Saturday, November 24, 2012

Facebook + Instagram = Synergy Mirage?

On August 31st, 2012, Facebook closed its acquisition of Instagram for $715 million.  Instagram allows people to share photos quickly with friends and family and apply a filter to transform the photo's look.  Facebook intends for Instagram to operate as before but to utilize the Instagram team to help improve Facebook's mobile experience.  Why did Facebook choose to acquire Instagram - a 12-person company?  One theory is that Facebook felt threatened because they feared "creeping defection" - that Instagram could transform from a successful niche market to a full-fledged social network.

At first blush, the acquisition appears to be a good move on Facebook's part.  However, the desire to stay relevant and retain network effect could prompt Facebook to make ill-advised acquisitions in the future.  The executive team may benefit from the lessons outlined in Paul B. Carroll and Chunka Mui's "Seven Ways to Fail Big," specifically the warning against "synergy mirages."

Carroll and Mui acknowledge that sometimes a company seeks to grow by joining with another company of complementary strengths.  However, there is a risk that the merging companies have different skill sets and no desire to collaborate.  Even when synergies seemingly exists, it is necessary to dig deep to understand motivations all along the supply chain (see acquisition of Snapple by Quaker Oats).  Furthermore, executives sometimes focus so much on trying to make the synergies work that they miss out on other opportunities.  Missteps with acquisitions can result in plummeting stock prices and lawsuits.

In this case, Facebook appears to have acquired Instagram for the right reasons: to stave off competition and to use Instagram's already existing core competencies to make Facebook stronger.  What criteria should the executives of Facebook employ going forward to pay heed to Carroll and Mui's warnings?  The authors suggest having devil's advocates outside of the strategy development process ask some key questions such as:

  • What can we learn from history (the nuanced, contextual version)?
  • Do vital information and dissenting views about strategy reach crucial decision makers?
  • Have we considered all of the options?
What other questions do you think Facebook's devil advocates should be asking?

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