Wednesday, April 9, 2014

Facebook's Purchase of Oculus VR

This post compares Facebook's previous major acquisitions to its most recent, Oculus VR. This relates to the course content this week in that it explores Facebook's previous coherence-focused acquisition strategy, which capitalized on its internal strengths and knowledge, and considers whether the purchase of Oculus VR will degrade Facebook's coherence, and if Facebook is falling victim to one of the "Seven Ways to Fail Big", or whether it will actually bolster its coherence.
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If Facebook has one core capability, it is the ability to capitalize monetarily on a free, and once seemingly unprofitable, platform. From 2008 to 2013, Facebook’s revenues grew from practically nothing to almost $8 billion, and did so without ever charging users for use (Edwards). The second core capability would the ability to amass hundreds of millions of users, and most importantly, their data, which is what ultimately allowed them to reach such profitability. 

In considering other social network companies that have amassed hundreds of millions of users on a free service, accumulating a worth of hundreds of millions or even billions of dollars, four similar platforms come to mind that all have something in common beyond social networking : 1) Twitter, which Facebook attempted to purchase, 2) Snap Chat, which Facebook also attempted to purchase, 3) Instagram, which Facebook owns, and 4) WhatsApp, which Facebook also recently purchased.

According to Leinwand and Mainardi, a company achieves coherence when “its capabilities system is consciously chosen and implemented to support a focused strategic purpose, or way to play that is aligned with the right product and service portfolio” (3). With regards to these strategic acquisition attempts and successes, Facebook seems to be on the right track. 

Facebook has fueled its growth by targeting successful companies with similar target demographics, that rely on the same IT knowledge and tools, and have compatible monetization strategies. Facebook does not need to develop new capabilities to successfully align these products/services. (It should be noted that Facebook has purchased several other companies/products that also align with their current business model). And perhaps most importantly, each acquisition allows Facebook to further capitalize on what it already does well. 

In light of this, Facebook’s recent $2 billion purchase of Oculus VR seems rather anomalous, not fitting in with what seems to be an otherwise coherence-focused strategy.  Oculus VR develops virtual-reality goggles for gaming uses. It is a business that develops a product along with using a business model that is divergent from the capabilities that have made Facebook as a company successful to date. However, Facebook envisions the use of this virtual reality technology as the next social media and communications platform, and with the market data available to Facebook from the users of its platforms, it seems unlikely Facebook made this decision as a shot in the dark (Cohen). Nonetheless, it signals a significant departure from its previous acquisition and growth strategy, and towards one that is more aligned with the likes of Google, with its development of Google Glass.

Is Facebook being fooled by the synergy mirage (Caroll and Mui), and in the process making ill-advised purchases of new technology that may not ever have the impact imagined, and risking losing its coherence in the process?  

Or, is it a highly strategic decision that will allow Facebook to not only remain on the forefront of social media communication platforms, but actually continue to focus on that which it already excels?

References

Blodget, Henry. "Everyone Who Thinks Facebook Is Stupid To Buy WhatsApp For $19 Billion Should Think Again ..." Business Insider. 20 Feb. 2014. 
08 Apr. 2014 <http://www.businessinsider.com/why-facebook-buying-whatsapp-2014-2>.

Paul B. Carroll, and Chuna Mui. "Seven Ways to Fail Big." Harvard Business Review (2008). 

Cohen, Reuven. "The Difference Between Google, Facebook And Microsoft Summed Up In Two Words: Augmentation Or Immersion." Forbes. 03 Apr. 2014. 08 Apr. 2014 <http://www.forbes.com/sites/reuvencohen/2014/04/03/the-difference-between-google-facebook-and-microsoft-summed-up-in-two-words-augmentation-or-immersion/>.


Edwards, Jim. "Facebook Shares Surge On First Ever $1 Billion Mobile Ad Revenue Quarter." Business Insider. 29 Jan. 2014. 8 Apr. 2014 <http%3A%2F%2Fwww.businessinsider.com%2Ffacebook-q4-2013-earnings-2014-1>.

Engen, Josh. "The Oculus VR Purchase Proves That Facebook is Google Now." Paste Magazine. 4 Apr. 2014. 8 Apr. 2014 <http://www.pastemagazine.com/articles/2014/04/the-oculus-vr-purchase-proves-that-facebook-is-goo.html>.

Kelly, Gordon. "Why Facebook Is Spending Billions On Companies It Doesn't Need." Forbes. 03 Apr. 2014. Forbes Magazine. 08 Apr. 2014 <http://www.forbes.com/sites/gordonkelly/2014/04/03/why-facebook-is-spending-billions-on-companies-it-doesnt-need/>.


Leinwand, Paul, and Cesare Mainardi. "The Coherence Premium." Harvard Business Review (2010).

Lowe, Scott. "Facebook to Acquire Oculus VR for $2 Billion." IGN. 25 Mar. 2014. 08 Apr. 2014 <http://www.ign.com/articles/2014/03/25/facebook-to-acquire-oculus-vr-for-2-billion>.

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