Summary of Commission Decision

of 27 January 2022

declaring a concentration compatible with the internal market and the functioning of the EEA Agreement

(CASE M.10262 – META (FORMERLY FACEBOOK) / KUSTOMER) (NOTIFIED UNDER DOCUMENT C(2022) 409)

(Only the English version is authentic)

(Text with EEA relevance)

(2022/C 417/06)

On 27 January 2022 the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (1) , and in particular Article 8(2) of that Regulation. A non-confidential version of the full Decision can be found in the authentic language of the case on the website of the Directorate-General for Competition, at the following address: http://ec.europa.eu/competition/elojade/isef/index.cfm?clear=1&policy_area_id=2

1.   INTRODUCTION

(1)

On 25 June 2021, the Commission received a notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which Meta Platforms, Inc., formerly Facebook, Inc. (‘Meta’ or ‘Facebook’ or the ‘Notifying Party’, U.S.) acquires within the meaning of Article 3(1)(b) of the Merger Regulation sole control of Kustomer, Inc. (‘Kustomer’, U.S.) (jointly the ‘Parties’) (the ‘Transaction’).

(2)

By Decision dated 2 August 2021, the Commission found that the proposed Transaction raised serious doubts as to its compatibility with the internal market and initiated proceedings pursuant to Article 6(1)(c) of the Merger Regulation (the ‘Article 6(1)(c) Decision’).

(3)

On 18 October 2021, the Commission adopted a Statement of Objections where it came to the preliminary view that it is likely, and there is even a strong probability, that the Transaction would significantly impede effective competition in a substantial part of the internal market (the ‘SO’).

(4)

On 24 November 2021, the Notifying Party submitted commitments to address the competition concerns identified by the Commission (the “Initial Commitments). Following the market test, the Notifying Party submitted a final set of commitments on 20 December 2021 (the ‘Final Commitments’).

(5)

The Decision was consulted with the Member States during the Advisory Committee on Concentrations on 14 January 2022, which provided a positive opinion. The Hearing Officer provided its favourable opinion on the proceedings in his report which was submitted on 17 January 2022.

2.   SUMMARY

(6)

The market investigation in Phase II revealed that the Transaction would significantly impede effective competition in the internal market with regard to the EEA-wide, if not worldwide, market for CRM software (or potential segment thereof).

(7)

In order to address the Commission’s competition concerns in the CRM software market, the Notifying Party submitted commitments. The Final Commitments address the Commission’s concerns.

(8)

Subject to full compliance with the conditions and obligations set out in the Final Commitments, the Transaction is declared compatible with the internal market and with the EEA Agreement and therefore, a clearance decision pursuant to Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement was adopted on 27 January 2022.

3.   THE RELEVANT MARKETS

(9)

The Decision identifies the following relevant markets: (a) CRM software, and the potential segment of customer service and support CRM software, both of which are potentially further segmented based on (i) mode of deployment, (ii) business customer size, and (iii) industry sector in which business customers are active. The Commission found that the Transaction would significantly impede effective competition in this market irrespective of such potential segmentation. The geographic scope is at least EEA-wide if not worldwide. (b) Business-to-consumer (‘B2C’) communication services, potentially further segmented to the market for asynchronous B2C communication services and the even narrower market for over-the-top (‘OTT’) B2C messaging services. The geographic scope is at least EEA-wide if not worldwide. (c) Online display advertising, potentially further segmented by (i) on-/off-social networks, (ii) video/non-video ads, and (iii) mobile/desktop (or possible combinations of these segments). The geographic scope is either national in scope or following linguistic borders within the EEA.

4.   COMPETITIVE ASSESSMENT

(10)

The Commission assessed the vertical effects of the Transaction as regards possible foreclosure from access to APIs of Meta (formerly Facebook)’s messaging channels upstream to the detriment of competing providers of CRM software downstream.

(11)

In addition, the Commission assessed the horizontal effects of the Transaction on databases (and data collection capabilities), that is Meta (formerly Facebook) as source of user data for possible use in online display advertising services. Otherwise, there are no horizontally affected markets arising from the Transaction.

(12)

Finally, the Commission assessed the conglomerate effects of the Transaction as regards leveraging of Meta (formerly Facebook)’s position in the online display advertising market into the CRM market.

