Facebook’s Zuckerberg smartly stays a step ahead

 

Special to The Washington Post

A few months ago, I wrote that Facebook was doomed: that it could go the way of AOL and MySpace because it wasn’t keeping up with technology changes. Social media is becoming less social as people start using their mobile devices more than their laptops, and as their address books once again become their friends list. People are communicating more in small circles of close friends on messaging apps. Facebook has been adding only small features and cluttering its pages with annoying ads. Its biggest innovation has been in the way it markets user data and photos, and that hasn’t particularly endeared it to its users.

Meanwhile, Google has been testing self-driving vehicles — like those we see in science-fiction movies. It is researching how the brain works so that it can predict what we search for, where we want to go, and what we want to eat. It is aiming to become our trusted personal assistant just as it has become our librarian. And it has been testing new ways of delivering Internet access and developing futuristic displays embedded in eyeglasses. Companies need to experiment with “moonshots” such as these if they are to survive in today’s era of exponentially advancing technologies — when innovations come out of nowhere and disrupt entire industries.

It seems that Facebook chief executive Mark Zuckerberg has recognized the threat.

Facebook’s recent acquisition of WhatsApp for a record-breaking $19 billion offers Facebook a unique advantage in the rapidly growing mobile-social-media space; and its acquisition of virtual-reality headset maker Oculus gives it an edge in the future market for virtual-reality displays. Though Zuckerberg may have missed the opportunity to invent his own technologies, he is now doing the smart thing by using Facebook’s stock as a currency to buy what he needs.

But it’s not that easy.

Integrating acquired technologies into a company when it has been extremely successful is even harder than doing so when it is desperate to reinvent itself. Until their backs are against the wall, technologists always believe that theirs is the best solution, and they resist change. There are always internal battles due to the “not invented here” syndrome and to technological incompatibilities.

WhatsApp is a mobile app known for its culture of “no ads, no games, no gimmicks,” and that is how it became so successful and gained hundreds of millions of users. Facebook’s entire business model is based on selling ads, games and gimmicks. Perhaps it will find profitable ways of mining WhatsApp user data, but it will be a struggle. As well, the revenue it can gain from users in countries where WhatsApp’s market share is large — such as India, Kenya and Brazil — is very small.

With the Oculus acquisition, Facebook has entered the hardware business. This is a tough business for any company, as Google learned when it acquired Motorola and had to beat an expensive retreat. Hardware necessitates massive capital outlays for manufacturing and inventory management. It necessitates the creation of distribution channels and customer-support mechanisms — all of which are new to Facebook. Microsoft turned Xbox into a success, but only after many years of billion-dollar losses. It still has not succeeded in the computer-tablet market despite massive investments.

Zuckerberg no doubt has a plan to acquire more companies and to diversify Facebook’s technologies. Facebook may well be in luck and find its next multibillion-dollar revenue source. It is encouraging to see the company behaving as though it is doomed unless it reinvents itself. This is the same challenge that all Silicon Valley companies now face and that other industries will soon face as technology continues its exponential advance.

Vivek Wadhwa is a fellow at Rock Center for Corporate Governance at Stanford University, director of Research at Duke University, and distinguished scholar at Singularity and Emory universities.

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