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Why Oculus Rift, Nest, or WhatsApp? Facebook and Google Can't Buy Their Way to Innovation

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If being revolutionary means taking moon shots, building side projects, and managing supersecret laboratories that everyone knows about, then sign these two tech giants up.

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When Facebook (NASDAQ:FB) bought Oculus VR last week, Facebook CEO Mark Zuckerberg was quick to assure everyone that the virtual-reality start-up "will continue operating independently within Facebook." That should sound familiar. He said the same thing after February's purchase of WhatsApp, a messaging service that would "continue to operate independently within Facebook".
 
A similar statement was made by Nest, the "smart" thermostat maker snatched up by Google (NASDAQ:GOOG) in January. "Nothing here changes," said Nest CEO Tony Fadell. "Nest will continue to be Nest." When asked whether Google would have access to customers' data, he replied that their privacy would be respected (sort of).
 
In other words, rather than talk about the exciting synergies provided by these acquisitions and how great they'll work out for customers, Facebook and Google issued solemn promises not to muck things up. That's a pretty low bar for a series of buyouts worth $24 billion. Even so, the blog post announcing the Oculus purchase was met with a litany of abusive comments, and Google's Nest acquisition sent a ripple of paranoia through Twitter (NYSE:TWTR).
 
More damning is the fact that Nest, WhatsApp, and Oculus needed these assurances in the first place, and even then demanded nosebleed valuations before agreeing to a marriage. Strange that two Web giants valued for their vision -- to the point that their founders were granted dictatorial powers by shareholders -- would receive such a vote of no confidence.
 
Except it isn't strange, given the companies' track records. Facebook Home was a dismal failure. Facebook Platform turned out to be a dud. Facebook Messenger for PCs was quietly euthanized earlier this month. Recent innovations in social media have all come from new entrants -- such as Snapchat and Pinterest -- and Facebook has been forced to buy its way in as it did with the 2012 purchase of Instagram, or release copycat products such as Poke, a Snapchat clone (which also failed). Facebook might be growing but it's not improving, and eventually that's going to become a problem.
 


Oculus Rift, for those who haven't heard, began as a Kickstarter project in 2012. On the crowdfunding site, it netted $2.4 million in pledges and purchases of the developer kit for its virtual-reality head-mounted display (pictured here). Its Kickstarter fund-raising goal had been only $250,000.

Even John Carmack, the former id Software programmer and current CTO of Oculus, was surprised by Facebook's acquisition. He responded to the news in a response to a blog post only two days ago, saying that he wasn't suprised the "Titans" would make a move into virtual reality, and that although he wasn't expecting Facebook to come along and buy the company, he feels the social network giant does seem to "get the Big Picture."

Judging by the responses to Carmack's post, many Oculus Rift fans disagree.

Meanwhile, Google's list of aborted projects has its very own Wikipedia page -- an incomplete list, since it doesn't include Motorola. The Android operating system and Google's Web services are successful products but unsuccessful businesses. They were given away to provide traction for Google Search, which still drives two-thirds of the company's revenue (Web ads drive most of the rest), and they failed to do this. According to data from NetMarketShare.com, Google's share of the global mobile search market declined from 97% in 2009 to 88% in 2013, while its cut of the desktop market slipped from 82% to 77%.
 
Revenues have grown handsomely for both companies, but this has less to do with "vision" than with their advantageous positions in a Web advertising market that's expanding 32% per year. If innovation means moon shots, side projects, and supersecret laboratories that everyone knows about, then sign Google and Facebook up. If it means thinking creatively about old products and leading new ones to success, then look elsewhere.
 
What's strange is that these two old-timers would earn a reputation for cleverness simply because they have enough money to marry young. And at what point did living vicariously through a start-up -- with no integration and no collaboration, just a promise not to get handsy -- become a sage business strategy?
 
These acquisitions are sterile and a far cry from the organic growth that saw Microsoft (NASDAQ:MSFT) pull Office out of Windows, and Apple (NASDAQ:AAPL) nurse the iPhone out of the iPod. In time we'll see just what Facebook and Google got for their money, but there's no buying the future.

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