Facebook’s recent $2-billion acquisition of virtual reality company Oculus Rift has left investors scratching their heads, and not for the first time this year. Few were initially sure why Facebook was willing to pay so much for virtual reality or if WhatsApp was worth $19 billion. Regardless of its rationale, Facebook has opened itself to growth opportunities outside of social networking, echoing recent decisions made at Google. What tech companies understand that investors do not is that the diversification of products is a necessity for future growth and innovation.
Of all the tech startups recently purchased, Oculus Rift is the most surprising. Oculus Rift produces a virtual reality headset that immerses users into any setting. While traditional uses of the technology have focused on gaming, new applications range from military training to education. Between Oculus Rift and WhatsApp, Facebook can potentially benefit from having multiple streams of revenue instead of having to rely heavily on advertisements. Admittedly, the price paid for the startups is high and the purchases may even increase the volatility of Facebook’s stock, but in the long run, they will add significant value to Facebook’s brand by helping diversify its services.
Facebook’s actions are following Google’s. The Silicon Valley technology conglomerate has been buying small companies in uncommon industries for years. Google is what Facebook is trying to become — a consortium of products and services from different sectors. In fact, Google is preparing to open its first brick and mortar store in New York City, solidifying its presence outside of the Internet. There may soon be a day when Google is not known for its search engine but its storefronts.
Apple has also aggressively been acquiring smaller tech companies, but the scope of its focus seems less broad. The services that the purchased startups offer will improve Apple’s pre-existing product line but do nothing to broaden its reach. Apple has invested in technology that helps improve speech recognition, mapping and touch recognition for iPhone, yet they have not expanded into new, less familiar tech spaces as heavily as Google has over the past decade. While this strategy will certainly boost near-term stock prices, especially with the inevitability of a new iPhone, it may limit Apple’s long-term growth opportunities in comparison to other tech giants.
Facebook has received much criticism for its expensive purchases, but it is becoming increasingly clear that the acquisitions have added significant value to the company’s bottom line. Investors should view Oculus Rift and WhatsApp as long-term investments that will help Facebook escape the confines of social networking and ensure its longevity, emulating the business acumen that has benefited Google. If Apple hopes to remain competitive, it should look into diversifying its technology portfolio as well.
Adam is a staff writer. Adam’s Angle is published every Thursday. Email him at [email protected]