My pre-release model Galaxy S7 started buzzing across our elegant glass conference table with calls and texts from the Wall Street Journal, PandoDaily, Re/Code, and a very excited writer from Massage Parlor Weekly. All were trying to wrap their heads around the valuation and what this 400 million user app meant to Facebook. (Though the guy from Massage Parlor Weekly was quickly disappointed when I explained to him that this was a MESSAGING app.)
All of a sudden, Facebook’s $1.3B purchase of Instagram and its rebuffed attempt to buy Snapchat for $3B started to look like a quick stop at the Bodega for Gatorade and Slim Jims.
And I happen to know that these offers were not isolated incidents. No fewer than four companies that I invest in or advise have entertained acquisition feelers from Facebook in the last year, at prices ranging from $600M to $9B.
Some in Zuck’s amen corner tried to justify the purchase with overheated metrics around Whatsapp’s huge user base or the strategic importance of messaging apps and the mobile phonebook layer, but that’s not how I see it. Admittedly, there’s a fine line between bold and crazy in our business, but this move smells of panic to me.
Does Zuck sense that Facebook’s growth engine has stalled? Sure, revenues are surging right now as some solid ad products have scaled, but Grandma is now on Facebook looking at family photos while the younger set bolts for Snapchat and the next three hot things. What kind of chilling leading indicators glow from Facebook’s internal dashboards and do they belie Sandberg’s spin for shareholders?
The first few one or two billion dollar acquisitions with the monopoly money of Facebook stock may not matter much. But as we creep up to the double digit billions, we get to an altitude where even Zuck starts running out of bullets.
There are many examples of big deals and investments gone awry, both in tech and in the world at large (see chart). In 2013, Vladimir Putin spent $50B on the Sochi Olympics to rehabilitate Russia’s image just to blow it all a month later by invading Crimea and freaking out the world.
But that’s a crazy comparison, right? What does Zuckerberg have in common with a paranoid dictator desperately trying to stay relevant in a world that may be passing him by?