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Is Facebook just a big venture capitalist?

Sabri Ben-Achour Mar 26, 2014

Is Facebook just a big venture capitalist?

Sabri Ben-Achour Mar 26, 2014

Facebook is buying Oculus VR for $2 billion. A Virtual Reality company.  Really? 

Yes. Not because Facebook thinks people are thirsting to experience their status updates in a more ‘realistic way’, but because it thinks Virtual Reality is going to be the next big thing. 

 “They’re really trying to become a  holding company if you will,” explains David Rogers at Columbia’s School of Business. “They want to own a key stake in all the major platforms for social connection.”

That’s “all fine well and good,” says David Nelson, chief strategist at Belpointe Asset Management. Fine, if Facebook wants to treat its acquisitions like a venture capitalist. But Nelson – like the many investors who sold shares of Facebook on the news – wanted Facebook to give him hard numbers:  future earnings, monetization, anything with a $ sign at the end of it. 

“They’re not able to do that. They’re just saying trust us this is going to be amazing,” he says. “And we’re looking five six seven even ten years out for the return, I think that’s too far. At least for me. I sold my stock after the what’s app deal.

This not uncommon reaction may involve a difference in culture between Silicon Valley and Wall Street as far as innovation is concerned.  Victor Hwang, CEO of T2VentureCreations, a Silicon Valley Venture firm puts it this way:  “On Wall Street, the biggest fear is missing the numbers, not making earnings.  In Silicon Valley, in the startup world, the biggest fear is obsolescence.  Because obsolence is the equivalent of death.” 

He says looking only at a future earnings stream misses the fact that in an environment where industries are routinely disrupted and transformed, the foundations of earnings streams are vulnerable.  There are existential costs to not innovating – something that can happen to any company, no matter how dazzling it appears at the moment. 

“It wasn’t that long ago that Microsoft was the cool company, and now people think of it as a dinosaur,” says Hwang.  Even Google is losing its sheen, he says.  “I think Mark Zuckerberg asks himself every morning: how do we not become a dinosaur?” 

All of that said, an investment of two billion dollars is no small gamble.  Unfortunately, hindsight is the only way to see if it pays off.  As Hwang put it, Facebook’s gamble with Oculus is “either extremely visionary or extremely foolhardy, and that’s the thing about innovation – you won’t know until later.”

Facebook’s VC shopping list 

by Tobin Low

With a host of high profile acquisitions in recent years, Facebook has become that friend who has to own the coolest, most expensive thing before anyone else. With multibillion dollar purchases of Instagram, WhatsApp, and now Oculus VR, the social media giant has been putting its money towards buying the newest “it” thing. That doesn’t mean they purchase only sure-bets, though. Facebook has acquired a lot of companies over the years, some of which offer very similar services and use very similar technologies to the big name companies already in their shopping cart. Always a bridesmaid, sighed MySpace. 

Here are a few other companies that Facebook has purchased over the years.

Beluga – Group Messaging

Long before the purchase of WhatsApp made your jaw drop with its $19 billion price tag, Facebook acquired Beluga – another mobile messaging service – in May of 2011. Unlike previous acquisitions where they essentially bought the talent but not necessarily the technology, Facebook stated that they wanted to make use of Beluga’s product in addition to adding its designers to their team. Later that year, Beluga was shut down after its design was integrated into Facebook Messenger.

Lightbox – Photo Sharing App

Even after its $1 billion purchase of Instagram, Facebook purchased another mobile photo-sharing service called Lightbox. The app allowed android users to filter photographs and then share them to social media. Sound familiar? Though the Lightbox team and Facebook alike made it clear that the aquisition was more about working on engaging Facebook mobile users as opposed to maintaining Lightbox as a separate entity. The app was shut down shortly after the acquisition.

American Farm Bureau Federation – FB.com

This one’s a little strange. Back in February of 2011, Facebook purchased the “FB.com” domain name from the American Farm Bureau Federation so that internal emails could be anchored to Facebook.com. What wasn’t made immediately clear was that the purchase price was $8.5 million dollars. That little fun fact was revealed by a not so subtle announcement at the Farm Bureau’s annual meeting in Atlanta.

*CORRECTION: Victor Hwang’s characterization of Microsoft was transcribed incorrectly. The text has been corrected to reflect his statements accurately. 

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