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Facebook considered investing in Chinese mobile conglomerate Xiaomi, according to sources that dished to Reuters. The deal didn’t pan out for a range of reasons, from political concerns to investment conflicts, but could point toward a new focus for Facebook on strategic investments.
Smartphone maker Xiaomi is one of China’s most promising tech companies, and China is a market that Facebook has been eyeing for some time now. An investment in Xiaomi would potentially give Facebook more power in its ongoing campaign to enter China, where the social media site is currently banned. But such an investment could also anger the Chinese government, causing problems for Xiaomi. Ultimately that concern, plus the fact that Facebook competitor Google is a key Xiaomi partner with its Android platform, kept the deal from going through.
Strategic corporate investing isn’t a new tactic for major corporations. Companies from Google to Intel to Samsung have venture investing arms that do this full time. Even the likes of Walgreens and 7-Eleven have them. It’s actually kind of surprising it’s taken Facebook this long to get in the game. It has served as a partner in venture funds administered by other firms before, like Kleiner Perkins’ sFund and the seed fbFund run by Accel and Founders Fund, but hasn’t built its own branch.
The purpose of corporate investing is two-fold. It’s an investment that can return dividends for a company down the line — see: Yahoo and Alibaba, or even Microsoft and Facebook — but it’s also an opportunity to open doors to partnerships, new talent, and technology; see: Google Maps and Uber. It helps corporations stay on the cutting edge of new developments and keep themselves relevant. But in the past Facebook hasn’t developed this tactic, choosing instead to acquire companies for its fresh talent, technology, and vision needs.
Now might be the time to change that strategy. Facebook is bigger than its ever been before and it’s experimenting with an unprecedented level of new ideas, whether virtual reality (see Oculus Rift) or mobile app development (see Parse). By adding a investment arm, the company can more quickly and easily explore new markets, geographies, and industries, while potentially bringing in returns for itself in the future.
And as others have pointed out, a venture investment arm would also help Facebook retain long-time talent, product managers, designers, and executives who are looking to take the next step in their career and wind up leaving Facebook to do so.