Sep 8, 2015 · 6 minutes

Yesterday, an analyst report arrived in my inbox detailing the disconnect between Facebook’s and Twitter’s innovation post-IPO. When Facebook went public, there were grave concerns about its ability to be a major player in the mobile world, whereas Twitter was seen as one of the first mobile-first pioneers -- back when we did everything with text not apps.

From the report by Magister Advisors:

Twitter has for all practical purposes failed to innovate its product since it went public. At IPO, Twitter had a unique platform that was mobile-first, significant momentum and global profile from the Arab Spring and other high-profile events, and a billion sign-ups. Fast forward less than two years and, alone among internet ‘majors,’ Twitter has squandered its lead by failing to innovate, failing to drive engagement and consequently ceding the lucrative mobile ad revenue land grab to Facebook and Google. Whereas Twitter should be grabbing a big percentage of new mobile ad spend, the opposite is true; we see 75% of that spend going to Facebook and Google, who weren’t even mobile-first businesses but have passed Twitter in the past two years.

They’re right about where we are now. But Facebook didn’t so much innovate, as it acquired… for shit loads of money and stock. After several embarrassing attempts to replicate Snapchat and others, Facebook’s lone hit developed internally was Messenger. Admittedly: What a hit. But Mark Zuckerberg effectively paid an “acqui-hire” price for PayPal President David Marcus to lead the division, and put everything behind the product, forcing users to download it or not message anyone on Facebook.

The rest of Facebook’s “innovation” came from three mega-acquisitions, which were all considered nuts at the time: Instagram, Whatsapp, and Oculus Rift. Some $23 billion in all. That rivals the crazy $20 billion roll up of legacy enterprise software that Oracle did in the early 2000s. Only Oracle did that in reaction to a market that was slowing and contracting, and it hoovered up on going maintenance revenues that pretty much fell to the bottom line. In many cases -- like Siebel, for one -- Ellison would trash them in the press until they were cheap enough for his liking.

The biggest chunk of that $20 billion spending spree was a hostile takeover of PeopleSoft-- the first ever hostile takeover in the software business. Ellison took turns barbing in the press with then PeopleSoft CEO Craig Conway, joking about destroying the product once he bought it and even joking about whether he’d put a bullet in Conway’s dog or Conway, given the chance. (It’s less grizzly in context.)

Zuckerberg meanwhile romances is targets, taking them on long walks, cookouts, promising them total freedom. Always & forever-- xo, Zuck.

Beyond the romance, the $20 billion+ spree by Facebook was very different. It was in a position of concern, sure. But not a position of weakness. And it bought companies at the peak of their promise-- and even still overpaid. It didn’t so much do the acquisitions for where they were today or where the market was today-- like Oracle. But out of concern for who might topple it in the future.

As I’ve written before, Zuckerberg gets how quickly fortunes can change, because he was the spoiler to Yahoo, Google, MySpace and -- oddly enough-- Twitter, as the Magister Advisors report points out. He was the one who didn’t sell to Yahoo-- in part because it foolishly discounted its $1 billion offer when its own stock fell by 20%. He saw first hand how that worked out for both Facebook (phew!) and Yahoo (d’oh!). It’s no wonder he’s never let a valuation come between him and a potential challenger.

That brings us to another company that went on a wild acquisition spree: Marissa Mayer’s Yahoo. In 2013, Yahoo did an insane 30 acquisitions, most piddly little acquihires of nearly every once-promising, but now failed, startup. None of it made any sense and the closest Yahoo got to doing anything remotely ballsy was acquiring Tumblr for $1 billion. The rest were all companies you’d forgotten about if you ever even knew and the most promising “talent” brought in in this wave did two things: Checked out after an epic, ultimately failed slog trying to build a company and then left when their lock up was done to go do something more impressive.

A recent CB Insights report notes that acquisitions have been all but silent for Yahoo this year, as the company continues to struggle. All of that flurry of dealmaking did very little to remake the ailing giant. It became an angel of mercy more than anything, putting wounded startups out of their misery, returning capital (at best) to investors, and making everyone in the Valley feel a little better about themselves.

And all that brings us back to Twitter. If we’re going to compare and contrast Facebook and Twitter, one of the more surprising things to me is that Twitter’s founders didn’t learn the same lesson that Facebook learned from the aborted Yahoo acquisition. After all, Mark Zuckerberg once tried to buy Twitter for a (then) inflated price and the company had the balls to say no. But when it came Twitter’s turn, it went more the Yahoo route than the Facebook route.

We can argue whether small deals like Vine were transformative for Twitter or not. But everyone agrees that Facebook instead of Twitter getting Instagram forever changed the trajectories of all three, adding far more than $1 billion to Facebook’s value and robbing Twitter of a way to sew up mobile, celebrity and real time expression in a way Facebook struggled. According to press reports, it was Jack Dorsey who wasn’t aggressive enough, blowing that deal. The same Jack Dorsey that so many others are urging Twitter to hire part-time to fill its gaping CEO void.

Most acquisitions fail. Everyone likes to think of them as a magical solution, because it’s a way to take action when a company is struggling. In truth, there are a very small number that are transformative: PayPal, YouTube, Instagram among them. And those all have something in common: Not only were they huge bets, they were made from positions of strength. Twitter probably couldn’t acquire its way to health now, nor could Yahoo even if it’d had the guts to do a transformative deal.

That’s what makes Facebook and Oracle’s $20 billion (plus or minus) spending sprees so remarkable-- as different as they were. They both worked ultimately, because they went all-in on the macro strategy whatever the cost and made the moves from a dominant market position. The sheer scale upped the odds that there’d be a real lasting impact.

The moral from recent tech history is clear: Go big or don’t expect much. Going wide gets you almost nothing, save a rep as a dumb checkbook. And do it while you still have the market cap and cash to make any big deals happen. Once you “need” a mega deal to save you, it’s probably too late.