“The biggest risk is not taking any risk. In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks.”
So said Mark Zuckerberg in October 2011, seven months before Facebook’s $104-billion IPO.

Since then, the company’s market value has had some ups and downs, but rather more of the former than the latter, reaching a peak market value of close to US$250 billion, incredible for a company that is just 11 years old.

Along the way, it has made quite a few acquisitions. Many of these have been small investments in technology, capabilities, and people. Others have been much larger, and arguably highly defensive in nature. The latter includes the purchase of WhatsApp for US$22 billion in February 2014 and Instagram for US$1 billion in April 2012, just before the IPO. Both target companies were rapidly gaining traction with consumers for applications that were dangerously close to Facebook’s core business. So buying these businesses made eminently good sense, even as a purely defensive play.

Millions of technology students and would-be entrepreneurs dream of turning their ideas into something worth a billion dollars, or even more. But what about the opposite? In every industry, the largest companies have typically been built by a combination of organic growth and major acquisitions. Indeed, in many sectors, there has been no alternative to M&A if you have wanted to stay near the top of the curve for economies of scale.

But no matter what the attractions of large-scale acquisitions (and I’ve seen plenty in my career), it’s important to remember how many companies have managed to turn $10-billion investments (or even more) into nothing, in just a few short years.

Microsoft acquired the mobile phone business of Nokia in April 2014. Barely a year later, it announced that it was writing off virtually the whole of its investment. As the Financial Times commented at the time: “The near-$8.5bn hit to profits also underlined a fact that has become hard to ignore: Microsoft’s rearguard action to keep the Windows operating system at the centre of the tech world is officially over.” The company had turned to M&A at the eleventh hour to attempt to plug its blind spot in mobile devices, and had singularly failed.

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