The Nuts and Bolts of Facebook’s Acquisition Strategy

Mark Zuckerberg has famously said that Facebook acquires people, not products.

Since making its first acquisition in 2007 with Parakey, the company has picked up small teams that may not have seen broad traction but clearly have gifted technical talent. Some of these entrepreneurs have gone on to serve as the new chief technology officer, launch the original iPhone app, Questions and Groups, run Photos and Places and lead platform.

The acquisitions replenish the entrepreneurial lifeblood of the company, which is becoming larger by the month and risks losing its young-and-hungry startup feel.

“The CEOs of companies we’ve acquired have had a significant impact on Facebook,” said Vaughan Smith, who is director of corporate development and leads partnerships and acquisitions. “They take ownership of engineering priorities and bring drive and organizational abilities.”

Facebook has acquired 10 startups this year, including a deal that hasn’t closed. That means that beyond Octazen, Divvyshot, Sharegrove, NextStop, Hot Potato, Drop.io, Walletin, and a partial acquisition of Zenbe, there are at least two more acquisitions Facebook hasn’t announced. Chai Labs was reported, but not confirmed.

Smith says he expects Facebook to do “double-ish” the volume of transactions it did this year in 2011. He added that the company is open to acquiring larger teams now, perhaps as big as 20 to 30 people, now that Facebook has grown to more than 1,700 employees. Although the company is focused on talent, it has an interest in mobile, location and payment services as targets.

Scoping out targets is a collaborative effort. Most of the time, product managers or top engineers will recommend people. Sometimes Smith and Mike Brown, who also works on corporate development at Facebook, will make suggestions after talking to the venture capital community. Having the internal support of Mark Zuckerberg, vice president of product Chris Cox, chief technology officer Bret Taylor or vice president of engineering Mike Schroepfer is key.

“The way I think about corporate development is that you’re using your balance sheet to achieve your strategic objectives,” he said. “The most important bottleneck in growing the company is finding enough of the right people.”

If Facebook is interested, there will be an initial interview assessment, talks with senior product or engineering leaders and a discussions of terms. Founders of startups Facebook has already acquired may also reach out to them. These entrepreneurs are “our best source of leads. They help us with identifying other fabulous entrepreneurs,” he said. “The best people know who the other best people are.”

Usually, Facebook is successful on the first go, but there are a few companies that have required several attempts. Deals usually take from a few days to a month to close. “If there are entrepreneurs out there that are considering a sale or their strategic options, they should be talking to us,” he said. “They can have more impact here and we’ll give them a short, straightforward answer.”

Smith said when pricing the deals, Facebook doesn’t really factor in how much the company has raised from investors. The essential criteria in pricing a deal is how much Facebook thinks a team can impact the company.

“If a company has raised a lot of capital and they’re looking for return, then that’s not a company we’re going to buy,” he said. “If we find that their price expectations are higher than we can justify, that’s where the conversation ends.” However, Smith couldn’t think of a time when investors have had to take a loss on a sale to Facebook.

“We want everyone to be happy. We primarily pay with stock and we think that’s the best way,” he said. “We’re very bullish about the prospects for Facebook and we expect that will be true for many years.”

Smith said Facebook rarely loses out to competitors. “We’re in the fortunate position of being the acquirer of choice,” he said. Sometimes Facebook will take intellectual property with a deal, but not always.

“The good are driven to make money. The great are driven to change the world,” he said. “The best platform to change the world is Facebook. We’re right at the heart of the biggest trends in social and mobile.”

He also disagreed that Facebook was helping fuel a bubble for talent and in the valuations of early-stage startups, despite warnings from venture capitalists like Union Square Ventures managing partner and Twitter investor Fred Wilson (who derided Drop.io and Hot Potato as failures in a New York Observer story earlier this week).

“There will always be a premium for great companies and great talent,” he said. “People that are exceptional are disproportionately successful and impactful. It’s unlike most other sectors in the economy. Even though on the surface, it appears to be a bubble, it isn’t really.”

He also said that that the success of past acquisitions had brushed away concerns that bringing in talent this way would create internal politics.

“We want a fair outcome for everyone. The experience to date has been that the people we’ve acquired have been such a positive for the company that everyone has embraced them,” he said.

Social Media 101

Mediabistro Course

Social Media 101

Get hands-on social media training for beginners! Starting November 10, hear from our expert speakers on the  best practices for getting set up on the major social media platforms, how to create meaningful content, and engage with your audience across sites. Register now!

 

Leave a Reply

7 Responses to “The Nuts and Bolts of Facebook’s Acquisition Strategy”

  1. Facebook Acqhirees Make a Quick Mark on Its Products | Liz Gannes | NetworkEffect | AllThingsD says:

    [...] M&A strategy of bringing in talent from young, small companies*. The company has reeled in 10 acquisitions this year, in most cases shutting down acquired services soon after a deal closes. The most it is [...]

  2. This Week’s Headlines on Inside Facebook says:

    [...] The Nuts and Bolts of Facebook’s Acquisition Strategy [...]

  3. The double-edged sword of market platforms « Uncommon Bytes says:

    [...] leap to a 2nd platform (if an appropriate one exists), be acquired by their underlying platform (Facebook has bought 10 companies this year, and more area planned), or transition to an independent business model (as Zynga is [...]

  4. With IPO on Horizon, Facebook May Buy Larger Companies in 2011 | Liz Gannes | NetworkEffect | AllThingsD says:

    [...] for $50 million in cash and stock in 2009. The first time many tech watchers heard of the 10 tiny startups Facebook acquired in 2010 was when the deals [...]

  5. TwitterはFacebookとGoogleの二巨人にはさまれて走り続ける–が,買収の噂は絶えない says:

    [...] Twitterの買収は、Facebookの買収基本方針に合わないだろう。製品よりも、人材を買うことが主眼だからだ。しかも向いてる方向は、モバイルと位置サービスだ。Twitterは社員数が350だが、それはFacebookのこれまでの買収による’人買い’の平均規模の35倍だ。しかも、100億ドルといえばFacebook自身の評価額の20%にあたる。そんな高い買い物をするか? [...]

  6. “Twitter ne vaut pas 10 milliards de dollars” says:

    [...] à Facebook, le rachat potentiel de Twitter ne conformerait pas vraiment à sa stratégie d’acquisition. La société, qui compte plus de 1.700 salariés à l’heure actuelle, a racheté 10 startups [...]

  7. Like All Good Families, Facebook Continues to Grow « suddenly blogging tech says:

    [...] not just the technology but all of the employees of the group messaging company. Mark Zuckerberg is known for his acquisitions of people, not products, but this move seems to take both into account: It [...]

Get the latest news in your inbox
interested in advertising with inside facebook?

Social Media Jobs
of the Day

Social Media Account Manager for Beauty PR Agency

Creative Media Marketing
New York, NY

Director of Digital Strategy

Beauty Public Relations Agency
New York, NY

Social Media Associate

Petrol Advertising
Burbank, CA

Social Media Manager

Aeon Media
San Francisco, CA

Account Executive- Healthcare PR and Social Media

Berry & Company Public Relations
New York, NY

Featured Company

Join leading companies like this one and recruit from the nation's top media job seekers on the Mediabistro Job Board. Every job post comes with our satisfaction guarantee. Learn More
 

Our Sponsors

Mediabistro A division of Prometheus Global Media home | site map | advertising/sponsorships | careers | contact us | help courses | browse jobs | freelancers | content | member benefits | reprints & permissions terms of use | privacy policy Copyright © 2014 Mediabistro Inc. call (212) 389-2000 or email us