Thursday, August 20, 2009

Innovation Strategies: Facebook's Acquisition of FriendFeed

The Wall Street Journal (WSJ), in collaboration with MIT's Sloan Business School, came out with a Journal Report on Innovation this past Monday. It's a must read for most business professionals, especially for those who work in areas with a heavy focus on R&D and technology. Reflecting on my 12-year history with software technologies, especially on my enlightening time at McKinsey & Company, I learned the importance of innovation. Now that I'm currently working on some green field projects that are providing new products and services within the financial industry, I also see the importance of the strategies employed to seek innovation and stay competitive while maintaining low costs.

In leveraging certain strategies, some business executives believe they gain innovation, a competitive edge, and cost benefits through acquisitions of other organizations. In reality, after the attrition of some of the workforce during the re-organization that always eventually ensues, the business only gains innovative products and short-term cost benefits. Products are not the source of an organization's innovation. It is the talent pool of laborers within the organization, whether in R&D, engineering departments or elsewhere. I see this struggle when financial companies, seeking to provide such things as innovative high-frequency trading services, under appreciate the value of the engineering talent pool and focuses solely on the headcount costs. Losing talent, in many cases, also means losing domain knowledge and the innovation that comes with it.

In my first post regarding innovation, I'd like to point to a recent event in the technology world where a specific strategy to gain innovation was used, the acquisition of FriendFeed by Facebook (see TechCrunch's take on the acquisition here). Now FriendFeed had 989,000 unique users in June. Compare that to Facebook's 340 million, all according to comScore, and you can see that the acquisition wasn't done for market share. There was also a clear overlap in features and functions in what both Facebook and FriendFeed offer. So what was Facebook's angle in doing the acquisition? Talent acquisition. FriendFeed's 12 employees, all but one is an engineer, clearly demonstrated their ability to quickly innovate and deploy new products. Products that raised the bar on what Facebook could currently offer with it's comparable features. This talent pool was the asset that Facebook sought, especially in their quest to competitively battle Twitter. (Note: Facebook failed to acquire Twitter last year.)

Although the future of the FriendFeed application remains uncertain, the belief is that the talent pool from FriendFeed will integrate the existing features onto the current Facebook application and further their innovative design mind-set within the engineering organization at Facebook. In their WSJ Journal Report article on innovation, "Finding an Innovation Strategy That Works", Frank Rothaermel and Andrew Hess state, "...we found that the most effective way to achieve continuous innovation over the long term is to hire and cultivate talented people."

To learn more about Facebook's need to absorb FriendFeed's innovative features, as written by CNet, click here.

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