Launching a disastrous IPO last month, Facebook (FB) has been under the microscope ever since. Just as important as its IPO failure are its recent acquisitions. With its IPO impending, Facebook began an acquisition streak that is not yet finished. Although it has only purchased five companies, each one held a strategic value for the company, with the total value of the acquisitions well over $1 billion. More importantly, these acquisitions filled a specific hole in Facebook's products while eliminating a major competitor at the same time.
The acquisition that started it all is the $1 billion acquisition of mobile photo sharing company Instagram. The acquisition came only days after Instagram released its mobile app for the Android operating system. The $1 billion price tag was huge, but with Instagram's launch onto Android phones, Facebook could not wait and let it become a competing social network. Since Facebook has had much trouble figuring out mobile, especially with regarding to photo sharing, acquiring Instagram was in a way obligatory.
To understand why, you need look no further than the camera app it released recently. First off, releasing its own camera app after shelling out $1 billion on a similar, much better app makes little sense. One thing is clear though, Facebook's camera app would not have been much of a competitor with Instagram. In fact, the app itself is merely a clone of Instagram in the first place.
Only a few days later it acquired Tagtile, a mobile customer loyalty service. While the amount it spent on Tagtile is undisclosed, it likely cost substantially less than the Instagram acquisition. According to its website, Tagtile works by having consumers download its app for their phone. Then when a store has Tagtile, the customer can merely tap their phone to the Tagtile box and receive special awards. This acquisition makes sense for Facebook, as it is attempting to get into local commerce through its Offers service. Acquiring a company that already has a footing in the industry not only gives it customers but also gives Facebook a larger presence in consumer's mobile devices.
Another deal secured shortly afterwards is another mobile purchase. This time Facebook acquired Glancee, a mobile app that attempts to connect you with similar individuals in your area. However, unlike the previous two acquisitions, Facebook intends to shut down Glancee and have its employees work on similar features for the Facebook mobile app instead. To some extent, this has to happen; otherwise, Facebook would risk fragmentation of its services. To keep its users tied to its mobile app, it needs these features itself.
Similar to its Instagram app, Facebook targeted the team of Android photo sharing app Lightbox. While the company didn't acquire Lightbox outright, it acquired the talent behind the app, hiring all seven of its employees. Similar to the Glancee acquisition, Facebook will be shutting down Lightbox and its employees will be focusing on developing similar services for Facebook.
Last in its run of acquisitions, Facebook acquired mobile gift-giving app Karma. With this acquisition, Facebook will be keeping the original service up and running. As Karma's service interacts with the commerce industry, this acquisition is likely an attempt by Facebook to reach beyond its core services. Additionally, with these two services tied together, Facebook will likely be able to better target advertisements, as companies will know when to suggest giving gifts based on birthdays or major announcements.
Now that Facebook has beefed up its mobile profile, the competition will be doing the same.
Google (GOOG) wasted little time in upping its own services, which now puts a much greater emphasis on photos. Google+ has been criticized for being a wasteland in the past, but its population is actively sharing photos. It just updated its iPhone and Android apps to highlight the new focus, and has received good reviews since. The big difference is that the photos that Google+ gets and the ones that Instagram gets are a very different crowd. Instagram allows any person to edit a photo with pre-set effects, while those sharing photos on Google+ often have a bit of experience. These two services target different crowds. Google has put a lot behind Google+ and its shortcomings have been a bit of an embarrassment for the company. If it can succeed in ramping up Google+, it stands to see another boon in its stock, and make a run at finally rivaling Facebook.
Social networking giant Renren (RENN) has propelled much of its success through gaming. This bodes poorly for Renren in the long-term, as social gamers are very fickle and gaming is very volatile. Renren will want to expand its reach if it truly wants to compete in the social networking world.
And how about Zynga's (ZNGA) $180 million purchase of OMGPOP, maker of the viral hit Draw Something? The game skyrocketed to upwards of 14 million users, only to lose 5 million of these users one month later. Now having 9 million active users is still huge, but the loss of 1/3 of the games population paints the picture of viral gaming. This was a similar situation with hit game CityVille, which peaked quickly and slowly lost many of its users. Time will tell if the buy-out works for Zynga or becomes an purchase it, and its shareholders, deeply regrets.
On the other side of the aisle is Yahoo (YHOO) which created the original photo sharing network Flickr. Unfortunately, Yahoo was run so poorly that the integration of Flickr into Yahoo ended up destroying the photo sharing service. Now that Yahoo has been having such poor performance I have to imagine the team wishes it would have done things differently. That's just how it goes in computer companies. The heroes of 10 years ago are often not even remembered. Facebook hopes to not be the next generation of Yahoo.
Overall, I think that Facebook made some very smart acquisitions. Even at $1 billion, Instagram was likely worth every penny, as Facebook demonstrated it just does not get the mobile photo sharing concept very well. Other acquisitions will allow the social giant to expand into mobile, its main area of concern. Without a strong mobile performance, Facebook will be in danger of being replaced, so I would be very surprised if the acquisition spree stops here. Having made $16 billion on its IPO initially, Facebook should be on the hunt for some time.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.