4.1.   Vertical effects

4.1.1.   Foreclosure of access to APIs to Meta (formerly Facebook)’s messaging channels to the detriment of competing providers of CRM software (input foreclosure)

(13)

The Commission considers, based on the results of the market investigation, that Meta (formerly Facebook) would likely have the ability to engage in input foreclosure of its B2C messaging channels to competing providers of CRM software. First, API access to OTT B2C messaging channels is an important input for CRM software providers (and their business customers). Second, Meta (formerly Facebook) has market power within the B2C communications market (and potential segments thereof). Third, Meta (formerly Facebook) has the ability — both technically and contractually — to restrict or degrade API access to its messaging channels, including the ability to target such a foreclosure strategy at Kustomer’s close rivals.

(14)

Furthermore, based on the results of the market investigation, the Commission considers that the merged entity would likely have the incentive to engage in a targeted input foreclosure, by restricting or degrading API access to its B2C messaging channels for certain CRM software providers. First, the gains to the merged entity from a foreclosure strategy appear numerous, diverse and significant. Second, the losses to the merged entity from a foreclosure strategy can be limited to a sufficient degree by the merged entity, by targeting Kustomer’s close competitors and through further aggravating factors.

(15)

Lastly, the Commission considers that it is likely that a targeted input foreclosure strategy of restricting or degrading API access would have significant negative effects on competition in the market for CRM software (or potential segments), in particular in light of the importance of Meta (formerly Facebook)’s messaging channels as an input into CRM software. The impact may be particularly acute as potentially foreclosed firms play a sufficiently important role in the competitive process (especially as drivers of innovation). This reduction in competition may result in higher prices, lower quality and less innovation for business customers, which may in turn be passed on to consumers.

(16)

Therefore, in light of the results of the market investigation and of all the evidence available to it, the Commission has reached the conclusion that it is likely, and there is even a strong probability, that the Transaction would significantly impede effective competition as a result of vertical non-coordinated effects arising from vertical links between the upstream market for B2C communications services (and potential segments thereof) and the downstream market for CRM software (and potential segments thereof).

4.2.   Horizontal effects

4.2.1.   Raised barriers to entry and expansion as a result of data accumulation

(17)

While the Transaction does not give rise to any horizontally affected markets in a traditional sense, the Commission considers that, after the Transaction, the availability of Meta (formerly Facebook) of commercially exploitable data, which can be obtained from Kustomer’s activities, would be augmented.

(18)

The Commission has examined whether this accumulation of data might lead to raised barriers to entry and expansion on the market for online display advertising or any segment thereof.

(19)

Based on the approach adopted in Apple/Shazam (2) and Google/Fitbit (3) the Commission notes that there are certain regulatory limitations to prevent the illegal combination of datasets such as the applicable EU rules dealing with personal data protection, and most notably to Regulation (EU) 2016/679 of the European Parliament and of the Council (the ‘GDPR’) and the Union rules dealing with privacy and the protection of the confidentiality of communications, notably Directive 2002/58/EC of the European Parliament and of the Council (the ‘e-Privacy Directive’).

(20)

In relation to the market for online display advertising services, the Commission maintains its conclusion, as set out in the Article 6(1)(c) Decision, that Meta (formerly Facebook) holds at least significant market power and it considers that Meta (formerly Facebook) has already prior to the Transaction data collecting capabilities that provide a significant data advantage.

(21)

The Commission observes that the acquisition of Kustomer does not directly lead to an increased market share of Meta (formerly Facebook) on the market for online display advertising services or any segment thereof, as Kustomer itself is not active on this market or any of its segments. Moreover, Kustomer does not generally own / control the data that is stored on Kustomer’s systems. Any CRM provider would therefore need to obtain agreement / instruction from its business customers before it could use any of its data.

(22)

As regards potential data accumulation, the Commission considers that Meta (formerly Facebook) will have the ability to encourage business customers to agree to share data. In relation to its volume, value, variety and velocity, this data is highly relevant for improving Meta (formerly Facebook)’s targeting capabilities for the online display advertising services it provides. While Meta (formerly Facebook) might already have access to many if not most of the types of data that it might obtain through the acquisition of Kustomer, the Commission considers that it might still get access to certain new types of data.

(23)

The Commission considers it unlikely that the Transaction will lead to a significant increase in the barriers to entry and expansion on the market for online display advertising services or any segments thereof as the size of Kustomer would make a significant data increase unlikely, even taking into account Meta (formerly Facebook)’s growth targets. Moreover, the Commission concludes that competitors on the market for online display advertising services or any segment thereof would still have access to data from Kustomer’s business customers, or alternatively could get access to similar datasets through for example partnerships with other CRM software providers.

(24)

The Commission therefore considers that the Transaction would not significantly impede effective competition in respect of the supply of online display advertising services or any segments thereof.

