Facebook Inc., the world’s largest social network, is planning acquisitions that will improve site design, keep its service reliable and advance mobile features to stave off competition from Google Inc. and Twitter Inc.
The company aims to make about 20 purchases in 2011, up from 10 last year and one in 2009, Vaughan Smith, Facebook’s director of corporate development, said in an interview.
Facebook is betting that a focus on design will entice people to spend more time on the site, while adding mobile services can cater to the growing number of members using handheld devices. As it grapples with competition from Google and Twitter, Facebook also must bolster its system so the site runs smoothly amid rapid growth. The company has made 13 acquisitions so far this year, including adding a mobile group-messaging service it rolled out to users this month.
“Two years ago we didn’t have a track record in acquisitions,” Smith said. “While we expected them to work well, it was still a crapshoot how they’d turn out. We’ve built a culture that supports entrepreneurs, and it’s working incredibly well.”
Facebook makes money from advertising and by taking a commission when software developers sell virtual goods on the site. As a closely held company, Facebook doesn’t disclose financials. A person with knowledge of the matter said in May that the company is likely to generate more than $2 billion in earnings before interest, taxes, depreciation and amortization this year.
In addition, Facebook has raised more than $2 billion from investors, including $1.5 billion from an investment led by Goldman Sachs Group Inc., announced in January.
By contrast, Google has $39.1 billion in cash. Google, the biggest Internet search engine, unveiled a new social-networking service, called Google+, in June. It already had attracted 29 million people by the end of July, according to ComScore Inc.
Facebook, based in Palo Alto, California, has made mostly small acquisitions, with target companies sometimes having one or two employees. The company has a market value of $72.5 billion, according to SharesPost Inc., an exchange for private shares. That’s more than the valuations of publicly traded Internet companies such as EBay Inc. and Yahoo! Inc.
The company can use cash and stock for acquisitions, according to Lou Kerner, an analyst at Wedbush Securities Inc. in New York. Facebook also can sell shares in the secondary markets for additional cash.
“I don’t think a lack of cash, even on their balance sheet, is a significant deterrent for the acquisitions that they’re looking at,” said Kerner, who declined to estimate how much cash the company has for purchases.
Many of Facebook’s deals have been targeted at adding talent as the company vies with larger rivals for skilled technology workers. Google has announced plans to hire about 6,000 people this year globally.
“Facebook is just trying to get the smartest people possible in any way it can,” said Debra Aho Williamson, an EMarketer Inc. analyst. “The idea of bringing in new talent, smart talent, people who have created interesting products that Facebook can capitalize on, is going to be important to them.”
Facebook has been sharpening its focus on mobile, which is how more than a third of users access the site. In February, the company acquired Beluga, a startup that helped users send messages to groups of people through their mobile phones. Facebook earlier this month introduced its own application -- based on Beluga’s technology -- that handles messaging on Apple Inc.’s iPhone and phones based on Google’s Android software.
“The future of all computing is mobile,” Wedbush’s Kerner said. “Mobile, I think, is the top priority at the company.”
Snaptu, a mobile startup Facebook acquired earlier this year, was bought for about $60 million, according to a person familiar with the matter. Smith said he is open to larger acquisitions, but declined to be more specific.
On top of its mobile-computing push, the company has added services that let users manage their friends by groups or ask others questions on the site. As new features pile up, Facebook needs to manage its user-interface design, said Josh Bernoff, an analyst with Forrester Research Inc. in Cambridge, Massachusetts.
“The challenge is that Facebook does a lot more things than it used to,” Bernoff said. “To get that all to be easily navigable is not simple.”
Sofa, Push Pop
Purchases in design this year have included Sofa, a software and user-interface company, and Push Pop Press, which offered publishing software for touch-enabled devices.
The average U.S. Facebook user spends more than seven hours a month on the service, according to ComScore. With the jump in users -- to more than 750 million from 500 million in July 2010 -- as well as exponential growth in applications and products, the company is working to manage rising complexity in its vast computer systems. To help, the company opened a new data center in Prineville, Oregon, earlier this year.
Still, Facebook has yet to make an acquisition in computing, and may seek to buy companies with technology and workers that will help it strengthen its system.
“They have to over-plan for massive growth,” said Jeremiah Owyang, an analyst at Altimeter Group in San Mateo, California.