Analysts around the world have kept a close eye on Facebook, trying to guess what next strategic step Mark and Co will take. Acquisition of other companies has formed an essential part of Facebook’s strategic development.
Despite ongoing legal challenges and scandals (Cambridge Analytica harvesting data from millions of users being the biggest one), Facebook has managed to stay on top of the game. As of 4th of May 2020, the platform enjoys having over 2.45 billion monthly active users, and that is not including its sister platform – Instagram, with 1 billion monthly users in 2020. The latter was acquired by Facebook in 2012, and proved to be one of the greatest strategic steps for Mark Zuckerberg.
While Facebook has seen a decline and almost an exodus at one point from younger audience post 2018, Instagram has been going strong supporting its struggling “parent”. However, Instagram has not been the only acquisition by Zuckerberg – far from it. In total, as of July 2020, Facebook has acquired 85 different companies.
Some acquisitions have proved less successful than others (ahem, Oculus), however they are a great indication of the direction in which Facebook might be looking to grow in the next couple of years.
Here is a look at Facebook’s four latest acquisitions as of July 2020.
- Founded in 2007 in Foster City, U.S.
- First created a number of titles for PC, Nintendo & Wii.
- Since 2016 begins work on VR games in conjunction with Oculus Studios.
- In October 2019 releases its the first VR game “Asgard’s Wrath”, designed to be played on a VR headset Oculus Rift.
- Acquired by Facebook on 25th of February 2020 (price unknown).
This is quite an obvious one. Facebook has been trying to “make good” on their acquisition of Oculus VR in 2014. While the ROI has been fairly average here, the company seems keen to continue paving the way for a series of new VR and AR games and technologies.
Sanzaru’s title “Asgard’s Wrath” was one of the most successful VR games in 2019, and yet even with sales of more than $1mln , there is still no indication that the project as a whole was profitable (considering that over 90 developers worked on the game). It is clear that it was not acquired for its revenue, but for the ability to create a break-through title – meaning in the future, this could draw in more users à meaning higher exposure for Facebook, Inc. And so the Battle for users’ attention continues.
There can be another reason for the above acquisition. As of Facebook’s Annual and Quarterly reports, in 2019 the company’s main revenue was from Advertising (no shock here), at roughly $69.6bn, with other sales accounting for just $1bn, which however rose 26% year-over-year compared to 2018 (see Figure 1).
Based on the above, and recent problems that Facebook has had with advertisers, it is no wonder Mr. Zuckerberg is trying to diversify the company’s portfolio further and increase that “other” revenue column.
eSports and VR have long been the new-found trends by mainstream media, and Facebook would want anything that helps it:
a) stay relevant;
b) bring in THE money.
- Founded in 2013 in New York City, U.S.
- Originally intended to be a search engine to find GIFs.
- No revenue generated to date, but has deals with advertisers, music and media producers lined up.
- Acquired by Facebook in May 2020 for a reported $400mln.
What? A company that makes no money and just burns venture dollars? What a waste!
Well, not according to Facebook. In 2015, the Facebook acquisition team already recognized Giphy’s great potential in terms of its great customer retention potential and tried to acquire a company…but the offer was too low. Giphy instead went on to raise another $17mln at an $80mln valuation. In 2016, they would raise another round of $55mln at a $300mln valuation, until finally in 2020 they were bought by Mark and Co.
If anyone understands the attention game, it’s the Facebook team. With GIPHs becoming almost essential to our everyday interactions over various messengers and apps, Giphy is well positioned to be that go-to source for memes/cue cat animations (hello late 2000’s and YouTube).
Oh yes, and data. Lots of it from millions of users. AND Facebook’s competitors. Hello, senators, are you reading this?
Indeed, Los Angeles Times makes a good point in their article from May 2020 (pre the July hearings): “Facebook acquired Onavo, an Israeli company that made a VPN, a tool to keep online activity private. Just not from Facebook, which analyzed the data to see which apps were getting popular, and then came up with ways to compete with or purchase them”.
So the result of this acquisition?
a) More user data.
b) Better user retention.
c) Competitive advantage.
- Founded in 2013 in Sweden.
- A street-view images/mapping service.
- Raised just above $25mln over 6 years.
- Bought by Facebook in June 2020.
Ah yes, maps. What does this one have to do with Facebook? Some may think that the key word here is “images” – i.e. it has something to do with Instagram. And those people are not too far from the truth. Any time someone checks where a place tagged on Instagram is located, they are taken away from one of Mark’s platforms. And Mark. Does. Not. Like. That.
So next logical step? Have a service that competes with the likes of Google maps. Create your own ultimate ecosystem – American version of all-in-one Chinese WeChat is no doubt on Zuckerberg’s mind at all times.
Once you have this service, you can follow the user’s journey from start to finish. Example: user logs into Facebook à user sees a picture from someone’s Instagram and clicks on it à goes to Instagram à scrolls through a couple more photos and videos and finds a tasty-looking restaurant that someone took a picture of à clicked on the location à BAM! Mapillary at your service, here are street views of this restaurant à leave a rating on its Facebook page next, or some other similar integration on FB or Instagram and here you have a complete user journey.
And if it does not work out?
Data sells. More data – more money. It may not pay for the whole acquisition, but we will get some of the money back, we can afford it.
And last but not least – Oculus. Virtual Reality is still out there, and no one has opened that gold mine promised in 2018-2019, yet. With Mapillary’s integration, new possibilities can become a reality.
a) More data (I am going to stop writing this going forward, I promise, it’s a given really).
b) Virtual reality.
c) Complete user journey tracking + user retention.
Ready at Dawn
- Founded in 2003 in California.
- First game, “Dexter” released in 2006.
- Switched focus from PSP and Playstation games to VR around 2017, when a VR title “Lone Echo” was released exclusively for Oculus Rift.
- Bought by Facebook in June 2020.
Sanzaru Games déjà vu anyone? Well, looks like Facebook is continuing to build its VR powerhouse with ANOTHER acquisition of a VR game developer. The blueprint is now clear: company builds a VR game for Oculus à sales go through the roof à Facebook has its proof that the studio can deliver à acquisition team activated à company acquired.
While we do not have a lot of the details on the deal, however Facebook has stated that the studio would retain creative control and operate independently from its offices in Irvine, California.
The end result sought by Facebook is clear:
1) Continue to stay relevant by continuing to invest in VR which is picking up speed.
2) Cash in on any future titles.
Anyone else reminded of Disney’s acquisition of Pixar in 2006? The scale is certainly much smaller, but we see what you are doing there, Mark.
In Conclusion: If previous examples are any indication, Zuckerberg is certainly not afraid of taking calculated risks, and should one or two major buys not work out – who cares! The big winners will cover the costs and prove worthwhile regardless. Let’s not forget as well that should any of the acquisitions not work out, there would always be an option for Mark to “resell” them to try offset any losses.
“Relevance” is the name of the game, and if it is achieved through VR or funny GIFs, then you have all the users and all the data on those users in the world, and the above are certainly all very strong additions to the Facebook conglomerate.*
*Mapillary stands aside as an acquisition that seems to be more directed at enhancing the existing product and keeping users on Mark’s platform/platforms, but it is not by any means an “impulsive buy”.