4.3.   Conglomerate effects

4.3.1.   Leveraging of Meta (formerly Facebook)’s position in the online display advertising market into the CRM market

(25)

The Commission considers that the merged entity would not have the ability to engage in a bundling strategy of online display advertising services with CRM software. Despite Meta (formerly Facebook)’s significant market power in online display advertising, these products have different purchasing patterns. In this regard, the market investigation indicated CRM software services and online display advertising services tend to be purchased separately and likely at very different intervals, namely because their purchase involves separate and different procedures that are usually handled by different departments in the same business customer.

(26)

Since the Commission considers that Meta (formerly Facebook) would not have the ability to bundle online display advertising with CRM software, the question whether Meta (formerly Facebook) would have the incentive to engage in such a bundling strategy and whether it would have a detrimental effect on competition can be left open.

(27)

Therefore, the Commission considers the Transaction would not significantly impede effective competition as a result of bundling of online display advertising and CRM software, considering that Meta (formerly Facebook) would not have the ability to engage in such a strategy.

5.   UNDERTAKINGS SUBMITTED BY THE PARTIES

(28)

In order to remove the competition concerns arising from the Transaction, the Notifying Party submitted commitments in Phase II.

5.1.   Initial Commitments

(29)

The Initial Commitments, offered for a five-year duration from closing of the Transaction, comprised two main elements: (A) a public API access commitment, and (B) a core API functionality-parity commitment.

5.1.1.   The public API access commitment

(30)

By the public API access commitment, Meta (formerly Facebook) committed to maintain access of third party customer service and support CRM providers with sales in the EEA to its publicly available B2C messaging channel APIs (both existing and future ones), on a non-discriminatory basis, in particular with regard to (i) eligibility criteria, (ii) API access pricing, (iii) functionality or (iv) performance compared to other comparable users of those APIs.

5.1.2.   The core API functionality-parity commitment

(31)

By the core API functionality-parity commitment, Meta (formerly Facebook) committed to ensure that all core B2C messaging channel API functionalities (and any future improvements on such functionalities) made available to Kustomer would also be made available on an equivalent basis to third party customer service and support CRM providers, even if such functionalities were not covered by the public API access commitment. This Initial Commitments defined the following functionalities of the Messenger, Instagram Messaging and the WhatsApp Business Platforms as core B2C messaging channel API functionalities: sending/receiving (i) text-based messages, (ii) image attachments, and (iii) URL links.

5.2.   Final Commitments

(32)

Following the market test, the Notifying Party proposed Final Commitments which contained several significant improvements compared to the Initial Commitments, in particular the following.

(33)

First, the duration was increased from five to ten years.

(34)

Second, in relation to the public API access commitment, the Final Commitments included a clear commitment that Meta (formerly Facebook) would not charge third party customer service and support CRM providers for access to its publicly available B2C messaging channel APIs, which were accessible free of charge pre-Transaction, while reserving the right to charge commercially reasonable usage or volume-based fees.

(35)

Third, in relation to the core API functionality-parity commitment, the Final Commitments significantly expanded the list of core B2C messaging channel API functionalities, namely all B2C messaging channel API functionalities integrated into Kustomer’s CRM software pre-Transaction. The Final Commitments also introduced a mechanism to add new functionalities to the definition core B2C messaging channel API functionalities in the future, based on usage (including for testing) by a critical mass of the business users of Kustomer’s CRM tool.

(36)

Fourth, the Final Commitments could be relied on not only by third party CS CRM providers which already have sales in the EEA but also by new entrants provided they actively target customers in the EEA.

5.3.   Assessment of the undertakings submitted

(37)

The Commission considers that, in order to be acceptable, the proposed commitments must be capable of rendering a concentration compatible with the internal market as they prevent a significant impediment to effective competition in all relevant markets in which competition concerns were identified. In this case, the commitments needed to eliminate the competition concerns identified by the Commission, namely with respect to the EEA-wide, if not worldwide, downstream market for CRM software (or potential segments thereof).

(38)

The Commission concludes that the Final Commitments address the competition issues raised by the Transaction in their entirety. The Commission also concludes that the Final Commitments are capable of being implemented effectively within a short period of time.

6.   CONCLUSION

For the reasons mentioned above, in the Decision the Commission concluded that, subject to compliance with the commitments given by the Notifying Party, the Transaction would not significantly impede effective competition in the internal market or in a substantial part of it. Consequently, the Decision declares the concentration compatible with the internal market, in accordance with Articles 2(2) and Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement.

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(1)  OJ L 24, 29.1.2004, p. 1.

(2)  Commission decision of 6 September 2018 in case M.8788 – Apple/Shazam, recitals 225-235.

(3)  Commission decision of 17 December 2020 in case M.9660 – Google/Fitbit, recitals 403-413.