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The European Commission has opened an in-depth investigation to assess the proposed acquisition of Kustomer by Facebook under the EU Merger Regulation. The Commission is concerned that the proposed transaction would reduce competition in the market for the supply of Customer Relationship Management (CRM) software.

The Commission is also concerned that the proposed transaction would further strengthen Facebook's market position in the online display advertising market by increasing the already significant amount of data available to Facebook for personalisation of the ads it displays.

Executive Vice-President Margrethe Vestager, responsible for competition policy, yesterday said:

“It is important to closely review potentially problematic acquisitions by companies that are already dominant in certain markets. This applies in particular to the digital sector, where Facebook enjoys a leading position in both online display advertising and in over-the-top messaging channels, such as WhatsApp, Messenger or Instagram. Our investigation aims to ensure that the transaction will not harm businesses or consumers, and that any data that Facebook gets access to does not distort competition.”

Facebook is a social network, messaging service, and online ads service provider. Facebook's messaging channels include WhatsApp, Messenger and Instagram. Kustomer is a CRM software provider offering businesses to manage communications with consumers across different channels (by phone, email, SMS, WhatsApp, Messenger or Instagram etc.) in a single tool.

The Commission's preliminary competition concerns

Following its preliminary investigation, the Commission has concerns about the impact of the transaction:

1. On a broader market for the supply of CRM software and a narrower market for the supply of customer service and support CRM software.

In particular, the Commission is concerned that, as a result of its combination with Kustomer, Facebook may foreclose access to its business-to-consumer (“B2C”) over-the-top (“OTT”) messaging channels, namely WhatsApp, Messenger or Instagram. These channels account for a large portion of the B2C OTT messaging market, which is an important input for the supply of CRM software services. The preliminary investigation suggests that Facebook may have the ability, as well as a potential economic incentive, to engage in foreclosure strategies vis-à-vis Kustomer's rivals, such as preventing these companies from using Facebook's messaging channels or degrading access to these channels. Such foreclosure strategies could reduce competition in the market for the supply of CRM software and the market for the supply of customer service and support CRM software, leading to higher prices, lower quality and less innovation for business customers, which may in turn be passed on to consumers.

2. On the markets for the supply of online display advertising services, or segments thereof, where the Commission, at this stage of the investigation, considers that Facebook may hold a dominant market position in several Member States.

By acquiring Kustomer, Facebook could more easily obtain data from businesses making use of Kustomer's CRM software, including:

1. “customer transaction data” which includes customer data such as on gender, order and purchase history, and
2. “other event data”, such as customer's website views, adds to wishlist and store visits. The data that businesses store in Kustomer's CRM software and which they may share with Facebook appears to provide an important advantage in the online display advertising market. By increasing the data advantage of Facebook in its ability to better personalise and target the ads it provides, it would be more difficult for rivals to match Facebook's online advertising services. Thus, the transaction would raise barriers to entry and expansion for Facebook's competitors for these services, to the ultimate detriment of advertisers and publishers that would face higher prices and have less choice. The Commission will now carry out an in-depth investigation into the effects of the transaction to determine whether its initial competition concerns are confirmed.

The Commission closely cooperated with competition authorities around the world during the initial investigation, and will continue such cooperation during the in-depth investigation. The Commission is also in close contact with the competition authorities of the Member States.

The proposed transaction was notified to the Commission on 25 June 2021. The Commission now has 90 working days, until 22 December 2021, to take a decision. The opening of an in-depth inquiry does not prejudge the final result of the investigation.

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