Monday, February 22, 2010

Facebook Buys Malaysia's Octazen Solutions

(Excerpts culled from , , )

Facebook has bought up under-the-radar Octazen Solutions in what the company says is a “small talent acquisition.”

Facebook spokesperson Larry Yu described the buy as a “talent acquisition,” saying Octazen’s two employees have joined Facebook as engineers. As he put it in a company statement on the acquisition he sent via email:
“We’ve admired the engineering team’s efforts for some time now and this is part of our ongoing effort to add experienced, accomplished technical talent to help drive the company forward in its efforts to be the central way for people to connect and share information.”

Elanne Kwong (20090221-141445)

Octazen’s software helps sites like Facebook grow by making it easy for users to invite their contacts on other services. When Octazen receives an email address and password it fetches a list of contacts and puts them in an array for customers to use and store (and hopefully not abuse!). Octazen has taken down most of its site in light of the acquisition, but archived versions show it charged for software licenses between $39 and $200 per domain server plus a yearly update fee.

Octazen describes itself on its website as a “webmail contacts importer” and Facebook was already using the firm to “grow its number of users by encouraging them to invite their email contacts.”

This is Facebook’s first acquisition since it purchased social sharing service FriendFeed over the summer in a deal that was also described as mainly being driven by a desire to add talent.

However, unlike FriendFeed—which continues to operate separately seven months later—Facebook has already moved to shut Octazen down; an on the Octazen website says the company is winding down operations and will no longer accept new customers.

What exactly has Octazen been up to? The company is mostly about above-board contact importing from one service to another – signing in to Gmail from Facebook, for example, to import your contacts there and add them as Facebook friends. Much of this is done via OAuth and APIs, but Octazen is known to dive much deeper for data.

One example – Octazen will sometimes collect and store user credentials directly, and sign into large social networks and other sites as if they were the user, say multiple sources. Then they’ll download the address book and social graph. A percentage of your friends on that service might be users of the service (now Facebook) paying Octazen, and you’ll be asked to friend them. But there’s a big question about what happens to the rest of the data as well, and if Octazen is storing a shadow social network in violation of terms of service to recommend user connections down the road. And they may look deeper at data than they should – at email header information, for example, to get a better understanding of who you communicate with the most.

But the most unnerving part of Octazen, say our sources, is the fact that they are very, very good at scraping data at scale without being detected. They may hit a service using lots of different IP addresses, for example, and remain undetected. Octazen could, they say, scrape very public sites like Twitter, where the social graph is on each profile, in a way that Twitter wouldn’t know it’s happening.

Facebook already uses Octazen to mysteriously determine your long lost friends and suggest that you re-connect with them (leading to scores of emails into our inbox that Facebook is somehow reading emails or otherwise getting data they shouldn’t be).

The big question is why Facebook would need to acquire a company located half way around the world if all they were doing is standard address book imports via OAuth and APIs, or proprietary but well documented protocols like Facebook uses. The implication is that these guys have serious expertise in data gathering at scale that may sometimes be in violation of the terms of service of the sites being harvested.

This is obviously just one side of the possible story, albeit based on hard evidence of Octazen’s shady prior practices and via multiple sources. But until Facebook explains this acquisition in more detail, we don’t have much more to go on.

Here are three reasons All Facebook wrote as possible reasons for acquiring Octazen:

Simple Talent Acquisition

Facebook needed a team which could constantly monitor changes to third-party email providers to ensure that they retain the ongoing viral growth. Octazen, a company Facebook has already been working with, provided this ability and will help ensure that Facebook’s contact importer will function through part of the company’s most critical growth phase: the race to 1 billion users.

While the company didn’t need to acquire the company, locking in the developers behind Octazen for at least a few years will ensure that Facebook has the developers’ full-time attention (despite not having oversight of the developers who are based in Malaysia and will remain there).

Protect Their Viral Growth

There is a small chance that Octazen currently has information which is extremely proprietary which helps ensure Facebook’s contact importer continues to function. In order to protect that knowledge, Facebook locked in the developers and bound them into an agreement in which their technology could not be used for any other organizations. That would explain the following statement on the Octazen Solutions website:

The Octazen team wanted to let you, our valued customers, know that the company recently received an offer to acquire most of the company’s assets and to employ those assets in a different direction. After carefully evaluating this offer, our team believes this is a wonderful opportunity of which we must take advantage.

As a result, effective immediately, Octazen will no longer accept new service contracts or renew existing service contracts, and will enter a transition period to wind down operations.

A Simple Present Value Calculation

Facebook may have been paying significant fees to the Octazen solutions company. Given that they knew they would be paying those fees for at least the next 3 to 5 years, Facebook decided to do a simple financial calculation and figure out the present value of the future outgoing cash flows to maintain the contact importer. Add a little on top of the present value and you’d get Facebook’s acquisition price which just made financial sense.

(I guess all Malaysians would like to know what price they paid the two guys. Its obviously a talent acquisition plus they probably have something they are doing which may be better exploited and protected at a place like Facebook. It would not be a big sum for sure or else, they couldn't tie the two down to work at Facebook. I am thinking in the region of US$10m, with contractual periods to work hand in hand with Facebook team of engineers).

p/s photo: Elanne Kong

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