UK clears Facebook’s purchase of CRM maker, Kustomer

The UK’s competition watchdog has cleared Facebook’s acquisition of Kustomer, a maker of CRM tools.

The purchase was announced last November — with a price-tag we reported as $1BN — but is pending closing after facing regulatory scrutiny.

The UK’s Competition and Markets Authority (CMA) opened an inquiry on the proposed merger this summer, at the end of July. The European Commission has also been digging into the implications of the deal, opening an investigation in August.

In a summary of its decision to greenlight Facebook’s latest bit of b2b shopping, the CMA said it looked at whether letting Facebook go ahead and scoop up the customer service software maker would dent competition by raising barriers to entry in the online display advertising market; whether Facebook might harm the competitiveness of customer service tools maker by limiting or degrading their access to its messaging channels; whether the tech giant might harm the competitiveness of other b2c messaging services by preventing them from integrating with Kustomer’s services; and whether Facebook could rely on cross-subsidizing from its online ads business to undercut competitors by offering Kustomer for free or on a freemium basis, thereby undermining the ability of others to compete.

For each concern (or ‘theory of harm’), the CMA goes on to explain that it was satisfied the acquisition did not meet the required bar of a “substantial lessening” of competition.

The small size of Kustomer appears to have helped allay concerns that letting Facebook assimilate the CRM maker might damage the wider market for such 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 writes in its conclusion on the last theory of harm, for example, adding that it “considers that the largest providers may be in a position to adopt a freemium model, or to develop a basic low-price CRM product targeted at small businesses, with the expectation that CRM revenues would increase as businesses’ needs grew”.

“Most importantly, it is not necessary for other CRM providers to replicate the Merged Entity’s strategy in order to remain competitive,” it also writes. “While price is certainly an important dimension of competition, there are several other dimensions along which CRM providers could compete against the Merged Entity.”

Commenting on the green light in a statement, a Facebook spokesperson sought to spin the clearance as a positive endorsement of the deal as a boon to competitors, writing: “We welcome the CMA’s decision, which shows that this deal is good for competition. The transaction will increase competition and bring more innovation to businesses and consumers in the dynamic and competitive CRM and business messaging spaces. More people will benefit from customer service that is faster, richer and available whenever and however they need it.”

While the CMA has decided there’s nothing to see here, the EU is still considering whether to clear Facebook-Kustomer. So the regulatory scrutiny continues.

A Commission spokesperson had no comment on the CMA’s clearance — but confirmed its own “in-depth investigation” is ongoing, adding that there’s a provisional deadline of January 7, 2022, for EU regulators to take their own decision.

Despite the CMA’s relatively quick clearance of this particular Facebook purchase, the UK regulator does continue to dig into competition concerns attached to Facebook’s earlier acquisition of animated Gif platform, Giphy.

After a finding of provisional concerns on Facebook-Giphy earlier this summer, it proposed remedies that could include ordering Facebook to unwind the acquisition — leading the tech giant to respond with a stinging rebuttal of any harms, earlier this month, accusing the regulator of making “fundamental errors” in its assessment of the competitive implications of that deal.

Regulatory scrutiny of big tech’s acquisitions in the region tends to focus on a fairly narrow consideration of competitive harms — such as how the CMA has looked at the Kustomer buy through the lens of the overall competitiveness of the CRM market.

However, in the Kustomer case, concerns have also been raised about the privacy implications of letting adtech giant Facebook get its hands on the support service’s customer data given that the smaller company operates in sectors including the health sector where it is likely to be processing sensitive information on behalf of its customers.

Back in February, for instance, the Irish Council for Civil Liberties (ICCL) raised a series of privacy concerns in a letter to Facebook — which it also published online, querying what uses the tech giant would be making for customer data held by Kustomer and asking whether such data would be combined with any other data held by Facebook and Facebook-owned companies.

Months later tbe ICCL said it had not had any response from Facebook to the letter raising privacy concerns.

Despite Europe’s comprehensive data protection framework — which is supposed to help safeguard people’s digital information — competition watchdogs in the region rarely consider privacy implications as part of their assessments of digital markets.

And there have been calls for more joined up working between competition and privacy regulators in order to properly tackle the market effects and consumer harms that can flow from digital giants’ command of other people’s information.

One outlier on this front is German’s Federal Cartel Office (FCO) which has been doing just that — in a pioneering case against Facebook’s superprofiling (which is ongoing).

The FCO is also looking at whether Facebook’s plans to acquire Kustomer fall under the scope of German merger control rules.