Silicon Valley: Tech firms’ big money bets

last updated 8 January 2015

Mark Zuckerberg is becoming “the Warren Buffett of technology,” said Felix Salmon in Reuters.com. The Facebook founder and CEO announced a $2 billion deal last week to buy Oculus VR, an Irvine, Calif., startup that makes virtual reality headsets. In explaining the acquisition, Zuckerberg basically said that “virtual is the new mobile” and that he “wants to get in on the game early.” But it’s worth noting that “his legendary focus” on social networking “is nowhere to be seen here.” Like “the classic conglomerator” Buffett, Zuckerberg has realized the value of branching out. Just look at the company’s recent big buys: Instagram, WhatsApp, and now Oculus. “None of them are likely to be integrated into the core Facebook product anytime soon,” and “none of them really make it better in any visible way.” Facebook’s spending spree is straight out of Buffett’s playbook: “Buy any business, so long as it’s good.” And that’s smart. Investments like Oculus “might be valuable to Facebook if the social network grows,” but Zuckerberg isn’t about to get complacent. “He knows that his flagship won’t last forever. So he’s decided to build himself a flotilla.”

And that makes sense, said Matthew C. Klein in BloombergView.com. Facebook’s problem is that it’s maxed out; it can’t generate growth “from its core business since it already dominates the market.” Investing in new products is the obvious solution. But this “buy-everything strategy” has a catch: It only works as long as investors “keep supporting the share price” despite being “diluted with each new acquisition.” If Facebook can’t figure out how to generate returns—and quickly—backers may be less willing to pay the high price of shares “in a company that is starting to look a lot like a late-stage venture investor.”

It’s not just Facebook, said David Goldman in CNN.com. Even tech giants like Google are “spending like crazy on emerging technologies,” part of their ongoing bid to stay relevant. The Mountain View, Calif., company has poured billions into “driverless cars, wearable gadgets, military robots, and—most recently through its purchase of Nest”—Web-connected home appliances. None of either company’s acquisitions “have helped them expand beyond their core business models just yet,” but these are “long-term bets.” And Google may have the upper hand. The company has more cash and more “wiggle room” to make sure its purchases pay off. Silicon Valley is littered with “industry titans” who “fell to Earth” after failing to adapt to new technology. And however risky these investments may be, both companies deserve credit for recognizing “that they can’t rest on their laurels.”