As if to thumb its nose at regulators readying imminent antitrust suits, Facebook snuck in an acquisition yesterday.
The media giant is buying Kustomer, a service that helps companies manage interactions with—you guessed it—customers. Imagine seeing an advertisement for an Alpaca wool coat on Instagram, sending its Peru-based retailer a DM, and then shifting the conversation to WhatsApp. Later, when you realize this essential wardrobe item doesn’t fit properly, you might try to return it by contacting the business through Facebook Messenger. Kustomer tracks all that and helps automate the business-to-customer correspondence.
Facebook’s deal, worth about $1 billion according to sources, may seem minor compared to others in the works. S&P Global just agreed to pay $44 billion to buy financial data provider IHS Markit in what is so far the biggest non-Chinese M&A move of the year. Salesforce is expected to lay out at least $20 billion, and likely more, for office chat app Slack after reporting earnings later today. What’s a piddling billion next to these titanic tech mega-mergers?
For one thing, Facebook is undertaking its purchase just days before federal and state authorities are planning to file antitrust lawsuits against the company, per the Wall Street Journal. Regulators are concerned about the tech giant’s dominance and its habit of squashing competition, frequently through M&A. (Remember that $1 billion buyout of a tiny startup called Instagram?)
The timing may be propitious though. Perhaps Facebook wishes to ink a deal before the lawsuits land and the company comes under even closer scrutiny. Or maybe it believes it better make moves now, before a possibly less-permissive—indeed, potentially trust-busting—Biden administration enters the White House. Maybe, too, in this particular case, the sheer explosion of online shopping this season—forecast to be up by a third year over year, to $189 billion by year-end, per Adobe Analytics—proved persuasive.
The acquisition is bold for another reason. It hints at how intent the company is on expanding its business model from the mainstay of advertising to a new growth area: e-commerce. This is an existential move for Facebook, which has seen advertising revenue affected by ad sponsor boycotts and the rise of rivals like Snapchat, Pinterest, and latest flavor-of-the-week TikTok.
Recent changes across Facebook’s stable of apps point the way ahead. Facebook, the stalwart app, beefed up its online marketplace amid the pandemic. Instagram added a whole new tab devoted to shopping last month. Just this year WhatsApp added shopping buttons, amped up its offerings for businesses, and even debuted in-app payments in India. Libra, the Facebook-led payments platform since renamed Diem, is said to be eyeing a 2021 launch.
Later today I’ll be interviewing Will Cathcart, head of WhatsApp, at Fortune’s Brainstorm Tech conference. We’ll be discussing all the changes and challenges facing Facebook as well as his messaging app’s pandemic-fueled growth. The event kicks off at 1 P.M. ET, and my session, which closes out the first day, starts at 3:15 P.M. ET. It’s just one of the many conversations my colleagues and I will be hosting about where the world is headed from the people who are building the future.
Robert Hackett
Twitter: @rhhackett
THREATS
Zoom nom nom. Zoom's earnings report blew out Wall Street analyst expectations. The teleconferencing darling posted a lucky $777 million in revenue, a figure that quadrupled, for the second consecutive quarter, year over year. (Analysts predicted $694 million in revenue.) Even so, investors had hoped for more; Zoom's share price opened nearly 13% down compared to yesterday. People are never content.
Git 'er done. Zoom isn't the only company whose use has surged during the pandemic. Gitlab, a private startup that competes with Microsoft's Github as a code-sharing repository, is getting a boost. The company is letting some employees sell shares at a price that would value the company at $6 billion, CNBC reports. That's more than double the $2.7 billion private market valuation Gitlab earned in a September 2019 venture capital fundraising round. Word on the Street is the firm could go public next year.
The Elysee levy. Apple and Amazon were notable absences from a list of Big Tech executives—including Google, Microsoft, and Facebook—who signed French President Emmanuel Macron's "tech for good" call. A big sticking point: The initiative includes a commitment that companies agree to pay a fair share of taxes. Southeast Asian governments are seeking a cut of the action though digital business taxes too. Meanwhile, Facebook, one of the French pledge-signers, says it will pay UK media outlets millions of pounds per year to license their articles.
Tasting forbidden fruit. Apple is among the companies, including Nike and Coca-Cola, lobbying to limit provisions in a bill that would ban imported goods made with forced labor in China's Xinjiang region, the New York Times reports. The bill has broad government support across the aisle and is expected to be signed into law. Meanwhile, Apple is hiring Josh Elman, a former investor at Greylock Partners with a knack for spotting hits like Discord, to work on the App Store. Perhaps the former head of product at investing app Robinhood will help smooth over relationships with developers.
Market movers. Salesforce is expected to announce its rumored-to-be-pending acquisition of Slack after reporting earnings at market close today, CNBC reports. Airbnb released a filing this morning that says it plans to price its IPO shares between $44 and $50, a range that would grant the company a market valuation as high as $35 billion. Electric vehicle startup Nikola's stock crashed after GM turned tail on a planned investment and co-development deal. And, in the past 24 hours, Bitcoin hit an all-time high just under $20,000, then promptly crashed to $18,360, before rebounding to $19,300 (where it is trading as I write this morning).
We'll always remember you, Star Wars jeans guy.
ACCESS GRANTED
As noted above, Google's DeepMind A.I. division figured out something spectacular: How to determine the complicated folding structure of proteins, an achievement with big implications for medicine. Here's Fortune's own Jeremy Kahn with the inside track on how a game-playing computer system sliced open this Gordian Knot of computational biology.
By then, [Demis Hassabis] had already embarked on the crusade that would lead him to co-found DeepMind in 2010: the creation of artificial general intelligence—software capable of learning to perform many disparate tasks as well or better than people. DeepMind’s lofty goal, Hassabis once said, was “to solve intelligence, and then use it to solve everything else.” Hassabis already had an inkling that protein folding just might be one of those first “everything elses.”
FORTUNE RECON
Cyber Monday sales could hit a record $12.7 billion. Can retailers handle the surge? By Phil Wahba
Meet Rumble, the YouTube rival that’s popular with conservatives by Danielle Abril
Why today’s GM news is devastating for Nikola by David Z. Morris
DeepMind’s new protein-folding A.I. is already helping in the fight against COVID-19 by Jeremy Kahn
Know when to fold ’em: How a company best known for playing games used A.I. to solve one of biology’s greatest mysteries by Jeremy Kahn
FCC chief who ended net neutrality says he’ll quit on Jan. 20 by Todd Shields
How water-resistant is the iPhone? Italian watchdog says Apple’s claims are overblown by David Meyer
(Some of these stories require a subscription to access.Thank you for supporting our journalism.)
ONE MORE THING
As Aaron wrote about yesterday, the Computer Fraud and Abuse Act—America's controversial, Reagan-era anti-hacking law—is finally getting its day in court. The legal eagles of the U.S. Supreme Court heard oral arguments yesterday. It's unclear which way the court will rule, but it appears some Justices are at least sympathetic to the idea that the law needs reining in. Justice Neil Gorsuch said some readings of the law, including the government's own, risked “making a federal criminal of us all."
