Why Facebook's Billion Dollar Bets Are Bad for Innovation
It was less than a decade ago that Mark Zuckerberg, a young, idealistic entrepreneur, turned down a $1 billion buyout offer from Yahoo, a tremendously powerful, but growing-stale technology giant. Zuckerberg turned it down not because of future earnings potential. In fact, Peter Thiel, one of Facebook's early investors, recently recalled Zuckerberg saying at the time, "I don't know what I could do with the money. I'd just start another social networking site. I kind of like the one I already have."
No, Zuckerberg declined Yahoo's offer because he knew that Facebook could never become what Facebook has become while under Yahoo's wing.
And yet, just eight years later, it seems Facebook may be turning into the very thing its founder once rejected: a still important technology company that's growing a bit long in the tooth and fighting to stay relevant by throwing stacks of money at whatever just might be the next big thing. The most recent example, of course, came on Tuesday, when Facebook announced a $2 billion acquisition of the virtual reality startup Oculus VR, but it's just the most recent in a string of Facebook's recent buyout offers, from it's failed $3 billion bid for Snapchat to its jaw-dropping $19 billion acquisition of WhatsApp.
With rare exception, these offers are too good for even the most devoted entrepreneur to pass up. Making money, after all, is one big reason why building a business is appealing. But while these massive acquisitions may be good for the entrepreneurs, the question remains, would Facebook have become Facebook under Yahoo's leadership? Would Netflix be what it is today had Blockbuster plucked it from Reed Hastings' hands?
When "the last big thing" acquires "the next big thing," is it ever good for innovation?
The Promise of the Deal
Facebook, for one, has said that it intends to develop Oculus's virtual reality technology, which is currently only used for immersive video games, into a new type of social platform. As Zuckerberg wrote in a Facebook post:
After games, we're going to make Oculus a platform for many other experiences. Imagine enjoying a court side seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face--just by putting on goggles in your home.
This is really a new communication platform. By feeling truly present, you can share unbounded spaces and experiences with the people in your life.
And in a Reddit post, Oculus's own 21-year-old founder Palmer Luckey wrote, "This deal gives us more freedom to make the right decisions, not less! Facebook has a good track record for letting companies operate independently post-acquisition, and they are going to do the same for us. Trust me on this, I would not have done the deal otherwise."
The Reality of Acquisitions
The problem is, in a typical acquisition, the acquirer uses the new toy to support the existing business, which tends to stymie innovation. It's new technology being stuffed inside an old business model. It's happened time and again--just take a look at traditional media outlets struggling to create something new online, while ground-up approaches such as Buzzfeed and Upworthy soar. Remember what happened to MySpace once News Corp. snapped it up?
That's one reason why Reddit is already littered with comments lamenting the news. "They are trying to buy up any tech startup that gets buzz so when Facebook becomes irrelevant (and it is) they have a big grab bag of backup plans and patents to pay the bills with," wrote one Redditor. "There is no rhyme or reason to the acquisitions other than if it looks cool buy it."
"A company [that] has a core business model of spying on people for advertisers buying a gaming hardware accessory company instills about as much confidence as the NSA installing your television," wrote another.
Meanwhile, Markus Persson, creator of the game Minecraft, has scrapped a deal to bring his game to the Oculus Rift headset. "Facebook is not a company of grass-roots tech enthusiasts. Facebook is not a game tech company. Facebook has a history of caring about building user numbers, and nothing but building user numbers," he wrote on his website. "People have made games for Facebook platforms before, and while it worked great for a while, they were stuck in a very unfortunate position when Facebook eventually changed the platform to better fit the social experience they were trying to build."
Of course, none of this means that Facebook can't do something cool with Oculus's technology. I, for one, would be very interested in strapping on one of those geeky-looking headsets if it meant I'd feel like I had a front row seat at, say, a Justin Timberlake concert (yeah, I said it). But the question still remains: how much cooler, how much more important, how much better could the technology be if it remained in the hands of its creators?