Facebook’s Spending Spree

Felix Salmon links Zuckerberg’s decision to acquire WhatsApp back to its “stroke-of-genius” decision to go public in 2011 and conquer the mobile market through acquisitions:

Zuckerberg knew, circa Facebook’s IPO, that his company was not good at mobile: it didn’t have the problem solved. And he knew that asking his existing corps of engineers to turn their attention to mobile would probably not work. But the good news was that he was now running a public company, with lots of cash, and a highly-valued acquisition currency in the form of Facebook stock. …

Facebook bought Instagram for $1 billion in 2012 not because the product was particularly great, but because the product was insanely popular. The same when he offered $3 billion for Snapchat. Sometimes, lightning strikes. And while Facebook is happy writing its own mobile apps in the hope that lightning will strike them, it knows better than to count on such a thing happening. If you want to be certain that hundreds of millions of people are using your mobile products, the only way to do that is to buy mobile products which hundreds of millions of people are using.

Peter Yared sees another rationale for Facebook buying WhatsApp. Tapping into people’s mobile contacts:

Facebook had already acquired the ability to have a unilateral, aspirational follow capability akin to Twitter with its Instagram acquisition. WhatsApp offers a social network of 450 million users that are intimately connected with each other by phone numbers. With this acquisition, Facebook now controls the intersection of all three kinds of social graphs: casual acquaintances, aspirational following, and intimate relationships. And that’s worth quite a premium.

Meanwhile, Timothy Lee worries that the culture of acquisition might stifle creativity:

It’s always hard to prove what might have been. But it’s helpful to imagine what the world would be like if Google had been acquired by Yahoo in 2002. Suppose that Yahoo had pledged to allow Google to operate independently from its parent company, continuing to build the world’s greatest search engine. There’s every reason to think that in this parallel universe, Google would dominate the search business as much as it does in our own.

But it’s hard to imagine Google’s founders being able to pursue the wide range of new products that the Mountain View giant has pursued over the last decade. Yahoo already had a mail client in 2004, so Yahoo probably would have vetoed the creation of Gmail. Similarly, Yahoo management would have been reluctant for Google to release Google Maps to compete with Yahoo Maps.