What should Facebook's next acquisition be?

Ok i going to approach this question in 3 parts

1st i’ll analyse the company

next i’ll analyse the acquisition situation (its reasons) and opportunities

then i’ll devise a strategy 

Company analysis

Facebook is one of the biggest tech giants in the world now

it owns Facebook ,Instagram , Whats app, each of those products has a strong p/m fit, and is secured in a way by brad, market dominance and network effects.

most of facebooks revenue comes from advertising

As fb products are mostly social they solve a large variety of problems for a very large audience, their potential market is WW population

As it’s a one of the tech giants its, amazon, google and apple are its indirect business competitors.

while tiktok, snapchat, wechat, telegram, youtube  are its direct product competitors

Situation analysis

acquisition could have different objectives behind it…

• its can be made to scale facebooks existing products/business model, for example by aquiring a large audience

• or it can be to expand to new market segments / to move up or down along the value chain

usually the later is harder, as creating value is generally harder than scaling it

So it would be safe to scale within existing products p/m fit (social networking)

Now recently facebook has renamed itself as meta, and has been in favour of blockchain tech in the past few years. And there have been examples of how blockchain greatly increases p/m fit for gaming , and sport activities.

So there could an opportunity to significantly improve p/m fit for facebooks products with blockchain

However, blockchain is often viewed as a very early technology and may have many scam projects. so there may be dangers of losing audience if implementation is not done correctly, or if one of the products gets hacked

Strategy

In order to seize this opportunity, facebook needs a strong blockchain team, so this can be the main objective of the acquisition

While there are multiple blockchains, only few are innovative. For example solana and cosmos. Unfortunately blockchain is a decentralized structure, so facebook will only be able to acquire the core developing company/team. And this is actually a good sign, as it will not cost as much as buying the whole blockchain (51% of tokens) Now Solana often has netowork problems, while cosmos has IBC protocal which will help it easily interact with multiple blockchains, with that technology it will be easier for users to transition to facebooks blockchain solution

So my recommendation would be to acquire cosmos developing company, to be able to implement blockchain solutions and scale the provided value of its social products.

Clarifying Questions:

1. Objective: How are we measuring business value? Is it in terms of revenue? Or daily active users?
   1. Assumption: Duscussed later
2. Context: Why now? Are we threatened?
   1. Assumption: No major change; looking to grow
3. What’s the timeline for this acquisition?
   1. Assumption: Over the next year
4. Any constrains: budget, resources, etc.?
   1. Assumption: None

Facebook Summary

1. 3B MAUs across family of application out of 4.5B internet users
2. Strengths - High user engagement, social graph, ads targeting
3. Weaknesses – highly reliant on ads for revenue
4. Threats - social media constantly changing (tiktok great example of a threat), global data privacy laws

Goal / Objective for this exercise

1. To provide more value-added services for users in an effort to keep them engaged in FB ecosystem and to diversify FB’s monetization options.
2. I believe given the nature of space Facebook operates in (Social media), the north star metric really is user adoption and engagement. However, this needs to be achieved while trying to diversify monetization options. Also although revenue is always an important goal, in case of Facebook that’s primarily driven by user’s continued engagement with the platform

 
Why any acquisition?

1. Take out threat (existing offering)
2. Solidify position in the market for existing offering
3. Expand into new offerings
4. Enter a new geographic market

What are Facebook’s current offerings?

1. Messaging and VOIP
2. Sharing information and moments
3. Marketplace
4. Dating
5. Gaming (VR)
6. Organization of events and groups
7. Workplace

Conclusion: In my opinion, the last 3 options are good potential reasons for Facebook to look for any acquisition target. As for the first one, although Facebook does face some threat from growing use of tiktok, I believe that it’s satisfying a different customer need at this point. At the same time, with Facebook venturing into new offerings recently (dating, gaming, etc.) it can look to solidify its position in those markets with an acquisition. It can also expand into new offerings

 Where is the most opportunity for growth? What are the unmet markets (demands and geographic areas)?

1. Mission statement: Give people power to build community and bring the world closer
   1. World closer – by connecting people (internet, messaging, VOIP, cataloging connection information, remembering connections, organizing events)
   2. Build community – by sharing and by transacting with each other
2. Strategic Options
   1. Acquire Tripadvisor
      1. To build community, people want a better sense of businesses and individuals in their area. Yelp can help create an inventory of this and enable transactions on its platform
   2. Buy shopify
      1. Enable stores to create product catalog and reach their customers at the same time. It combines product discovery and purchase action in a single application, further creating the sense of community.
   3. Revolut
      1. Brings the world closer together by enabling cross border transactions, and making it easier for users to transact locally and internationally.

