Power in Acquisition Relationships: Facebook Acquires tbh
Source: https://techcrunch.com/2017/10/16/facebook-acquires-anonymous-teen-compliment-app-tbh-will-let-it-run/
Anyone with even the slightest notion of market fairness understands the risk of gargantuan companies like Facebook acquiring startups. At some point, it becomes questionable whether these acquisitions add enough societal value to outweigh the adverse effects of increased market share for the top few corporations. Moreover, fairness at the level of bargaining between giant companies and to-be-acquired startups is thrown into question. How can a startup such as tbh, an anonymous teen compliment app, really leverage any sort of power in their negotiations with Facebook? If we consider the “network” (Figure 1) of outside options for each company, the picture becomes even bleaker for any company not named Facebook, Google, Microsoft, or Amazon. If the startup is not willing to strike an acquisition deal with a company with established market share, they run the risk of being competed away by the massive engineering talent at these enormous companies.
These are all valid concerns; monopoly power is a real market imperfection that needs to be corrected. However, the situation may not be as bad as you think. Startups like tbh do really have a lot to gain by being acquired by companies with more resources from which to draw. In particular, tbh will benefit greatly from deeper pockets, increased engineering talent, access to anti-spamming technologies, and a wider reach by tapping into Facebook’s already enormous user network. These increased benefits do in turn generate true societal value if the product was one that offered gains to consumers in the first place. Additionally, tbh may have been able to pressure Facebook by leveraging the threat of acquisition by one of Facebook’s competitors. The article above discusses how “The last thing [Facebook] needed was tbh ending up being bought by Snapchat.” This would not be a problem for Facebook if it was confident in its ability to acquire or develop a similar product, which would thus expand its bargaining power over tbh. However, past failures of other knock-off applications only reassert tbh’s power in the deal.
Regardless of whether we consider the deal to favor Facebook or tbh, it is reassuring to recognize the ability of this deal to truly mutually benefit both companies. Hopefully this is enough to ensure added value for consumers of the product.
Figure 1: Power in tbh Network