With widely anticipated U.S. federal antitrust lawsuits looming, it may seem like an odd time for Facebook to make another big acquisition. In Kustomer, however, Facebook is buying itself options. Here is what we know so far:

  • According to reports, Facebook has agreed to buy New York-based Kustomer for $1 billion. In a blog post announcing the acquisition, Dan Levy, Facebook VP of Ads and Business Products, and Matt Idema, COO, WhatsApp stated that, “Our goal with Kustomer is simple: to give businesses access to best-in-class tools that deliver excellent service and support.”

  • Kustomer, founded in 2015, bills itself as a customer service centered CRM platform. With the mantra of “customers not tickets”, the platform delivers service and support capabilities in a single timeline, centralizing a customer’s experience and engagement with a brand into a consolidated view.

  • Kustomer has an AI powered “Kustomer IQ” tool that embeds across the platform, managing everything from intelligent routing of service engagements to aiding in the management of repetitive tasks and deflection of easy, frequent, and repetitive questions.

  • Some of Kustomer’s key logos include Ring, Glovo, Glossier, Sweetgreen, Away, Rent the Runway, and UNTUCKit.

  • Kustomer CEO and Co-Founder Brad Birnbaum is a customer service and community chat veteran and no stranger to successful acquisitions as he previous co-founded Assistly, acquired by Salesforce, and co-founded eShare Technologies while still in college.

This acquisition gets interesting for Facebook on several different levels.

Kustomer adds customer service capabilities that round out Facebook Shops and Facebook Marketplace. Facebook Shops was introduced in May 2020, initially to empower small business customers to quickly transition from a brick-and-mortar only business to an e-commerce storefront with a built-in marketing and advertising channel. Shops’ full suite of solutions help get everything from inventory to merchandising and marketing under control and were rolled out to all businesses in August. Facebook has seen a steady increase in traffic and utilization of both Shops and its primarily Peer-to-Peer commerce offering, Marketplace, in the last three quarters, leading to a robust Q3 revenue report that exceeded expectations.

With Kustomer, Facebook can directly meet the needs of its small and medium business customers who do not already have digital customer service capabilities. That’s likely the majority of Facebook Shops customers that just recently made the move to e-commerce.

Omnichannel messaging capacity powered by AI and built for volume. For Facebook, the big win in Click to Shop has been frictionless commerce experiences where customers don’t have to leave Facebook to shop. Customers can view products and transact directly in chat messages in Facebook Messenger, Instagram, and WhatsApp. Kustomer’s service capabilities extend the scope of customer interactions directly within Facebook even further. This turns Facebook’s end to end social commerce vision into a reality.

Kustomer migrates to storing customer’s data on Facebook’s infrastructure, rapidly advancing its cloud hosting services. In the fine print of the acquisition announcement, Facebook notes that it “eventually expects to host Kustomer data on secure Facebook infrastructure. In doing so, Facebook will act as a service provider at the instruction of business customers.”

Given Facebook’s announcement in October 2020 that it would enter the cloud computing sector, it has a strong vested interest in generating more customer service messages through Facebook channels. Storing those messages—at a cost that will likely range from half a cent to 9 cents per message, according to a Reuters interview with WhatsApp’s Idema—generates an additional new revenue stream.

The Elephant in the Room

Facebook has a lousy reputation when it comes to the security and sanctity of customer data. The company’s failings include a track record of failing to secure customer accounts and miscalculating metrics used to calculate advertiser payments. Even in the October cloud storage offering announcement, Idema was quick to note that the messages being stored via the new hosting service are “stored elsewhere and not protected by the app’s end-to-end encryption.”

Despite Facebook’s desire to immediately claim the status of “service provider” for customer data solutions, this comes with significant risk. The increasingly white-hot focus of regulators from California’s CCPA/CRPA to the EU’s GDPR leaves far fewer corners to hide in as Facebook enters the CRM jungle.

What This Means for Kustomer and Its Customers

The intention, for now, appears to be to allow Kustomer to remain own entity under the Facebook umbrella of brands. That’s sensible given how important ongoing innovation will be to ensuring Kustomer remains a credible contender in a crowded and competitive market, as well as the importance of the many integrations other CRM platforms have to Facebook channels.

Since Kustomer’s capabilities concentrate on customer service interactions, integration with Facebook’s existing commerce and advertising capabilities should help it compete with broader, more developed CRM offerings. Most, if not all, of Kustomer’s existing customers already use Facebook channels, so the impact of the acquisition should be neutral to positive. We’ll be looking out for any new pricing and bundling options that might be introduced.

Bottom Line

In acquiring Kustomer, Facebook has bought itself two important assets: 1) additional revenue streams through expanded services to small and medium businesses and 2) a wider range of strategic options depending on what antitrust lawsuits might come its way. 

As with all things Facebook, the devil and his evil ways are ALWAYS in the details. There are significant upsides in customer service, support, and engagement that customers can achieve with a Facebook-Kustomer combination. The test will be if Facebook, flaws and all, is ready to take customer data as seriously as it will need to in the world of data service providers, or if it will still assume that its tall garden walls are thick enough to take on the new legal, compliance, and ethical burdens.