Facebook has become one of the most successful technology companies in the world by growing its own platform and by making smart purchases.
The social media site has steadily grown its user base while successfully integrating bold purchases. It's a bold, two-pronged strategy that has worked so far, but pursuing one or the other may be robbing focus.
If Facebook was to spend less time on acquisitions some argue it would have more time to work on growing its core platforms. Of course the converse may also be true. The company might be better off buying its way to growth and leveraging the Facebook platform to support those products.
It's not actually a choice the company has to make, but it's worth considering which is the better path to faster growth.
Facebook has a lead over all other social media sites. Source: Statista
Tim Brugger (Organic growth): In part, Facebook has only itself to blame for concerns about future growth in that its results -- both financial and its number of active users -- have been off the charts quarter in, quarter out, for years.
One look at last quarter demonstrates Facebook's stellar performance. Not only did it break the $4 billion in revenue milestone in Q2, Facebook now boasts just shyof 1.5 billion monthly active users, or MAUs. To put that figure into perspective, about half the world's connected population log on to Facebook at least monthly, and nearly a third join their "friends" every day. Which begs the question: How can Facebook maintain its heady growth numbers?
There's certainly nothing wrong with looking outside its own walls for opportunities: Oculus and WhatsApp each have the potential to add significantly to Facebook's bottom line. But shopping isn't necessary to grow Facebook's MAUs, and by extension its ad revenue, thanks to CEO Mark Zuckerberg's Internet.org initiative.
Using solar-powered drones and aligning with partners like India's Airtel,Facebook is already making Internet connectivity available to more users than ever. The deal with Airtel will continue to ramp-up in the coming months to bring the Internet to users across Africa. And Facebook is just scratching the connectivity surface.
There are an estimated 7.2 billion people on planet earth, of which "only" 3 billion are online. Imagine if Facebook were able to maintain anything close to its MAU numbers on a relative basis as the globe's four billion unconnected consumers slowly but surely come online. Facebook lives on ad revenue, and that's driven by targeting spots to all those MAUs. As Facebook's MAU figure continues to climb thanks in part to Internet.org and similar efforts, sales are sure to follow.
Daniel B. Kline: (Grow your own new businesses): Facebook has actually done a good job in making smart acquisitions and in growing organically. For example, while it paid a big price, buying WhatsApp extended its reach and gave it a second platform that has the potential to be nearly as big as its core brand. On the organic growth side it nurtured its Facebook Messenger audience before spinning the product off as its own wildly successful app. Where the social media giant has failed is in truly thinking outside the box. The company has done a good job expanding its reach within its wheelhouse. But, while its ad sales rival Google has dozens of "moonshot" ideas in development, Facebook has been very conservative. The company did buy Oculus, and moving into virtual reality is a step in the right direction, but the company has not directed enough attention or resources into truly revolutionizing its business.When it launched, Facebook began changing how people interact. It was wildly successful in doing that, but since the original revolution the brand has only moved incrementally. To continue its impressive trajectory the company needs to put resources into doing things that are not logical. Many of these ideas won't pay off or may never reach market, but as Google has shown some will. Only by dreaming and reaching will Facebook equal or surpass its current success. That's a lot to ask for, but there are few companies capable of devoting the time and money it takes to turn dreams into reality.
Brian Stoffel (Both): Companies like Facebook come around once in a generation -- they truly serve a bigger purpose than simply making profits. CEO Mark Zuckerberg has stated as much on a number of occasions. So when it comes to growth via acquisition or organic means, my answer is to do both.
In the end, the mission of Facebook is crucial: to give people the power to share, and make the world more open and connected. Facebook could accomplish this mission via organic growth. For instance, by helping make Internet access more readily available in under-developed nations, it could increase the usage of its core Facebook site, and thus, revenue from the site.
But it could also help forward this goal via acquisitions. Instagram and WhatsApp are two classic examples of acquisitions that are enabling Facebook to help people share and connect the world. The former is now profitable, and the latter has experienced impressive growth since being acquired.
I expect the company to continue pursuing initiatives that further its mission for decades to come -- whether that be via organic growth, or through acquisitions.
The article Should Facebook Grow Organically or Go Shopping? originally appeared on Fool.com.
Brian Stoffel owns shares of Facebook, Google (A shares), and Google (C shares). Daniel Kline owns shares of Facebook. Tim Brugger has no position in any stocks mentioned. The Motley Fool owns and recommends Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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