At the end of the last century, the popularity of PC brought about a wave of the Internet, and all kinds of companies sprung up like bamboo shoots after a spring rain until they reached their peak in March 2000. The bubble burst and the older generation of social networking leaders, including Friendster and MySpace, were hit hard, and it was in the aftermath of 2004 that Zuckerberg, a sophomore, founded Facebook Inc in his Harvard dorm.

Facebook Inc's historical context is worth studying, and the reason why it can have today's achievements, in addition to the benign development of the company itself, several important mergers and acquisitions made one after another are also of great significance.

This article hopes to clarify the evolution of Facebook Inc's development by reviewing several brilliant M & A transactions in its history. For the current capital market with continuous mergers and acquisitions, it may be instructive to re-examine several well-known mergers and acquisitions in the past.

From 2004 to 2011, the overseas social market was dominated by Facebook Inc.

• From 2004 to 2005, Facebook Inc completed the user generalization from colleges and universities to the whole people.

• From 2006 to 2007, it upgraded from a social network to an open platform

• From 2008 to 2011, its strategic layout of globalization has been rolled out in an all-round way. As a result, Facebook Inc officially landed on Nasdaq in early 2012, and the company's social network is beginning to take shape.

But today, the well-known overseas social apps we know are not just Facebook Inc himself. This is all due to a number of major investment mergers and acquisitions that Facebook Inc completed one after another from 2012 to 2016.

The above table lists only some typical events. In fact, Facebook Inc has already made more than 100 mergers and acquisitions. But we can find that it was the three major acquisitions from 2012 to 2014 that made Facebook Inc the five major social product matrices that Facebook Inc has today: Facebook Inc, Messenger, Instagram, WhatsApp and Oculus.

Among them, Messenger was spun off from Facebook Inc's main app, Instagram was bought for nearly $1 billion in 2012, while WhatsApp and Oculus were acquired at a huge cost in 2014.

From the positioning point of view, Facebook Inc and WhatsApp are relatively popular, Instagram is mainly aimed at young people, and Messenger has also launched a Kids version aimed at users under the age of 13. At the same time, Facebook Inc and Instagram respectively aimed at users who prefer words and pictures, WhatsApp added corporate users and payment functions.

Oculus is an important step for Facebook Inc to lay out VR and expand from software to hardware.

At this point, Facebook Inc's sub-products form differentiation, better covering the needs of different customer groups.

To buy an era that is not yet "addicted"

Now, Facebook Inc through direct control of products, monopoly subdivision of the track to firmly jam social this huge traffic entrance. But in fact, its earliest idea was not to buy it all and do it on its own.

Facebook Inc also wanted to try to make alliances with other companies. The most promising success came in 2011, when it chose Microsoft Corp to work with Skype, an online communications site it bought for $8.5 billion. The two sides signed a cooperation agreement to jointly launch a video chat tool.

The news immediately caused an uproar, which, in the eyes of most people, was actually a coalition against Alphabet Inc-CL C (Google+).

Apart from working with comparable companies, before the acquisition of Instagram, almost all of Facebook Inc's acquisitions seemed to be for technology, patents and talent (rather than products).

In 2007, it announced its first foreign acquisition, Parakey, which is a classic case of talent acquisition. Parakey is co-founded by Blake Ross and Joe Hewitt, who are famous for their core contributions to the development of Mozilla Firefox browsers.

Facebook Inc did not disclose the purchase price, and the two technicians are not interested in joining the company as directors. Joe Hewitt was later in charge of Facebook Inc's iPhone version, and as of November 2009, it became the most downloaded app in Apple Inc Store's history.

Another classic acquisition of Facebook Inc is FriendFeed, a real-time Feed stream aggregator that integrates content updates from social media and other networks. Facebook Inc negotiated the acquisition in August 2009 with $15 million in cash and $32.5 million worth of shares at the time.

For Facebook Inc, the driving force of the deal is still technology and talent.

