Why Facebook is spending billions on companies it does not need.

Article: http://www.forbes.com/sites/gordonkelly/2014/04/03/why-facebook-is-spending-billions-on-companies-it-doesnt-need/

Recently Facebook has purchased a virtual headset maker, Oculus Rift, for 2 Billion Dollars. This is only couple of weeks after Facebook spent a ludicrous amount of money on WhatsApp. And even if we go further back, we see a pattern when Facebook bought Instagram for 1 Billion Dollar. Now the question rises, why is Facebook buying them?

In other words, these deals have become more outlandish each time. Firstly, by buying Instagram, Facebook was destined to squash. For WhatsApp the story becomes stranger, as they spent a huge amount of dollars for a company with 52 staff members and while the messenger has seen incredible growth it remained half size of Facebook Messenger. Finally, spending 2 Billion dollars on a company from a completely different industry which didn’t released any commercial product yet, is something perplex.

According to the article, they present the purchase of WhatsApp as being a strategy to access to the next billion users. For the Oculus purchases, they argue that Facebook wants to enter the gaming sector and even offer a virtual reality networking experience. This sounds like having some strategy behind the acquisitions, however, when they purchased Instagram, it looked like they paid a billion dollars to improve its photo sharing.

This article argues that all these answers respond to the wrong “Why”.  The question is not what projects might Facebook dream up for its disconnected gaggle of overpriced companies, but rather why it has a gaggle of overpriced companies in the first place?

The author claims that Facebook does this because it is a conglomerate, meaning a combination of multiple corporations, often engaged in very different businesses, which fall under one corporate group, as Pfizer for example.

So my question to the class is: What do you think about Facebook’s strategy of their highly overpriced acquisitions? Do you agree with the author or do you have different ideas?

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5 thoughts on “Why Facebook is spending billions on companies it does not need.

  1. I think Facebook is afraid of falling behind in social media world. As the first leader of social media, Facebook introduced people to a new communication world. But Facebook didn’t perform very well on mobile platforms and later development. So Facebook tries its best to catch up in the race. Other than creating a new social media to compete with the existing popular ones, which is proved not quite successful, Facebook just acquired those companies, such as Instagram and WhatsApp. From my point of view, Facebook bought Oculus, as it wants to the leader in social media again. As mentioned by Facebook, one of their future plan is to offer virtual reality networking experience to users.

  2. The trends in social media are changing so rapidly that it would be too difficult for Facebook, let alone a smaller, less sophisticated social media company to adapt quickly enough to remain relevant. I think Facebook is diversifying as a means of hedging against the volatility in the industry.

  3. I think that Facebook’s goal is to remain a key player in social media. In order to do this, Facebook needs to continue to purchase the latest creative ideas, whether it is a social media application or a device that will allow people to connect with one another. In order to stay at the forefront, Facebook needs to remain creative and open to the next big idea. Oculus might be just that, so Facebook is taking the bet.

  4. Facebook is likely to continue dominate the social media, it is known that Facebook is more about content and has not yet fully figured out communication.As a result, combining text messaging and social networking, messaging apps provide a quick way for smartphone users to trade everything from brief texts to flirtatious pictures to YouTube clips — bypassing the need to pay wireless carriers for messaging services. And it helps Facebook tap teens who will eschew the mainstream social networks and prefer WhatsApp and rivals such as Line and WeChat, which have exploded in size as mobile messaging takes off.

  5. Like any conglomerate, Facebook is looking leverage its strength and resources in one area, in order to increase market share in another industry. The price tags they’re paying obviously suggests they see considerable long-term viability in their acquisitions.

    One line in the article stood out to me:

    “In an era where WhatsApp was able to grow to 400m users in three years it would also leave doors dangerously ajar for lightning fast rivals.”

    Because the internet has given all companies the potential to go global, and changes in the tech world happen so rapidly, perhaps a large part of Facebook’s focus going forward will be on fortifying gains made by the likes of WhatsApp or Instagram- I don’t want to suggest anti-competitive behavior, but just acknowledge it as an uber competitive environment- so as to prevent the power structure in the tech industry from continuing to change so rapidly. One thing they’re not short on is resources!

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