Facebook hunger for acquisitions

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It is obvious already that FB is a giant cash cow sitting on more than 1 Billion people information and monetizing on it. It is a big advertising company like Google, but on a social network version instead of a search engine. Similarly to Google, and other tech giants, it is using its revenue stream to consolidate its leadership through acquisition, but following different strategies case by case that we are going to analyze.

As a latecomer in the tech industry FB has been really cautious with acquisitions (till Instagram in April 2012), mainly because the first purpose was to build a huge customer base, prior to generating any profit. Until today FB has acquired 41 companies, till Instagram the acquisitions were niche startup companies providing an added capability to FB (mainly in the technology side), but not directly to the end user. FB was the one building the added value to the end user through its integration into FB.

Let’s take a look to the different strategies:

  • Technology and platforms: mainly all the small acquisitions of startups providing a technology that FB was not able to create and that will allow FB to enrich the customer  experience through new services in FB. Almost 90% of acquisition were performed following this pattern, for an instance Face.com (allowing FB to automatically recognize who is who in your pictures); Gowalla (location based service); Hot Potato (status updates, check ins.). These acquisitions are “low budget” ones (less than 100 M. $).
  • Expand reach into mobile world: one of the big issues of FB (back in 2009-2010) was the low penetration of FB on Smartphone users, people started on a PC screen to use FB and the experience they were getting in their Smartphone was not even close to this one they were used to. This was a big issue for FB as the World population was going mobile and it was clear that Mobile was the place to be. Moreover, the Smartphone screen made difficult to publish advertising in FB without compromising customer experience. As a result, FB acquire some technology companies to help them cope with this challenge (as in prior bullet), and made the biggest acquisition at that time: Instagram (1 B. $). Instagram was the joy of the crown in the mobile industry, their users are young people, connected and love to post about their lives using mobile.
  • Buy or die: maybe this is too dramatic…when FB realizes that somebody is getting too big and it is a real threat in its ecosystem, it is a kill or die thing. Other competitors in the domain (Google, Yahoo, Amazon..) could be buying it and be a serious threat to the company. This is what happened with Whatsapp, so…FB is not growing crazily lately but Whatsapp it is and in the mobile environment. Taking into account the business model in Whatsapp (merely 1 $ a year/user), there is no way to justify the price tag on this deal ( 19 B $, biggest one in tech history), but FB is not just thinking on Whatsapp as it is right now…he wants more and I believe the time for Whatsapp to expand into other communication areas (voice, video, etc..) will come sooner than later (Whatsapps MVNO In Germany in 2015). Time will tell…but Telcos are already shaking.

All these acquisitions are serving a single purpose, more and more info in a single ecosystem (more rich information about individuals), with the main objective to be able to sell much more targeted campaigns and advertising, leading to increased revenues in time despite the fact of a shrinking number of subscribers in the platform.

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