Before the deal, Facebook Inc had integrated some key features, such as the "like" button, and the ability to refresh feeds in real time without manual operation, which were later highly sought after core features of the social network. It is precisely because of the purchase of FriendFeed,Facebook to get the patent behind the technology.

At the same time, Facebook Inc also managed to include four FriendFeed co-founders (Paul Buchheit,Bret Taylor,Jim Norris and Sanjeev Singh) and eight other engineers. And they all made important contributions to the maps of Alphabet Inc-CL C Gmail and Alphabet Inc-CL C.

Facebook Inc also acquired Divvyshot, a software that is quite similar to FriendFeed in 2010. This is a photo-sharing website that pioneered the ability to associate photos with locations, people and events. This function was then integrated into Facebook Inc, and the two founders, Sam Odio and Paul Carduner, naturally entered Facebook Inc's talent pool.

Everything is as Zuckerberg clearly said, once Facebook Inc buys a company, it gets the talent behind the company. And this kind of "recruitment" is almost the most effective way to ensure that Facebook Inc recruits people with the most creativity, execution and market acumen.

It was with the help of the employees and patents behind the acquisition of start-up companies in the early days that Facebook Inc built the lasting advantage and competitiveness of the products.

But since Instagram, things have changed.

Instagram: a new beginning

Functionally speaking, Instagram is not complicated, adding a filter to the photo and then uploading it, the threshold does not look high. But Zuckerberg's performance in the Instagram acquisition was unusual.

First, instead of following the usual practice and assigning a team to talk about acquisitions in a leisurely manner, he flew directly to the city where the Instagram founder was based and worked out all the details in three days. It was not until the transaction was confirmed that Facebook Inc directors and Instagram investors learned of the matter.

On April 10, 2012, Facebook Inc officially announced that he would buy Instagram, a burgeoning social networking company, for about $1 billion. This was a sky-high price for Facebook Inc, who was not yet on the market at that time.

Why did Facebook Inc try so hard to spend this large sum of money? Reasons include, but are not limited to:

Instagram represents a new trend in social networking, with millions of new users added every day at its peak.

Instagram pays special attention to the mobile end, which is very tempting for Facebook Inc, whose family has become rich on the desktop.

Many celebrities are using Instagram, so a large number of ordinary people rush in.

Instagram has great potential to generate revenue, Facebook Inc's own advertising model has been successful, and the proven advertising infrastructure can be directly reused on Instagram.

Instagram is likely to become one of Facebook Inc's main competitors.

Alphabet Inc-CL C or Facebook Inc's other rivals may try to buy Instagram, which will challenge Facebook Inc's market control in the long run. All the above reasons explain the significance of the deal. The only question is, is 1 billion dollars worth it?

Instagram was founded in 2010 by Kevin Systrom and Mike Krieger. By the time the Android version was launched on April 3, 2012, the number of monthly active users of the iPhone had reached 30 million. As soon as the Android version was released, the number of registered users exceeded one million within 24 hours.

As of April 9, 2012, Facebook Inc had about 35 million users (3000 million iPhones and 5 million Android users) when it made the offer. A month later, the total number of users immediately exceeded 50 million.

The above figures prove that Instagram is really worth it. Then when people talk about it, its fair value soars from $25 to $50 billion in 2017 to more than $100 billion in 2019.

Since then, the case has become one of the most profitable mergers and acquisitions in the history of the Internet. And the acquired object Instagram also began to play a huge role.

Buying WhatsApp is another miracle

Facebook Inc's willingness to pay $1 billion for Instagram was already buzzing in Silicon Valley at that time. But people had no idea that just two years later (early 2014), Facebook Inc again offered a sky-high price of $19 billion for another product. This is undoubtedly one of the most controversial and expensive acquisitions in the history of social media and the Internet.

When the acquisition took place, Facebook Inc had a market capitalization of about $170 billion. In other words, the acquisition accounts for 10 per cent of Facebook Inc's total market capitalization. Because of the huge cost, public opinion and even many social media veterans thought that WhatsApp was not worth the price. Some even criticize it as another repeat of the dotcom bubble at the end of the 20th century.

