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Facebook and the Cloud Bust

Stocks in this article: FB GOOG AMZN PCLN

NEW YORK (TheStreet) -- Having covered technology since 1982, I have learned that it's a gold rush. It's subject to booms and busts. The survivors are those who understand, during the boom, the long game of getting through the bust.

Facebook (FB) CEO Mark Zuckerberg is playing that long game. He believes the key to surviving the next bust is having enough traffic to fill his company's clouds, while having enough cloud capacity to compete with other expected survivors such as Google (GOOG) and Amazon  (AMZN).

Seen through that prism, Facebook's acquisition of WhatsApp, a mobile-messaging provider, was less a stroke of brilliance than a savvy survival tactic.

The deal, for $19 billion in stock and cash, puts Facebook in the global messaging business and can drive new cloud investment.

That investment is definitely coming. During 2013, Facebook had capital expenditures of $1.36 billion, according to CSI Markets. Sounds big, but it's less than what Google spent in either of the last two quarters, and less than half of what Amazon spent over the year. 

Facebook is making up the difference through its Open Compute Project, an effort to get major hardware players on board with a single, compatible cloud structure, the same structure it's using in its own operations. When the cloud boom busts, Facebook hopes it can rent capacity its rivals have to shutter.

The other side of this strategy involves filling clouds with profitable business. Google does that through search and other services related to search. Amazon does it through commerce and through capacity rentals.

Facebook has decided to compete on the revenue side by building a collection of big communications services. WhatsApp will be run independently of the main company, just as Instagram is run, driving its own business model rather than having Facebook's ad-based model bolted on to it.

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