30 de julho de 2021
Kustomer takeover plan gets extra scrutiny as regulators look to tackle digital giants buying up promising startups.
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.
Johnny Ryan, a privacy campaigner at the Irish Council of Civil Liberties, has urged the Commission to draw up a detailed overview of all the data collected by the companies, including the business purpose for which it is being gathered.
“With one forensic sheet of everything that Facebook is using data for, and another of everything that Kustomer is using data for, [the Commission’s competition enforcers] can then understand what may happen when those two spreadsheets combine,” Ryan said.
Facebook said it is “cooperating fully” with the Commission. Brussels started its review in May, and has an August 2 deadline to decide whether to open an in-depth investigation.
When announcing the transaction last November, Facebook sought to pre-empt concerns from rival providers of customer relationship management (CRM) applications who worry that Facebook would offer a better integration of its messaging services with Kustomer than with their own competing products. “We’ll continue to support the numerous options that businesses have to integrate their CRM platform of choice with our messaging services,” the company said in a blog post.
Facebook added that while it “will not automatically use Kustomer data to inform the ads that a user sees, businesses will have the option to use their data at Kustomer for their own marketing purposes, which may include separate advertising services on Facebook.”
To approve the deal, the Commission could ultimately require remedies similar to those it imposed on Google in clearing its Fitbit acquisition. Those included a ban on the search giant using health and wellness data gathered by Fitbit for advertising.
An EU spokesperson declined to comment on the probe, only noting that “the provisional deadline for the Commission to take a decision is August 2.”
The European Commission is not alone in scrutinizing the deal. The U.S. Federal Trade Commission opened an in-depth investigation into the deal in February, the Information reported in March, citing people with direct knowledge of the situation. The Australian Competition and Consumer Commission started a review in March. And the U.K. Competition and Markets Authority opened a probe on Friday.
The Kustomer transaction has also prompted jockeying among antitrust agencies within the EU.
Germany’s competition authority last week announced it may start its own parallel probe of the transaction, an uncommon move since an EU review is meant to serve as a “one-stop shop” for businesses seeking approval of their transactions across the bloc.
In the statement announcing its interest in the deal, the German Bundeskartellamt, as the competition authority is known, said it did not join the common European investigation because it has doubts about the lawfulness of the procedure used.
“In the Bundeskartellamt’s general practice, a referral requires a merger to be subject to notification based on national competition law, which still has to be clarified in the present case,” the authority said.
Romina Polley, a lawyer from the firm Cleary Gottlieb, said the disagreement is indicative of a turf war between the national and European authorities. “They probably see the Commission’s new approach on referrals as an intrusion into their jurisdiction,” she said.
Beyond procedural disagreements, the German competition authority is also eager to conduct its own investigation into the high-profile merger case. “The German competition authority has done some very prominent cases, including against Facebook, and sees itself as playing an important role in the tech space as a competition enforcer,” said Bernd Meyring, a competition lawyer at Linklaters.
The German government is actively lobbying to give the Bundeskartellamt powers to enforce the proposed EU-wide rules on digital “gatekeepers” — such as Google, Amazon, Facebook and Apple — under the planned DMA. But in an effort to avoid any fragmentation of the EU’s single market, Brussels wants to limit the contribution of national authorities to an advisory role.
In a joint letter with France and the Netherlands, Germany also called for including a provision in the DMA to review “predatory acquisitions” of tech companies “systematically buying up nascent companies in order to stifle competition.”
But Germany implemented its own version of the planned EU gatekeeper rules in January anyway. And by reviewing the Kustomer purchase at home, Germany’s message is that if Brussels does not follow its approach, Germany will deal with the problems itself.
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