Evaluation

 Conclusion

1. Facebook should acquire Tripadvisor in the short term to better empower people to build community by connecting business and individuals, and enabling transactions through that medium in the future

 Clarifying questions/validating assumptions

Do we already have a sector identified where Facebook is targeting or is it open for analysis?

*For now let us assume that we can choose to evaluate the sector and then the company.

Usually the acquisition involves acquiring 3 things: the company (employees), the product, the users. 

With this acquisition what is the top priority for Facebook? If I were to make an assumption, I would say that Facebook is looking to focus more on the product than the company and the users. In my opinion it is so because Facebook is already famous to hire high performers so we can rule out the possibility that it is eyeing on the employees of a certain firm. As of the users, it already has a very loyal and huge user base (40% of the world’s population).

Please let me know if my assumption is correct?

Facebook as it stands today

Facebook along with WhatsApp and Instagram stands out be the top social media platform today.

Its strengths are:

• It has a strong brand value, which play a big part in long term sustainability and stability.
• It dominates the market, it is the leading social network of the world with approximately 2.9 billion MAU.
• It has a large and growing customer base.
• It is one of the leaders in technological innovation and R&D.

Its weaknesses are:

• User’s privacy concerns, because of which it is facing a decline in some regions of the world.
• Its business model relies heavily on advertising. Approximately 98.5% of its revenue is from ads.
• Its inability to control misleading information and fake news.

In my understanding the biggest opportunity for Facebook is in diversifying its portfolio. Facebook is already working on this as we can see that under Facebook’s umbrella we have: Oculus (a virtual reality device), Workplace (a business tool), Portal (a video calling device) other than the social media and messaging apps.

Facebook’s Probable Next Step

So I would like to think about Facebook venturing into a space that can help it in diversifying the portfolio.

The top 2 things in my list would be:

Collaboration & Productivity Apps     

Facebook already has Workplace, so acquiring a product in this space and integrating it with Workplace will strengthen Facebook’s position. Some of the companies off the top of my head are slack, zoom.

Pros: 

• Facebook has the technology it can leverage to improve the acquiring product. For example: Facebook’s experience in video calling services can help improving/maintaining Zoom’s service. They have the platform to support it in terms of scaling the number of users.
• It will open a new revenue stream for Facebook.
• Facebook can build a social network in a professional setup

Cons: This can prove to be a difficult market to enter as we already have a tough competition from Microsoft and Google. As I understand, the enterprises/companies today like to buy a complete set of offering from one place. For Example: Companies having Microsoft Office license are more likely to buy Teams as they offer good integration. Similar is the case for GSuite users.

Travel Sector

Pros: It is a big industry generating a lot of revenue. The major main stream services in this industry are:

• Online travel agencies such as Expedia.
• Online hospitality businesses like Airbnb, Hostelworld.
• Recommendation websites such as TripAdvisor, Foursquare.

The users of Facebook and Instagram already post a lot of their travel experiences and pictures that can be used to trigger people to their travel funnel.

Cons: One issue that I can foresee is that Facebook can still struggle with the defamation it has received for user privacy issues and the users can be a little skeptical.  

 Selecting the Sector and the company

Based on the comparison of the 2 sectors above, I would like to suggest that Facebook should try to enter travel sector as entering into this sector will be relatively easier. In my opinion, Facebook should start with acquiring recommendation websites. As Facebook’s user are actively sharing their travel experiences so it could be assumed safely that would be interested in writing recommendations and tips and sharing the pictures as well.   

I would suggest that Facebook should consider acquiring Foursquare. The concept of City Guide and Swarm App of Foursquare is completely in line with the mission of Facebook “to give people the power to share and make the world more open and connected”.

City Guide is a local search and discovery mobile app that helps users discover new places from a community of peers. It also gives recommendations of places based on user’s current location.

Swarm allows users to keep a record of places they have visited, it also provides search capabilities to recall the checked in places, it lets its user share their travel history with their friends, allows users to earn badges.

This acquisition can allow Facebook to gradually build its capability in this sector by understanding the pain points of customers based on the data collected using Foursquare. It can strengthen its revenue from the monetization model of Foursquare which also primarily based on ads.

I'll answer this product strategy interview question in two parts: What should be the next space that Facebook should venture into? And then which company in that space should Facebook acquire?

My clarifying questions will be

1. Do we have a goal in mind for Facebook's next venture? Or do you want me to evaluate the options? //Assuming it's open ended.

