Companies buying other companies is usually nothing to get excited about. Typically it’s a big incumbent player buying up a small company that’s managed to out-innovate them in a particular market segment so instead of losing market share the incumbent chooses to acquire them. Other times it’s done in order to funnel the customer base onto the core product that the incumbent is known for much like Google did with many of its acquisitions like Android. Still every so often a company will seemingly go out of its way to acquire another that honestly doesn’t seem to fit and we’re all left wondering what the hell they’re thinking. Facebook has done this today acquiring the virtual reality pioneer OculusVR.
Facebook and OculusVR could not be more different, one being the biggest social network in the world that’s got 1.23 billion active users per month and the other being a small company with only 50 employees focusing on developing virtual reality technology. Whilst the long winded PR speech from Zuckerberg seems to indicate that they’re somehow invested in making the Oculus Rift the new way of experiencing the world it’s clear that Facebook is going to be running it as it’s own little company, much like Instagram and WhatsApp before it. With the recent rumours of Facebook looking to purchase drone manufacturer Titan Aerospace, another company that doesn’t seem like a good fit for the Facebook brand, it begs the question: what’s Facebook’s plan here?
Most of the previous high profile acquisitions aligned directly with Facebook’s weaknesses, namely how badly they were doing in the mobile space. Instagram fit the bill perfectly in this regard as they managed to grow a massive mobile-only social network that rivalled Facebook’s own mobile client for usage. Whilst many questioned whether paying $1 billion for a company that hadn’t generated a single dollar was worth it for them it seems like Facebook got some value out of it as their mobile experience has improved drastically since then. WhatsApp seemed to be in a similar vein although the high cost of acquisition (even though this one had some revenue to back it up) makes it much more questionable than the Instagram purchase. Still for both of them it was filling in a gap that Facebook had, OculusVR doesn’t do that.
From my perspective it seems like Facebook is looking to diversify its portfolio and the only reason I can think of to justify that is their core business, the Facebook social network, is starting to suffer. I can’t really find any hard evidence to justify this but it does seem like the business community feels that Facebook is starting to lose its younger audience (teens specifically) to messenger apps. Acquiring WhatsApp goes some way to alleviate this but acquiring the most popular app every couple years isn’t a sustainable business model. Instead it looks like they might be looking to recreate the early Google environment, one that spawned multiple other lines of business that weren’t directly related to their core business.
This was definitely a successful model for Google however most of the products and acquisitions they made at a similar stage to Facebook were centred around directing people back to their core products (search and advertising). Most of the moonshot ideas, whilst showing great initial results, have yet to become actual lines of business for them with the two most notable ones, Glass and the self-driving car, still in the developmental or early adopter phase. Facebook’s acquisition of OculusVR doesn’t really fit into this paradigm however with OculusVR likely going to be the first to market with a proper virtual reality headset it might just be a large bet that this market segment will take off.
Honestly it’s hard to see what Facebook’s endgame is here, both for OculusVR and themselves as a company. I think Facebook will stay true to their word about keeping OculusVR independent but I have no clue how they’ll draw on the IP and talent their to better themselves. Suffice to say not everyone is of the same opinion and this is something that Facebook and OculusVR are going to have to manage carefully lest the years of goodwill they’ve built up be dashed in a single movement. I won’t go as far to say that I’m excited to see what these too will do together but I’ll definitely be watching with a keen interest.