Analysis: What’s Behind Facebook’s Friendfeed-Style Acquisition of Beluga?
Facebook added yet another small group of talented developers and product managers to its stable today with the acquisition of Beluga.
With Facebook’s focus this year on bolstering its mobile platform and offering a Messages product that seamlessly ties the web and mobile together, Beluga is a nice fit with the company’s overall direction.
Also, with Facebook acquiring not only the Beluga team but the startup’s technology, the acquisition resembles the way the company bought Friendfeed in 2009 and kept its service alive indefinitely.
Here is a bit of context for how to think about the acquisition:
Group messaging, while hyped, is actually not a cheap business to run: Compared to most of the consumer-oriented startups we usually write about, group messaging has high operational costs beyond covering headcount without the immediate cashflow.
The business that is benefiting most financially from the group messaging wave right now is not Beluga or rival GroupMe. It’s Twilio, which is likely making a mint from charging these startups for API access when they need to plug in SMS. Twilio’s standard rate to send or receive a text is two cents per message although there are cheaper deals for high-volume access. GroupMe said it was doing about 1 million messages a day two weeks ago. While we don’t know details on GroupMe’s Twilio deal, it’s no wonder why the company had to raise $10.6 million from Khosla Ventures in January. Beluga sidesteps many of these costs by resorting to SMS only when a user doesn’t have either the Android or iPhone app, but their costs were still sizable.
That said, SMS is a major cash cow for the carriers. Disrupting it could be a large and lucrative opportunity.
Facebook and Beluga probably weren’t in acquisition talks as of three weeks ago: I wrote an article about the company’s savvy combination of mobile and social virality tactics three weeks ago after hearing that the Facebook mobile team was impressed with Beluga. When I mentioned this compliment to co-founders Ben Davenport and Lucy Zhang a few weeks ago, they seemed flattered and surprised.
The acquisition probably happened quickly while the Beluga team was putting out feelers for angel and venture funding. In fact, if you look at Beluga’s number of monthly active users connected to Facebook on AppData**, they peaked and started dropping about a week ago — so maybe that’s when they were talking! The speed is typical of Facebook’s acquisition strategy (which you can read more about in this interview with the company’s director of corporate development Vaughan Smith).
The Beluga team has historically worked for more mature companies: Zhang, Davenport and Jon Perlow have all tended to work at more mature technology companies. Davenport and Zhang joined Google in 2003 and Perlow joined in 2004, which is well after Google had left the startup stage. Before that, Perlow and Davenport were at Microsoft while Zhang was still in college. Being at a company with the traction and maturity Facebook has might be a great fit compared to going it alone for a team with their talent and history.
Group messaging is a long-haul product that would take many years to scale and monetize: It’s like e-mail or chat; it probably works best as a side product that encourages stickiness to a greater suite of services the way Gmail gloms onto Google search or the way AIM worked for AOL for years. Considering that it would need to be free to consumers to scale, group messaging would take several years to grow sufficiently and monetize. However, like we said above, disrupting SMS is an interesting and potentially lucrative opportunity.
Facebook really needs talent that understands the intersection of mobile and social: There is something to be said in favor of Union Square Ventures’ Fred Wilson’s argument that mobile may be what undoes Facebook’s dominance. Even though Facebook has the most popular standalone smartphone app in the world, its platform strategy is lagging. Many of the all-time top iOS developers have no connection to the Facebook platform whatsoever as a high app store ranking, the address book and maybe a Game Center or OpenFeint integration are sufficient for user acquisition at this point in time.
Facebook could be doing a lot more on the mobile platform front: for starters, it could offer social recommendations of mobile apps within the standalone app itself. Secondly, Apple and Google may understandably be hesitant about giving Facebook genuine reach into the iOS and Android platforms especially as they bolster enforcement around payments. Thirdly, after the company tightened virality and effectively taxed its platform with Credits, some developers who once saw the Facebook platform as full of opportunity are shifting their attention to what they believe are greener pastures on Android and iOS.
Lastly, the HTML5-heavy strategy Facebook is pursuing will take several years to bear real fruit, considering how developers are still turning to native mobile apps above web-centric ones.
**Beluga uses Facebook to add users but doesn’t require a persistent connection to the platform, so this number is an indicator of how fast the app is adding new users. It does not measure overall usage. The AppData number also excludes Beluga users who don’t sign-up through Facebook.