Mark Zuckerberg has been on quite the shopping spree lately. In the past two months alone he has spent $21 billion on the acquisition of two companies, WhatsApp and Oculus VR. As Zuckerberg continues adding toys to his social-media collection, he should be careful not to step on the wrong toes. The Oculus VR acquisition may have only been a tenth the size of the WhatsApp deal, but it may have a much greater effect on the perception of Facebook among core users.
Buying Mode
One area where Zuckerberg deserves praise is his understanding of how to use the through-the-roof valuation of Facebook Inc. (NASDAQ:FB) to put the pedal to the floor and get in buying mode. The modern-day Facebook is often compared to the Yahoo! Inc. (NASDAQ:YHOO) empire when it was at the height of its power. Like Yahoo! was more than 10 years ago, the social media empire of Facebook is under attack from pesky smaller and more nimble companies who are attempting to unbundle the social network by attacking individual niches with more narrowly refined products. To give a few examples of what I’m talking about, SnapChat is attacking Facebook’s photo sharing subsidiary Instagram, LinkedIn Corporation (NYSE:LNKD) has seemingly cornered the social network for the professional niche and Twitter Inc. (NYSE:TWTR) is redefining how we communicate socially across the web and interact with our favorite programs, personalities, friends and more.
The following graph from ChartIQ Visual Earnings shows how Yahoo! shares once traded at $125 in 1999 but faded away in 2000. Yahoo! now sells for $36.50 per share with the majority of that valuation coming from Yahoo!’s stake in Chinese e-commerce site Alibaba, which is expected to IPO this summer leaving Yahoo! with a mountain of cash and an interesting dilemma about which direction to go.
Yahoo!'s Bid
In a story that has since become canon in the saga of Facebook, Zuckerberg turned down a nearly $1 billion bid from Yahoo! for Facebook in 1996, but they lowered their bid at the last minute allowing Zuckerberg to back out of the deal, about which he was reluctant to begin with. He had told his venture-capital backers that if anyone ever offered $1 billion for the company he would take it. On the day that the Facebook CEO will probably never forget, he learned an important lesson. It isn’t just good enough to be on top, you’ve got keep firing away and expanding your business because if your growth becomes flat, it could give the next Facebook the opportunity eat your lunch.
And the beauty of this story is that Zuckerberg seems to have learned from the mistakes made by the company that almost acquired his precious Facebook. He seems to have adopted the philosophy that it’s better to go down swinging than become stagnant and watch others pass you by. It’s better to burn out than fade away. Of course, the Facebook CEO doesn’t want to go down anytime soon and he’s doing all he can to build upon his social media dynasty. As Zuckerberg continues to expand the company’s sources of revenue, he should tread carefully not to alienate core users of the Facebook product.
Donor Outrage
Facebook’s acquisition of Oculus VR, the makers of the Oculus Rift virtual reality console, has gotten Oculus VR’s initial Kickstarter donors in quite a tissy. Nearly 9,500 backers donated over $2.5 million dollars to Oculus and many of them are outraged by the deal. They feel betrayed because they thought they were donating toward the next generation of virtual reality video game consoles but Facebook’s $2 billion swoop has brought them back to the real world. Kickstarter backers are entitled to no extra perks from the buyout, some received as little as a signed t-shirt and poster for a donation of up to $275.
The problem for Facebook is that much of the backlash came in the form of social media and internet forums such as Reddit.com. Donors in Oculus VR are likely to be the types that spent a lot of time on the internet and are communicating their disgust through social media, they are Facebook’s core audience. Some have pledged to cancel their accounts and never use what they see as the evil empire of Facebook ever again. While these detractors are making a lot of noise, earnings forecasts for Facebook are telling the exact opposite story.
Today registered members of the Estimize.com community who follow Facebook on their Watchlist received a notification that the Wall Street revenue consensus for Facebook has shifted significantly upwards.