Of course, not all views are negative, and the voice given by the capital markets is relatively rational. After studying the views of 44 well-known analysts on the case, Townsend Media found that 37 thought the price was right and suggested Facebook Inc to buy.

It is worth noting that WhatsApp's revenue had just exceeded $10.2 million at the time of the acquisition (the business model at the time was to pay a subscription fee of $1 per user per year). After the completion of the acquisition, Facebook Inc took the initiative to cancel the fee, and from then on WhatsApp was transformed and opened to everyone free of charge.

The valuation of WhatsApp is undoubtedly worth focusing on.

Let's first look at the views of the parties involved in the incident. As an early investor in WhatsApp, Jim Goetz, a Sequoia partner, wrote an article as the deal came out, trying to prove that WhatsApp was worth the price with four numbers.

The four numbers are 450 million, 32, 1 and 0, respectively.

450 million is the number of active users when WhatsApp was acquired. Nine months ago, that number just reached 200 million, which is comparable to that of Twitter (TWTR.US).

32 is the number of engineers at the time of WhatsApp's acquisition. In other words, the average person is responsible for 14 million active users.

1 is the annual subscription fee charged by WhatsApp to users (free for the first year). It does not make money from advertising, users can pay a small sum of money for the experience. To this end, the two founders also asked Facebook Inc to promise not to pollute WhatsApp with advertisements (it turned out that the two founders paid the wrong money after all).

0 is the external marketing expense of WhatsApp. No marketing, no PR. Make products honestly.

Of course, we should not be partial to the views of stakeholders, we need to understand how the traditional corporate valuation is calculated.

Generally speaking, the valuation of a company needs to be based on the transaction price of similar comparable companies. This comparable company had better belong to the same industry, or even have similar market share, size, profit margin and financial structure.

Six years ago, social networking was so immature that it was hard to find target companies with WhatsApp-like market share, size, profit margins, and financial structure.

But there's always someone who can figure it out. Damodaran, a professor of finance at New York University's Stern School of Business who specializes in corporate valuation analysis, published a study in 2014 that identified the number of users as a key variable at the time. In addition, the degree of interaction between users, the degree of participation and the duration of user use are also of reference significance.

As mentioned earlier, Facebook Inc paid $19 billion for WhatsApp in 2014, when the latter had 450 million users, or $42 per user. Let's take a look at key data from several other mergers and acquisitions in social media and the Internet industry over the same period:

Instagram was valued at $1 billion in 2012, when it had 30 million users, or $33 per user

Facebook Inc was worth about 160 billion at the beginning of 2014. Combined with the number of monthly active users at that time, it was worth 1.28 billion US dollars per user.

Going back eight years, Alphabet Inc-CL C offered $1.65 billion for YouTube, which at that time had about 72 million monthly active users, or $22 per user.

Also in 2012, Microsoft Corp bought Yammer for $1.2 billion (known as the "corporate version of Facebook Inc," which was used by more than half of the company's employees on the Fortune 500 at the time). It had 5 million users, worth $240a per user. By comparison, the price paid by Facebook Inc for WhatsApp is not too high. Although WhatsApp's own payment model runs counter to Facebook Inc's free model, and WhatsApp's revenue has ceased to exist since the date of acquisition, it should be noted that the number of WhatsApp users has grown exponentially since it was acquired, from 450 million in 2014 to more than 1.2 billion in 2017.

With such a high base, it can be tripled in three years, which shows that Facebook Inc has a fierce vision.

But you will certainly continue to ask, at that time, spent a high price of 19 billion US dollars, how much did Facebook Inc earn now? How did it get it back?

Facebook Inc's "the way to make money"

Before we understand the business coordination strategy of Facebook Inc's sub-products, it is necessary to review how Facebook Inc made money in history and how it continued to drive revenue growth.

It is well known that Facebook Inc is an advertising company that sells users' time and attention. Its main form of advertising has always been Newsfeed information stream advertising, revenue = Ad total exposure * Ad price.

