Why Big Acquistions Make No Sense for Facebook and Google
March 26. 2014 by Bojan
Facebook buying VR helmet manufacturer is a move of desperation. Google and Facebook are becoming scatter minded and don’t have a cohesive strategy for growth, so they are on a shopping spree to maintain their relevance.
This type of behavior comes from corporate greed and a desire to concentrate too much power in a single place. The only problem big tech problems are facing is the lack of mobility and lack of integrated efforts. “Allmighty Google” is trying to integrate all their platforms into a unified Google experience, however this doesn’t generate the end result they are aiming for. Google user experience still feels very scattered and all over the place. Same goes for Facebook.
Shareholders pressure sinking in
You can’t buy the future, and people who own the stakes in Facebook, Google and other web based giants are pushing high pressure on the executives to consistently bring in more endless growth. But at the end of the day you can only grow so much. This rapid expansion is making them vulnerable and drains their cash reserves, which could be utilized for sharpening their core competencies.
Whatsapp acquisition 1 month later
When you are running in a corporate environment there are high stakes at maintaining your high paying job, so you are not prone to risks, which is completely understandable from a personal perspective of an employee.
It’s been a month now since Facebook acquired Whatsapp. The very day when Facebook bought it, I re-downloaded the app (haven’t been using it for a long while previously). Since that day, there was not a single improvement to the application. Now you need to take in consideration that Whatsapp is relatively simple application with a small team that used to be very agile. Now when Facebook got them on board, updates stopped and feature improvement cycle halted.
Even Twitter app gets more updated than Whatsapp at this point. Even if the work is pushed towards Whatsapp database becoming more integrated with “Facebook mothership”, this leaves plenty of space for other innovators in IM field to challenge Whatsapp IM “dominance” with faster innovation cycles and better products.
This type of scenario will happen with all the acquisitions. We can see the similar story happening with Youtube, where resources are being directed towards the integration of Youtube into “Google Mothership” (Google+) instead of further developing the video streaming and improving the core competency.
When pre-made products are bought they need to integrate into a large already existing structure, which requires a lot of work, which effectively slows down once agile team, that was working without constrains. This puts the whole team into a big bureaucracy which creates a massive inefficiency in terms of waiting times. The proverb would say that at some point you get to many chefs in the kitchen.
All these fast paced acquisitions seem very rushed out, and not very organized. They don’t seem to fit into a bigger picture of a platform. Turns out in the end that you might get something that resembles a frankenstain.
Examples of acquisitions done right
Unlike Facebook and Google, one company seems to be doing these type of purchases very intelligently. Apple has small acquisitions of technologies that they are currently outsourcing for their products. Their recent acquisition of a biometric company for only 356 million dollars, was very thoughtful and timed. Soon after the acquisition we’ve seen the results in their flagship product. iPhone 5s flawlessly incorporates fingerprint scanning into the home button, leaving competitors crying and still 6 months after its launch there is not a single product that remotely resembles this feature.
My thoughts on investing in Facebook and Google
Investments in Google and Facebook should be constrained. The stock value is based a lot on emotion (more so for Facebook than for Google), and for the time being I would be hesitant. Investment into Apple is low return investment, because no matter what they do, traders see them as a low growth opportunity, while web based giants are trying very hard to maintain the illusion of the explosive growth, skyrocketing their prices in return.
But let’s be real, when you are that big, there is no space for explosive growth, even when you are trying to disrupt yourself by buying disruptive technologies.