The main portfolio of companies that Facebook owns are Whatsapp and Messenger which are chat based IM services, Facebook and Instagram which are social media services, and Occulus which has a VR product.

I'll do a quick analysis of Facebook to see how it is currently positioned. Facebook has very good penetration in all markets across the world. There are 4.5B internet users on the planet and 3B of them are using Facebook across its 4 platforms of Whatsapp, Instagram, Facebook and Messenger. The social graph that it has built for close to half the world's population is unparalleled. Its weakness is that it's main revenue driver is still ads and despite having so many users it still hasn't found a sustainable alternate revenue source. The main outside threat that Facebook faces is from the data protection laws but it isn't something it can't find its way around.

Charting out high level strategic goals, here are a few things Facebook could try to achieve

1. Acquire even more users. Facebook could strengthen its moat even further by continuing its pursuit of acquiring more users. Since Facebook has saturated the internet market, it is taking active steps here to go after the users that aren't on the internet yet. It's doing things like partnering with telco companies to promote Facebook 0 which doesn't require internet access and bringing its app onto the KaiOS platform which powers feature phones with internet.

2. Add more levels of engagement for existing users. Facebook has a suite of formidable products and boasts of very good engagement. It could choose to grow this further and drive stickiness. It is currently achieving this by having social media products that cover a wide variety of target groups.

3. Grow revenue. Facebook is struggling here today and we could look at new ways to monetize.

While the strategic directions I propose will impact all 3 goals, some of them will impact some of those metrics stronger than the others. Between the 3 goals, I would prioritize them in the order of 3, 1 and 2. The spaces that Facebook can thus invest in are

Make Workplace by Facebook the top Productivity and Collaboration suite

Investing in this direction will allow Facebook to compete head on against giants like Microsoft and Google in their home turfs. The productivity and collaboration market though is huge with every company that has information workers needing a solution like this. Workplace by Facebook's PoD against its competition is its social forum positioning for collaboration which is well suited for colocated teams that want an easy way to collaborate.

Acquisitions: Facebook can focus on acquiring the complementary parts of the suite it doesn't have. For example Workplace has good communication and collaboration solutions but doesn't have anything on productivity. A product like Airtable would work really well here.

Make Facebook marketplace the place to buy and sell everything

Investing in this direction will allow Facebook to become the next Craigslist or eBay with minimal effort. Facebook already has the users so it doesn't have to solve the problem of building a two sided marketplace. By starting off as a simple platform, it can even stay lean by not worrying about delivery logistics. At some point Facebook can consider entering retail.

Acquisitions: Since Facebook has everything it needs to build a Craigslist, it needs an acquisition only if it needs to enter the retail space. A natural acquisition to make would be to acquire a delivery platform. This would be market dependent and would possibly be a hyperlocal delivery player in a market that Facebook is looking to pilot in first.

Make Facebook Gaming the top gaming platform

Facebook can focus on PC and mobile gaming at first and build a suite of games with full multiplayer capabilities. Facebook can later enter the console space by integrating Oculus and creating VR first game titles.

Acquisitions: If Facebook wants to create quality game titles, it will have to acquire good game studios. The famous ones are all probably big and overpriced so it should look out for indie studios that have a good track record.

Make Facebook Streaming the top social movie platform

All the large movie streaming services like Netflix, Prime, Hulu etc lack one thing - the social graph. If Facebook can get content on par with these services, it can outperform them simply by leveraging the social network. It automatically unlocks new use cases like sharing movie recommendations, hosting movie watch parties (great for social distancing), discussing and criticquing movies etc.

Acquisitions: There are a few acquisitions Facebook can make here to complement what it has. The first could be for content creation. Facebook can acquire smaller studios to build a library of good movies and partner with big studios. On the social side it could acquire something like IMDb or Rotten Tomatoes to get the know. It already has a video conferencing solution so that could be extended to watch movies.

To evaluate between the strategic options that Facebook has, I will look at which of these approaches will give the most potential revenue. The productivity and collaboration suite will monetize well since enterprise customers pay easily but competition in that area is very stiff. The marketplace won't monetize well until Facebook enters retail pitching it squarely against Amazon. Gaming is a space which can monetize well but acquisitions will be very key here to create viral game titles. Movie streaming also monetizes well but the bottomline will hold only as long as Facebook creates sufficient content. //Little tired here to do a better analysis

Based on the above, I would suggest that Facebook should enter the movie streaming space since the goal was to increase revenue and not necessarily profits. Also the movie streaming space is poised to grow much further with social distancing expected to have lasting effects with movie goers. Facebook should acquire IMDb and a few indie studios.