'This happened very fast': How Giphy's founders fast-tracked the Facebook deal
Giphy investor John Borthwick on why the $400 million deal made sense and what this means for the company's other integrations.
John Borthwick was one of Giphy's first believers. The company, which Facebook just bought for a reported $400 million, launched in 2013 out of Betaworks, Borthwick's startup studio, with a plan to build a search engine for GIFs.
Seven years later, Giphy isn't just a company: It's the chief purveyor of an international language for what Borthwick calls the "post-literate media" era. Little wonder, then, that Facebook, which already owns the dominant communication channels for some 3 billion people around the world, would want to own that language, too.
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But what will regulators concerned with how Facebook has used acquisitions to build its dominance and shore up its relevance have to say about the deal? And what does it mean for Giphy's future on competing platforms?
Shortly after the news broke, Protocol spoke with Borthwick, one of Giphy's early investors and board members, about these issues — and if this is part of a COVID-19 buying spree for tech giants.
This interview has been edited and condensed for clarity.
When you first encountered Giphy, did you think it was a $400 million idea?
It struck me as a big opportunity.
We used to run programs at Betaworks called Hackers in Residence. We'd have a group of hackers who would come build companies. [Giphy founders] Alex Chung and Jace Cooke were working on a different company, and one weekend at the end of January 2013, they said to me, "Hey we just spent a weekend and stood up this thing called Giphy." It really happened very spontaneously.
The idea really grew out of a pre-Slack chat room called BetaChat, which all the team were on. They were sharing GIFs all the time. I often refer to Giphy in the early years as post-literate media. That was a reference to just how much media has shortened, 140 characters and all that stuff. But it's also a reference to how Giphy has made the world so visual.
We grabbed everybody on the team and said, forget everything else you're doing and do this. Then there was a Mashable article about it, and the site went down. Then we said, "We're going to add more people to this." Then we set it up as a company.
It's always hard at that early stage to see if something is going to be a persistently new phenomenon or whether it pivots to something else or whether it fails. But we certainly believed in it.
How did the Facebook deal come about?
Facebook has been a big partner for a long time. They have this base-level API integration into Instagram, Facebook, Messenger, WhatsApp, all the properties. That formed the basis for ongoing discussions. This really grew out of that. The Facebook guys in their blog post mentioned Giphy's traffic most days is about 50% from Facebook properties. That beckoned the discussion very quickly.
Did the Giphy team go to Facebook, or did Facebook approach Giphy with this deal?
I think it's the latter, but the discussions were ongoing between the two parties.
Since we're all working from home now, how did it happen? Did it all happen on Zoom?
This happened very fast. The team has spent a ton of time on Zoom just working through this. I do think the fact that the companies knew each other well, through the API partnership, which they had for like seven years, probably made this happen. I just wonder if there'd been no human connection [whether it would have]. There's a lot of trust that has to be built into a conversation. But if we worked together for seven years and another party said, "Can we finally do this?" It's easier. Not easier, but it's possible over video.
When you say very fast, how fast?
All this started in the post-COVID era. Probably end of March. Figuring something out like this in six weeks is fast. [Borthwick later clarified that conversations about the deal had been ongoing for months.]
Did they come to you to ask for advice on this, and what kind of advice did you offer?
Yes. Again I'll go back to the fact that the company has a partnership with them. They knew the Facebook people well. Giphy is going to be a standalone property within Facebook. It's going to operate next to or in partnership with Instagram, but it's going to be a standalone business. It's going to keep its brand and so on. There's obviously all the financial aspects to a deal like this, but there's also the operating aspect. I spent quite a bit of time with the team trying to figure out if this is the right fit and if this is what they want to do.
There's been so much reporting about how Instagram's founders and WhatsApp's founders wanted to retain their autonomy, and how, as they lost that autonomy, they left. Was that part of the discussion, and how did they grapple with that?
Generically, yes, but nothing specific to Instagram or WhatsApp and their founding team. They don't know the dynamics there.
How important was it that they remain autonomous and have control over their company even if they're giving up financial control?
I think that was pretty important to them.
What kind of guarantees did they seek or get?
That's really for them to speak to, not me. I think so much of this is about the people, and I think they have a very good relationship with the current team at Instagram and at Facebook. I would hope that wouldn't change. If all those people change it could become … Yeah. It's complicated.
What's your understanding of what Facebook wants with it?
I think that Facebook and a bunch of other companies recognize this is media within messaging. You see these platforms moving toward streaming services, video and so on. Giphy's turning out to be one of the most powerful promotion platforms for a lot of that video. You can see how that's strategic.
It's kind of like Quibi. I know Quibi's doing something different. But it's still short form, video-based. How can you create media that's really shareable and short form and can play anywhere? Oh wait, that's GIFs.
There's been some speculation that big companies are going to go on a buying spree because COVID-19 has lots of smaller companies in a bind. Some members of Congress are trying to prevent mergers and acquisitions right now. Is this an example of a COVID-19 purchase that wouldn't have happened before?
I don't think so. I think it made complete strategic sense beforehand. If you look at the Twitter feed, a whole bunch of people I saw today are already saying, "Oh wow, surprised this didn't happen earlier. That's so obvious, why didn't that happen a year ago?" You go back to that 50% traffic number. It was close to that a year ago.
Was Giphy in financial trouble?
No, Giphy has investors. Those investors have a bunch of money.
Were there any discussions or concerns about antitrust scrutiny from regulators?
I don't want to comment on that. I don't believe so. That makes no sense to me. It's a new category. What else could you think of in that category? People's personal photos? YouTube? Quibi? [laughs]
What does this mean for Giphy's integrations off of Facebook?
The answer is: I don't know. The plan certainly is not for any of that to change. [Note: In a blog post, Giphy's team said the integrations aren't going anywhere.] And if you use YouTube as an analogy, there are a lot of competitors who use YouTube on their services or webpages or embed YouTube videos. Sure, if you put YouTube videos on Twitter, then Google gets to see the traffic on that and the usage patterns on that.
I think GIFs are such a part of the language of the web today, and particularly a part of the language of messaging, that I think that's going to continue. I would expect it's going to be broadly available everywhere. And I would hope so.
But like Google and YouTube, Facebook would be able to see how people are using it on those platforms?
Yeah. Facebook is going to have that data now. [Borthwick later clarified that Facebook will get access to data about content and search, not private user information from third-party platforms.]
Was that a concern or part of the conversation in advance of the decision to sell?
Not that I was privy to, but I'm involved in a small subset of the conversations.
Was this a cash or stock deal?
No comment. The total amount is being reported. But no comment on the breakdown.
What's your reaction when you hear people pronounce it Jiffy?
I come down firmly on the side of Giphy. I once had David Cameron, when he was prime minister of England, come by Betaworks, and he looked at me with a straight face and said, "I'm so fascinated to see BEEtaworks."
So yeah. I come down hard on the side of Giphy.
UPDATE: After the publication of this story, Borthwick clarified that conversations about the deal had been ongoing for months, and that Facebook will get access to data about content and search, not private user information from third-party platforms. This story was updated on May 15, 2020.