Facebook to Acquire Kustomer for $1 billion

Acquisition overview

Facebook plans to acquire Kustomer, a start-up company that specialises in customer-service platforms for just over $1bn, reports The Wall Street Journal. This acquisition follows from Facebook’s efforts to advertise and sell goods through their social media network. This would enable them to move into ‘social commerce’ and access ‘more of the land along the pathway consumers take, in spending more with businesses’. The goal of acquiring Kustomer is enabling businesses to effectively manage all customer interactions across channels, allowing them to deliver improved service and support. The transaction will be subject to regulatory approval and financial terms of the deal are yet to be disclosed. Kustomer was advised on the deal by JP Morgan Chase & Co.

Facebook Overview

Facebook is an American company that offers online social networking services, founded in 2004 by Mark Zuckerberg, amongst other students at Harvard University. Since then, Facebook has become the largest social network in the world with over 2.7bn monthly active users, as of the second quarter of 2020. Facebook gained its popularity through its online transparency, allowing users to form personal relationships, share ideas and more recently, helping businesses to market products to consumers, using the peer-to-peer connectivity. Facebook has become a powerful tool for political movements, e-commerce and software development.

Kustomer Overview

The New-York based Kustomer was founded in 2015, and has raised approximately $173m, according to Crunchbase. Kustomer is an omnichannel CRM platform that helps businesses automate repetitive tasks so that employees can improve the quality of consumer interactions and maximise time. This works by bringing customer conversations from various channels together into a single screen. Kustomer helps businesses serve customers better and ‘deliver convenient, informative experiences that build loyalty’.

Industry Overview

Despite the ongoing antitrust cases against Google and Facebook (two of the biggest companies in this sector), from the Department of Justice and Federal Trade Commission, respectively, the tech sector has been experiencing great success. Share price gains this large in the tech IPOs have not been seen since the dotcom boom of 1999, with the second half of 2020 increasing these valuations. Digitalisation, continued monetary and fiscal stimulus have boosted the tech sector.

The Covid-19 pandemic has accelerated the move to digitalisation. With the majority of physical stores shut or operating under stricter regulation, there has been a rise in the use of websites and e-commerce, with an estimated 17.2 million British consumers expected to make changes to the way they shop, moving to online shopping permanently, according to a report by Alvarez & Marsal and Retail Economics. This long-term shift in shopping habits displays the importance of a robust digital presence.

Integrated e-commerce solutions are prevalent. More and more platforms are now using social media to promote their businesses and products. Following the launch of Facebook shops in May, where businesses can create online stores via Facebook and Instagram, TikTok proposed plans to launch a partnership with Teespring. This will allow creators to sell merchandise through the app including apparel, home decor and bags alongside a variety of other accessories. There is a growing market for using social media as part of a business model, past the traditional advertising. Thus, one can see that the social networking industry is evolving and diversifying in its range of services to satisfy the push to digitalisation

As businesses adjust to an evolving digital environment, they must adapt to the move to text and messaging rather than email, post and phone. As a result, companies are spending a greater percentage of their capital investments on intangible assets, including software, patents and other forms of intellectual property. This symbolises the power of the technopoly, as firms increasingly prioritise efficiency and ease of mobility.

However, tougher regulations for digital gatekeepers have been introduced across Europe and the UK has created a special digital markets unit to regulate platforms. This dedicated unit will introduce and enforce a new competition regime for tech giants, giving consumers more choice and control over their data. This has caused uncertainty in the industry, as firms are increasingly restricted.

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- Diversification & Scale Opportunities

- Industry Overview

- Cost Synergies

- Long term prospects

Written by Lea Ghandour