Technology is our friend: For 2bn, Facebook can buy pretty much anything - and it will make sense
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March 27, 2014

For 2bn, Facebook can buy pretty much anything - and it will make sense

In my personal environment there are split opinions about Facebook buying Oculus Rift. Most hardcore gamers hate it because they think Oculus will now not become a hardcore gaming device, although Zuckerberg announced that it would - for now at least - be focused on gaming.

Others just don’t believe in virtual reality as a „next big thing“ and mock the deal by saying Second Life would finally come back as an undead Zombie of Social Networks. Then again, there are others who compare the deal with Google buying Android back in 2005 or think that „a Facebook wall that you can actually physically experience“ had to be something exciting. Imagine your phone being able to produce Oculus-compatible Video, and you could invite your friends to experience the beach that you are actually visiting right now. Pretty cool?

I have no idea, to be honest. I don’t know enough about Oculus and ever since that„every company will be re-built around people“-vision from a few years ago somehow stopped, especially after the IPO, I am pretty insecure about the strategy of Facebook, the social network. Ok, they won’t let any competitor come up and eat their lunch, so they are buying Instagram and What’s App and anyone else who will have a large and especially very active and engaged user base in anything that involves user-to-user-communication. But that seems like survival, not necessarily strategy, and I am pretty sure there is a masterplan for both Facebook, the social network, as well as for Facebook, the Internet giant who will own a diverse variety of platforms, services and digital products. I just can’t see it right now and I am not ashamed to admit it. 

For one thing, even if the social network as such will suffer under the pressure of creating earnings and people may eventually move to other platforms (that may be owned by Facebook by then), I am very convinced that Facebook, the Internet giant, regardless of the social network, is here to stay. And they are not throwing away two billion dollars on some vaguely probable bet. They may be betting on products, remember Facebook Home (merely a year ago) and the Skype integration and other stuff that seemingly never really took off. But it came up during lunch today that Facebook’s story so far must have been a story of an incredible ability to say „Sorry, not interested“. 

Imagine, once you reach a quarter of a billion users, how many super-interesting opportunities and offers there must have been: Some manufacturer must have come to them and said: Hey, let’s build a phone. Let’s build a TV Set Top Box. Let’s make an MVNO. Let’s make a connected car operating system. Let’s start broadcasting video content. Let’s do this, let’s do that. And all of these opportunities might have been a few hundred million dollars strong or even more. Imagine what you can do with 250 million users at hand. But someone at Facebook must have said: „Sorry, not interested“ to all these people. They focused on growing their social network far beyond a billion users now. And still, they could do this, that and anything else. Their limited resource shouldn't be money, but (management) attention, and this should be the only currency with which you can measure the acquisition of Oculus: Could they have done something better instead? Because with over a billion users, anything is possible. Any acquisition of a company can make sense. So this time they didn't say "sorry, not interested" and the reason might be that there is a huge opportunity in leveraging the Oculus technology with the huge user base that they have.

Let me explain this from my personal history: 8, 9 years ago, when I worked for Deutsche Telekom in the pre-iPhone era, I quickly learned that we would not be able to produce world class web technology (at all or at least not quickly enough) to get any competitive edge over competitors in any field – not telco, not web, not music, games or media distribution, not web storage, not voice or data communication (these were the hot topics back then). And if we could, the probability of competitors copying it or building something better was pretty high. So we quickly understood that the only thing that would give us a competitive edge was to focus on the one thing others did not have: a huge amount of relationships. 30 million+ households, 13 million+ DSL subscribers, 10 million+ T-Online users, 10 million+ T-Mobile users etc. - in Germany alone. If we could have created products and offerings where a network effect – the number of people who participate create value for all other participants – would have come into play, this would have been something that may have locked out competition and would have been a real advantage. Emphasis on would. Look at ebay – the more people sell, the more people will be drawn to offers, and the more people are drawn to the offers, the more likely it is that you may want to sell your stuff on ebay. Look at credit cards: The more shops accept them, the more people are likely to use them, and the more people use them, the more likely it is to find shops who accept them etc. That's why there are 4 major credit card companies on a global level, not 2000. If you start thinking about this, with Deutsche Telekom's relationships at hand, the more you realize that the opportunities are endless. One reason that I left the company so quickly was that I didn’t seem to be able to convince the right people and create the right buy-in to make any of those concepts a reality. This had to do with my personal shortcomings, being in my early 30s back then, and with structures of a huge giant with 200k+ employees, or as we sometimes say (pun only works if you speak German): „I work for Deutsche Telekom, a big German concern“.

From a strategic standpoint, I still think that these network dynamics – make the number of people using your service a value in itself – are still the best way to reach a competitive advantage in most industries. Coming back to Facebook: With 1.2 billion active users in your social network, you can buy Lexus and it can make total sense. You can buy Comcast and it can make total sense, or buy Nintendo and it can make total sense. You can even buy the Washington Post and it can make total sense (what happened to this one, anyway?). As long as you manage to leverage the huge amount of people you have relationships to (or help them to maintain relationships among themselves).

So when Facebook decides to buy Oculus, I cannot imagine that this could turn out to be a huge mistake. It may be a bold move, but compared to the What's App acquisition (for some 16-19bn?), I cannot see how this could severely damage Facebook. Even if you do not integrate Oculus at all, it might be a valuable business of its own. But once you think of network dynamics and more than a billion users, and what user-to-user-communication may be like when a fraction of these people owns such a virtual reality device, the opportunities seem endless.