Zuck’s 3-dimensional chess game

Two billion dollars for Oculus. I could not believe that Zuckerberg would pay that kind of money for a character from Mad Max 2: The Road Warrior. Oops, turns out that the character in the movie was called the Humungus, not Oculus. My bad.

By all accounts, Zuckerberg is a very smart guy, much smarter than I am. He’s got to be playing some sort of 3-dimensional chess game with Facebook’s future and all we can do is study his tactics and take a guess at his strategy. Instagram for $715 million. Not profitable, but they had lots of users and were encroaching on a function that Facebook deemed to be critical for the future of social media —photo sharing. WhatsApp, nineteen billion dollars. Again, not turning a profit, but the company had phenomenal user growth and a very strong international presence. I can’t see why it’s worth nineteen billion dollars, but adding 450 million users to the FB empire seems like a smart decision. Facebook isn’t exactly paying cash for them anyway.

Oculus, two billion dollars.

Two billion dollars for what seems like a really fancy science project. This is no tactic; this is strategy. It’s like when Bobby Fischer sacrificed his queen at the Rosenwald Memorial Tournament. It was an expensive move that offered no immediate gain. No one knew why he did it but, considering the player, no one walked out on the game. Only Fischer knew that he was making a play—taking on risk he deemed acceptable—to ultimately assume control of the board.

Zuckerberg is seeing something that I don’t. Virtual reality is hard to do well and, even though Oculus has some very smart people working on it, I don’t see the fit in the short term. Therefore, Oculus must be a REAL long-term play for Facebook.

That’s the difference between venture investing and private equity investing.

Zuckerberg and company have to place big bets and risk making huge mistakes in order to control the future of big markets. In the middle market we can’t afford to make huge mistakes. There are no white knights willing to pay billions for science projects in the middle market. Ours is a different game. We’re not playing 3-D chess in the middle market, we’re boxing. It’s a sweet science that combines nuanced tactical action with straightforward strategy. Our long game requires us to win one round at a time— customer by customer —and I’m plenty tough enough to do that.