Facebook's WhatsApp Buy Is More About Not Losing Than Winning

A sketch of founder and CEO Mark Zuckerberg is seen on a wall at the new headquarters of Facebook in Menlo Park, California January 11, 2012. The 57-acre campus, which formerly housed Sun Microsystems, features open work spaces for nearly 2,000 employees on the one million square foot campus, with room for expansion. Picture taken January 11, 2012. Robert Galbraith/Reuters

Just two years ago, Mark Zuckerberg could have auctioned off an old pair of his shower shoes for more than WhatsApp was worth.

This is what's thrilling about technology right now - and terrifying for a dominant company like Facebook. A little zygote of technology can grow into a runaway monster valued at $19 billion in little more time than it takes for a Katy Perry song to become annoying. By WhatsApp's fourth year of life, it had three times more users than Facebook did at Year Four, and eight times more than Twitter in its Year Four. The spikes have never been spikier.

Facebook is in a tough position from here on out. In a new era of "big-bang disruption," as a recent book labels it, Facebook is primed to be disrupted. Facebook has been on top for an insanely long span, as measured in technology time. The company is now 10 years old. It has more than 1 billion members worldwide. It had its initial public offering. It had its movie. It won.

And winning brings its own unique tests. Once a company, team or individual is at the top for a while, a muddying dynamic can set in. This dynamic is eloquently described in The Game, a 1983 book by Ken Dryden, former Montreal Canadiens goalie and Canadian Member of Parliament. In his opening pages, Dryden describes what it's like to play on a team so dominant in the 1970s that it won five championships in seven years.

The expectation had set in that the Canadiens would always be champions - that anything less would be a disaster. "We have set a standard we cannot match, so, competing against ourselves, we lose," Dryden wrote. "Joy becomes obligation, satisfaction turns to relief, and the purpose of winning becomes less to win, and more not to lose."

Facebook seems to be playing not to lose, because, like Dryden's team, it has everything to lose. Every dominant technology company eventually finds itself in that position. IBM, AOL and Microsoft have been there. So have countless others in countless tech sector companies: Wang, Lotus Development, BlackBerry. Google is there now, battling to stay as relevant in the mobile era as it was in the Internet browser era.

Few companies get to a summit and find another one they can climb. Microsoft couldn't do it. Bill Gates's squad reigned over personal computers like Godzilla over Tokyo. But now that PCs are a mundane tool and the excitement has moved elsewhere, Microsoft is left making a lot of money (earnings of $5 billion in 2013) while suffering from the public perception that it has lost (as reflected in its stock price, stuck at 1998 levels).

When you've so long been a winner, all you have to do is lose just a little to get pummeled.

WhatsApp showed that Facebook now has this problem, and that Zuckerberg's most prudent strategy going forward is to play whack-a-mole with Facebook's IPO bounty, hitting on anything that looks like a new winner in the space where he is expected to win.

This started in 2012 with Instagram, a $1 billion purchase. Then Facebook tried to snag Snapchat for $3 billion. Now it's WhatsApp at $19 billion. And WhatsApp won't be the end of the big-bang disruptors. They will come harder and faster.

The cost of creating new companies offering new products or services has dived over the past decade. As Larry Downes and Paul Nunes explain in Big Bang Disruption: "When cost is low and expectations are modest, entrepreneurs can just launch their ideas and see what happens. In the Bizarro world of big-bang disruptors, it is perfectly rational to churn out dozens of new products and see which ones take hold. Most will fail outright. But just one success can pay off big."

The hyper-networked world means that when something catches on, it catches on in a lightning flash. Facebook can only scan the horizon and wait. "Companies like Facebook have to walk a tightrope here," Downes told me. "Acquire too soon and you get just another failed experiment. Acquire too late and you have to pay for the entire winner-take-all market. Once WhatsApp reached 1 billion users, I suspect, there would have been no sale to anyone other than the public market."

In other words, Facebook couldn't have acted much earlier to buy WhatsApp - or any later. WhatsApp could have become a billion-user competitor in another year.

There's another insidious effect of dominance on a company like Facebook. Imagine what Facebook's best young employees are thinking after the WhatsApp deal. WhatsApp has about 55 employees, so at $19 billion the company is getting about $345 million per employee.

That's eye-popping, obviously. Plus it's always more fun to play to win than to play not to lose. The more the industry churns out these big-bang hits, the more the smartest people will be enticed to leave established champs to join the usurpers.

Could Facebook turn this around and play to win? Possibly, if it articulates a thrilling goal and commits to it. Facebook's stated mission right now is: "To give people the power to share and make the world more open and connected." Which sounds more akin to a Coke commercial than an inspiring quest. If that's "winning" to Facebook, I'm not quite sure what winning looks like.

In that light, it is hard to believe Facebook is paying $19 billion for WhatsApp's upside. More likely, Facebook paid that much to protect its own backside.