Resistance Is Futile: Why Facebook Acquisitions Tend to Actually Work
I've been putting off writing this post for two weeks, because lord knows we throw enough bouquets at Facebook's feet these days. Part of this is that they've legitimately built something amazing. Part is that so much of the Valley is so directly or indirectly banking on its upcoming IPO to be huge, and a little hype never hurt such ambitions. And part is that Yahoo has strangely made Facebook the David to its patent-wielding Goliath, standing up for all the innovators out there.
But Facebook has quietly pulled off something remarkable: They have a strong track record of acquisitions and acqui-hires actually working.
Admittedly, I'm using the term "working" loosely. For some companies, success can be as simple as taking a would-be future competitor out of the market by destroying it with your dysfunctional mess of a company. On the high-end, success is capped too, because we can never know what could have happened. The PayPal acquisition is hailed as one of the most successful in the history of the Web, and indeed eBay CEO John Donahoe has said PayPal will be bigger than eBay one day. But think of what PayPal could have been if it weren't so tethered to eBay.
But within these parameters, outside forces have, on the whole, done well inside Facebook, as opposed to taking the traditional acquisition route of biding time, doing little, and then leaving to start something new.
Here are some examples:
- Blake Ross of Parakey has had a huge impact on the product since the early days, and most recently made a big point with the Don't Be Evil Toolbar.
- Bret Taylor of FriendFeed is Facebook's chief technology officer.
- Sam Lessin of Drop.io created Timeline, after reportedly telling Zuckerberg that the profile design sucked.
- Carl Sjogreen of Nextstop played a large role in developing Facebook's platform.
- Jonathan Perlow, Lucy Zhang, and Ben Davenport of Beluga all built Facebook Messenger.
- And plenty of other designers and product folks have remained at the company in prominent roles, including Justin Shaffer from Hot Potato, Nicholas Felton of Daytum, Dirk Stoop of Sofa, and Mike Mathus of PushPopPress.
But where a company like Cisco was about feeding a beast, Facebook is more tactical. It doesn't try to win huge teams, it tries to win good ones. And it wants them to feel valued.
And this distinction ties into why Facebook is so effective at acquiring companies to begin with. Mark Zuckerberg personally goes to visit with the entrepreneurs and actively sells Facebook -- something very few CEOs at his level do.
We've heard example after example of how effective it is having Zuckerberg go up against, say, a random VP from Google. The smaller the company, the more he makes time for it, we hear, because it's that much more effective.
Behind even the smallest and least successful companies is an entrepreneur, who killed himself trying to build that company. To that entrepreneur, his tiny company is as important as Facebook is to Zuckerberg. And if he has to admit things didn't go his way, and he needs a soft landing, he'd rather sell it to a company who cares. And nothing says a company doesn't care like sending a random VP to write a piddly check.
The most recent example of this was Zuckerberg personally courting the Yahoo research team: A bunch of academics to whom Yahoo was showing the door. Could Facebook have won them anyway? Maybe. But why risk it, when you know this play works so well.
Zuckerberg's pitch to entrepreneur heavy teams is also counterintuitive. In the last few decades, behemoth tech companies would cite the number of engineers on staff as evidence that they were the most innovative. Facebook cites the opposite. Facebook considers itself an engineer paradise, because it has relatively few engineers compared to other Web giants. Facebook has hundreds; Google has thousands. Or as it's usually expressed: The ratio of page views per engineer.
The message is that one guy can do a lot at Facebook. They aren't (as much of) a cog in a machine, and that plays to the exact fears of a small team about to be absorbed. In other words: Their code reaches people. It matters. It's not too different from why reporters like to write for scrappy, independently owned blogs, versus a monolith like Fortune or The Wall Street Journal. It's as close as an entrepreneur gets to a byline. Not only do they want to work on a product people around them love, they want to be able to say, "See that feature! I built that!"
It's the same reason that Apple can produce such better technology than Microsoft. Jeff Bezos similarly had what he called "a two pizza rule." The entire engineering team on a project has to be small enough to be fed by two pizzas to have a chance of success.
Essentially almost every successful acquisition for Facebook has become an acqui-hire, whether it started that way or not.
But what is so staggering about this relatively unique playbook is how obvious it is. Of course, you'd want to sell to a CEO and not a biz/dev guy. And of course you'd rather your code mattered. Those are the things that drive people to work at startups to begin with. To the right hires, those two things would be more important than money. But somewhere along the way to becoming a big company, many entrepreneurs forget that. Zuckerberg apparently hasn't.
And this is a guy who reportedly isn't spending time with bankers on the IPO road show. How's that for a statement? You, little-known entrepreneurs of a struggling startup, matter more to me than people about to make my investors and me filthy rich.
But implicit to this happy reality, that acquired hands make huge contributions to Facebook, is the sad reality that the acquired companies and projects also largely fall by the wayside. My sense is Facebook is usually pretty up front that this will happen.
And that's why this acquisition of Instagram will be so interesting to watch. Because it wildly deviates from the playbook that has worked so well. Instagram disappearing and Kevin Systrom starting to work on new Facebook photos for mobile is just not an option, if Instagram is going to successfully meld into the Hacker borg. As we discussed yesterday, Instagram retaining its independence was as important to founder Kevin Systrom as the nosebleed price tag.
Can Instagram play a huge role in Facebook's success without sacrificing the product so many people love?