mark Zuckerberg has a habit of knowing where the puck is going, but his company will have some real work ahead of it to make Giphy an advertising powerhouse. Still, the purchase may be worth it just for the insights it could yield about what web platforms people are visiting and what they’re sharing there.

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Giphy runs a large searchable database of GIF images that can be called up by users on social media and messaging platforms via an application programming interface (API). The venture-backed startup has built up a sizable user base of 65 million monthly active users since its launch in 2013 (two of its investors declined to comment on the acquisition). Giphy was just beginning to allow advertisers to sponsor GIFs and add video overlays to user-generated GIFs.

But GIFs are nothing new, and there’s no strong evidence that big brand advertisers are eager to seize upon them to influence consumers. Not in their present form, anyway. GIFs can already be an annoyance within social media newsfeeds and messaging threads, and people may have even less tolerance for them when they’re sponsored. Giphy has seen some interest from the entertainment industry, however. To promote its last Star Wars movie, Disney created some GIF filters that make spaceships fly around in user-created Giphy GIFs. But no money changed hands.

That’s why it’s going to take some real ingenuity for Facebook and Instagram to make GIFs work as an advertising product, says Michael Ostrovsky, an economics professor at the Stanford Graduate School of Business.

There would have been another zero in the sale price.”

Michael Ostrovsky

“If Giphy would have been a success as an advertising business, there would have been another zero in the sale price,” Ostrovsky says. He believes it’s going to take some very smart people at Facebook and Instagram to turn GIFs into valuable ads. Facebook definitely has the reach needed to get them in front of literally billions of people—though how people respond to them is another question.

For now at least, Facebook plans to let Giphy run as a freestanding business. There was some speculation last week that Facebook might eventually shut down the Giphy API, so that people on competing platforms like Twitter could no longer easily access its GIFs. But this is unlikely, and for a very good reason.

[Animation: courtesy of Facebook]
Ostrovsky tells me that one of the biggest values in the deal for Facebook might be data. Already, 50% of Giphy’s traffic comes from Facebook apps. But now Facebook will know what Giphy GIFs people are sharing in all the other apps that use Giphy’s database, including Apple’s iMessage, Snapchat, Telegram, and TikTok.

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Ostrovsky doesn’t believe Giphy’s existing stats on GIF usage will give Facebook very much that it doesn’t already have in the way of ad targeting data. But, he says, Facebook could learn a lot about hot topics and trends on an ongoing basis by watching people select GIFs from various platforms around the world. It might also learn from the kinds of GIFs people create using Giphy’s tools.

“That shows what people are doing on those platforms, and suddenly Facebook has an insight into that,” Ostrovsky tells me. Facebook may be able to exploit that information for its own content or product development.

The Giphy data might also reveal the growing popularity of a new app or service. If such an app were to suddenly start making a lot of API calls to Giphy, it might reveal that the app’s user base was growing quickly. And anything that’s attracting attention on the internet is something Facebook wants to know about. Virality is its business.

Ostrovsky says large platforms like Twitter and Slack might now be weighing the possibility of choosing another GIF provider for their users. But it might not be that simple, he says, because their users may already be accustomed to the ease of grabbing Giphy GIFs.

Facebook has already shown great appetite for monitoring people’s content consumption habits well outside the walls of its own apps. Now it’ll be able to capture lot of signals about how people are using GIFs. And for a content type that says so much about the creativity, humor, and personality of users, that alone may be worth the $400 million.

About the author

Fast Company Senior Writer Mark Sullivan covers emerging technology, politics, artificial intelligence, large tech companies, and misinformation. An award-winning San Francisco-based journalist, Sullivan's work has appeared in Wired, Al Jazeera, CNN, ABC News, CNET, and many others.

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