In terms of quantity, the total exposure of Ad depends on the total amount of content read and Ad loads. The longer the user uses it, the greater the total reading volume, which can be further divided into the per capita daily usage time * DAU; and Ad loads is the proportion of advertisements inserted in every 100 messages. The higher this number is, the worse the user experience is.

From the perspective of price, it is based on platform advertising pricing, but it is also affected by bidding. The more accurate the advertisement, the higher the bidding. Therefore, Facebook Inc will find ways to get enough user data to increase advertising prices.

Since the beginning of IPO in 2012, Facebook Inc's revenue growth drivers have changed many times:

Before IPO 2012: the rapid growth of users is the main driving force. At this time, the duration of DAU and per capita usage began to surge, but commercial realization was restrained, and information flow advertising was not yet the mainstream.

After IPO 2012-2014: focus on developing information stream advertising, you can start to apply the advertising revenue formula, advertising revenue = DAU * per capita Feeds * Ad load * Ad price

2014Q3-2015Q3:Ad loads begins to decline and Ad price drives income growth

2015Q4-2016Q4:CPM and Ad load dual-factor drive. The total exposure of Ad showed a positive growth after four consecutive quarters of decline (when Ad load, mainly from Instagram, rose sharply)

2017Q1-2017Q4:Ad price relays, MAU increases 17% and Ad load is flat.

From 2018 to now: the average advertising price growth rate has declined, driven by the increase in advertising exposure (mainly driven by Instagram Stories, Instagram Feed and Facebook Inc NewsFeed), the mature Instagram Stories has entered the commercial realization stage, while Whatsapp and Messenger are still in the stage of cultivating ecology.

Facebook Inc's army is connected vertically and horizontally.

All the changes listed above about Facebook Inc's revenue drivers are in fact closely related to the business coordination strategy of its sub-products.

Instagram is one of the earliest commercialized sub-products.

The foreshadowing has been laid since Emily White joined Instagram from Facebook Inc in March 2013. As head of business operations, Emily's role is the equivalent of Instagram COO, responsible for building a money-making machine for a company that has not yet made a penny.

The source of Instagram's money is that it can attract brand marketing and advertising investment. But different from Facebook Inc's traditional information flow advertising, Instagram's Story advertising form is more novel, and the visual effect is good, brand advertisers prefer.

Apart from the ever-changing presentation effect and recommendation algorithm of Story, the difference between Instagram and Facebook Inc for a long time is that it promotes weak relationships and pan-social, encourages users to use Explore functions to explore high-quality content on the platform, and encourages active sharing.

Later, it launched IGTV (which also competes with YouTube), focusing on UGC content that stimulates young audiences and grassroots creators. This is also quite different from Facebook Inc's own Watch, which is based on drama content and may develop miniseries, news, sports and other programs in the future.

Thanks to the above factors, it was officially revealed at the F8 conference in 2018 that the growth rate of Stories sharing on Facebook Inc's main app and Instagram far outpaced the information flow. They predict that by 2019, the absolute scale of Stories sharing and viewing will exceed the information flow itself.

From this point of view, it is not an exaggeration to say that Story reinvented Facebook Inc.

After Instagram, it is Messenger and WhatsApp that open the way to cash.

Different from Facebook Inc's application of the differentiation of information flow advertising to the Story of Instagram, the general idea of Messenger and WhatsApp is to promote the direct communication between B-end and C-end.

Both began global advertising tests for a limited number of users in mid-2017. To put it simply, it is a paid version of the official account, which charges merchants through interactive advertising services.

In early 2018, the two began a relatively slow attempt to cash out.

WhatsApp, which has more than 1.5 billion MAU, launched (WhatsApp Business) to business users for the first time to help small and medium-sized companies send marketing messages and have direct conversations with customers, with charges ranging from 0.5 to 9 cents per item. Messenger launched the Quick Replies function, where customers can reply directly to the enterprise and help end B get feedback in a timely manner.

In addition to business collaboration with sub-products, Facebook Inc also plans to connect the backend of Instagram, WhatsApp and Messenger so that they have different UI appearances but can share code architecture and user databases.

