Facebook’s strength is Mark Zuckerberg’s foresight

This article is also available in German.

To me, Facebook CEO Mark Zuckerberg is the most impressive person of the past 10 years. Stating that does not mean that I have no critical thoughts on Facebook. I do. But looking at achievements in both professional and private life, on personal growth and on having a vision and sticking to it in the short and long-term, I am not aware of any other contemporary public person with a similar track record.

There is one thing which I am especially amazed about when it comes to Zuckerberg: His bold acquisition decisions which are repeatedly characterized by the following pattern: First they seem insane, but over time, they look smarter and smarter.  

In 2012, Facebook bought Instagram for about 1$ billion, a deal which Zuckerberg reportedly did on his own, without involving bankers nor Facebook’s board. At that time, Instagram had less than 100 million active users, and 1$ billion was still considered a lot of money. The term “Unicorn” as a moniker for a highly valued tech company hadn’t even been coined yet. Nobody knew what use Facebook would have from Instagram. Maybe Zuckerberg didn’t either. But he saw Instagram’s growth rate and realized the potential threat for Facebook – especially in a scenario in which Google or another competing Internet giant would acquire Instagram and turn it into a fully-fledged, mobile-first Facebook rival. At that time, Facebook was still mainly Desktop-centric, making it rather vunerable. So the 27-year old Zuckerberg made his move.

In early 2014, he repeated this process, but on a much bigger scale, by acquiring WhatsApp. The popular messaging app had grown rapidly to more than 500 million active users. Again, Zuckerberg sensed the threat that WhatsApp could pose to Facebook in the mid- to long-term. At the risk of being labeled a lunatic, he made the decision to buy WhatsApp at all costs and to break the WhatsApp founder’s previously voiced pledge not to sell. At what ended up being a $22 billion acquisition, he got what he wanted. Zuckerberg himself promised to keep WhatsApp untouched even past-acquisition. Until today, he has kept this promise.

But Zuckerberg wasn’t only acting clever by bringing WhatsApp out of reach from other tech giants. More importantly, he developed the plan to turn Facebook’s until then neglected messaging feature into a separate messaging product. What might have sounded strange back then – why would Facebook want to operate two similar, non-revenue generating products? – looks like a stroke of genius today. WhatsApp has grown to more than 900 million active users. But Facebook Messenger, which was spun off of Facebook during summer 2014, today boasts more than 800 million active users. Clearly, Messenger is growing faster than WhatsApp. And that’s the real big deal: Zuckerberg eliminated WhatsApp as a threat and simultaneously managed to create its own internal and eventually very successful competitor, which now also comes with business models. It is hard to speculate about what will happen with WhatsApp once Messenger has gathered more active users. My guess is that at least off the record, Facebook management is in favour of phasing out WhatsApp eventually. But that obviously requires to move all activity happening on WhatsApp over to Messenger. If this is being considered too risky, the company might as well commit to keep WhatsApp running the way it is for foreseeable future. Sure, that costs money. But thanks to Facebook’s record breaking quarters and presumably large synergy effects, it shouldn’t create too much of a headache, either.

Just a month after the announcement to acquire WhatsApp, Facebook revealed another billion Dollar purchase: It bought the Virtual Reality startup Oculus VR for $2 billion. Again, people thought this was crazy. But almost 2 years later, the situation looks different: Virtual Reality has been singled out as one of the hottest trends in tech. Oculus Rift, the headset developed by Oculus, is about to be released in its final retail version, and despite lots of competition, it is considered to be the best VR headset on the market. Meanwhile, Google has just launched its own Virtual Reality unit. The company for sure feels the heat and must be pretty concerned about missing the boat.

While Facebook has not yet commercially benefited from the investment into Virtual Reality, it looks to be pretty well on track. Certainly everything can still go downhill from here. That applies to all the acquisitions I highlighted here. My song of praise for Zuckerberg’s foresight might end up sounding very silly in 5 years. Let’s say, if VR will fail (again) and the ownership of Instagram and WhatsApp ends up causing some kind of big trouble. On the other hand, even in such a scenario we will never know what would have happened if the company had decided against the acquisitions of these three companies. Zuckerberg for sure saved himself and his colleagues a lot of headache and energy in bringing those companies under Facebooks’ roof. Energy which they could channel into advancing the company’s business models.

One flaw on Zuckerberg’s otherwise outstanding acquisition track record is that he failed to buy Snapchat. However, he might get a second shot at it. The tech industry has entered a phase of consolidation. Lots of Unicorns see their valuations shrinking. Snapchat is one of them. Fear of losing their expected big ROI on Snapchat might motivate investors to push for an acquisition now instead of waiting for an exit at a later time. If Zuckerberg would get such an opportunity, he would take advantage. At least if he still thinks that having bought Snapchat for a presumably large sum would still look like a wise move in 2 years time.

======

Sign up for the weekly newsletter so you do not miss any posts. Or subscribe through other channels.