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How to innovate (and how not to), part 8: If you can’t beat ‘em, buy ‘em

In 2012, Facebook made its most bold and surprising acquisition to date by purchasing Instagram, a photo-sharing app created by two twenty-something Stanford University graduates. It was sold to Facebook for $1 billion – an amount that seemed astronomical at the time, even for Facebook. After all, didn’t Facebook already have the capacity to share, like and comment on images?

Part of this ‘chequebook innovation’ strategy, of course, was to neutralise competition (Google has been criticised for this and it could be argued Yahoo did this unintentionally). But Facebook also knew that the future was mobile and paid for the expertise. It was struggling to monetise on the trend due to its smartphone app’s inability to show ads.

In 2006, Google, purchased YouTube for $1.6 billion. Google already had the ability to host and share video, but YouTube had something no other video hosting platform could provide—a sense of community and user experience. Thomas Koulopoulos writes in his book The Innovation Zone, that the rationale behind Google’s decision was to buy a way to round out the company’s user experience. “By keeping the YouTube brand separate but connecting it to the experience of Google,” says Koulopoulos, “it created a fundamental innovation in its market without building a product.” Ten years later, the YouTube acquisition is considered by some to be the best technology deal of all time.

Large companies have historically underestimated the threat of startups, and, in the ‘exponential era’, where we’re seeing the fastest growing companies in history, that threat appears to be growing. This is why it’s important for incumbents to conduct ‘maverick scans’ and look for outliers that identify key trends. They’re often like chalk and cheese, culturally, but bringing these outliers into a bigger beast can also be a good way for large companies to embrace future markets and potentially find the next bunch of leaders who have the right skills and understand the modern business environment.

Idealog’s official rating: 7 / 10 – If you’ve got the money (and the taste), great. Just ask Google. But, the risks are enormous. Just ask Marissa Mayer about her 53 acquisitions as Yahoo CEO.

Method 1: Wait for the eureka moment

Method 2: Follow the word of God

Method 3: Try, try and try again

Method 4; Fail fast, act small, embrace big

Method 5: Become the centre of an ecosystem

Method 6: Refine your process

Method 7: Work the crowd

Review overview