This is undoubtedly to enhance Facebook Inc's own commercial ability, after all, more data is conducive to the accuracy of user portraits and advertising.

In fact, when the sub-product is opened and realized, the recommendation algorithm of Facebook Inc's main application has also been changed many times. In recent years, its general idea is to give priority to showing the shared content of friends and family to increase social stickiness and reduce the proportion of media content to reduce passive video consumption.

Had it not been for the "Cambridge Analysis incident" and the resulting user privacy and security issues, perhaps Facebook Inc would have had a smooth journey.

The "Cambridge Analysis incident" stems from Facebook Inc's excessive use of user data, and users feel that their privacy has been violated. And the resulting years of shock, Facebook Inc also issued a pessimistic forecast in January 2019: its main App revenue growth may slow to less than 20% in 2019, because it is the main victim of product transformation pressure and user trust crisis.

Fortunately, Instagram is expected to grow by more than 60%, as there is still room for growth in terms of the number of users and time.

In March 2019, Facebook Inc ushered in a formal strategic transformation.

Xiaoza posted a blog post called "A Privacy-Focused Vision for Social Networking", confirming that all Facebook Inc's messaging apps and features (WhatsApp, Messenger and Instagram DM) will be encrypted end-to-end and get through the background (as well as Android SMS) to facilitate users to send and receive messages across platforms.

This article is the most profound and comprehensive reflection on the issue of user privacy and security by Facebook Inc and Zuckerberg since the Cambridge Analysis incident, and in a sense represents Facebook Inc's strategic shift.

However, it should be noted that although the sub-product business coordination has made progress and the company has begun strategic transformation, Facebook Inc has experienced frequent high-level personnel earthquakes in recent years.

Following the departure of several co-founders of Instagram and WhatsApp in 2017 and 2018, WhatsApp's chief product officer, Chris Cox, also announced his departure after the announcement of the company's strategic transformation declaration in March 2019.

The 35-year-old Chris Cox, who was originally the No. 3 figure of Facebook Inc, once dominated the birth and development of information flow. he became the most senior employee to leave after the "Cambridge Analysis incident", which proves to some extent the determination of Zuckerberg and Facebook Inc to make a strategic transformation.

And this transformation, to a certain extent, is also a change of the company's business model. Since Facebook Inc wants to shift from the flow of information shared publicly to the message application of private chat, apart from advertising in the revenue model, it is inevitable to move in the direction of payment and e-commerce.

This is seen as Facebook Inc learning from Wechat.

If there is no accident, Facebook Inc's transformation may last for a long time, such as the time it takes for products to get through and the need for caution in the transfer of main business. What's more, Facebook Inc also needs the ecological support of the regulatory environment and partners if he wants to get a piece of the pie in the field of payment and e-commerce.

For now, Instagram's further enhancement of social ecommerce may be the near-term direction. If it wants to cut into the deal directly from the marketing channel, it is likely to compete with Amazon.Com Inc and Pinterest, a social networking site rookie that went public this year.

In this regard, Alphabet Inc-CL C's Shopping Actions may be a negative precedent, although also according to GMV share, but its promotion has repeatedly encountered setbacks (Walmart Inc withdrew from the cooperation), on the contrary, the Checkout of Instagram is worth looking forward to.

Checkout is a service that Facebook Inc intends to promote for a specific brand this year. It can sell goods to more than 1 billion Instagram users without leaving the application, and the brand can handle logistics and customer service on its own, thus realizing the barrier-free purchase of Instagram.

This is conducive to increasing e-commerce revenue in a relatively short period of time. And by comparison, Shopify Inc, another e-commerce giant, has had a transaction volume of more than tens of billions of dollars in the past three years, with a compound annual growth rate of 75%. Perhaps Facebook Inc's e-commerce scale can expand at a similar rate.

In the next few years, we are expected to witness Facebook Inc's declaration at the F8 conference in May: to socialize as a starting point to expand e-commerce, payment and smart hardware business. In this way, anticipated new changes may take place in Instagram for e-commerce and WhatsApp for payment.