Google's Rules of Acquisition

waderoush writes "For many startup entrepreneurs, getting acquired by Google is the dream exit. But these days Google is getting a lot more discriminating about what kinds of companies it buys — and a lot more careful about how it integrates newly acquired teams. This article offers an in-depth look at how Google achieves a two-thirds success rate with acquisitions, and why things still occasionally go south. 'The return on our acquisition dollars has been extraordinary,' says vice president of business development David Lawee, Google's M&A czar. But Google insiders say it still takes a lot of work to make sure acquired startups go the way of Android (the mobile operating system, acquired in 2005) and not Aardvark (the social search site, acquired in 2010 and shut down in 2011)."

Comments

Aardvark the extension

[macraig]

And apparently when Google acquired the company Aardvark they also swung the wrecking ball at the lone developer of the Aardvark extension for Firefox. So in the process of acquiring a lame duck and trying to protect its trademark Google also destroyed one of the best extensions for Firefox.

Thanks, Google.

Re:Aardvark the extension

[Sneeka2]

Correction: Google's main business is ads. They just happen to go very well with search.

Re:Aardvark the extension

[Necroman]

I see a lot of nice little things come out of google. While they aren't large projects, they produce a lot of useful tools for developers like Guava and PlayN.

For bigger projects their Mapping tools are pretty amazing and seem to be getting better with time. Their street-view is also really nice. If they pull off self-driving cars it will also be amazing.

Re:Aardvark the extension

[LordLucless]

True innovation is rare and exceptional, and no company can truly rely on being "innovative" except in their marketing catalogues.

Yes, Google's search and email were iterative improvements on previous designs - but so are smartphones, microprocessors, display technologies, storage mediums, and pretty much any other tech initiative. Please list one thing that MS Research has produced that wasn't an iterative improvement on existing technology - and no, kinnect and surface don't count. Both motion capture (kinnect) and touch-screen (surface) are pre-existing technologies that were just done "a little better" than their predecessors.

Re:Aardvark the extension

[macraig]

Those self-driving cars are an advertising plot. Don't be fooled! ;-)

Re:Aardvark the extension

[Anthony Mouse]

Correction: Google's main business is ads. They just happen to go very well with search.

Can we please put a stop to this FUD? You're just repeating Microsoft talking points.

Google does not own you. The only way they get access to your eyeballs is with your consent. You are the customer, not the product. It is 2012, people are not products. Advertising is a product. You consume the product. It is a product with negative value, so Google pays you to consume it, in the form of barter for services. They must provide you with enough value to keep you consuming the product, because you are the customer, not the product. You are the customer of the ads and the customer of the services. The advertisers are not customers, they are suppliers. They supply one of the products, the ads. Google provides the other product, the services. Google is in the web service industry, because that is the product they actually make, and the one that actually has value to you, the customer. There are no ads without services.

It bears keeping in mind why the exchange of services for ads takes place. They could charge money instead. The reason that they don't is that the typical customer values their own money more than they value the cost of consuming that amount of advertising. You would rather consume an ad than pay a penny. The advertiser is willing to pay a penny for you to consume an ad. In consequence, instead of a straight transaction of web services for money, we have a three-party transaction where you consume Google web services and pay for them by consuming some third party's advertising, because that transaction is Pareto efficient over the one where you pay money for services. But that doesn't make the provider of web services an advertising company. They're still providing web services and you are still choosing whether to consume them over the alternatives.

Now, you might point out, Google owns Doubleclick and operates an advertising network. And in that respect their business is advertising -- but that isn't their main business. If Google discontinued all of their web services but continued their ad network as supplied to third parties, they would lose the large majority of their revenues. If they kept the web services and then discontinued their internal advertising network and instead used a third party's, they would keep the large majority of their revenues. What does that tell you about which one is their main business?

Re:Aardvark the extension

[EdIII]

You seem to be very confused.

Can we please put a stop to this FUD? You're just repeating Microsoft talking points.

Just because it may be Microsoft talking points does not mean that those points are incorrect, or that they are merely intended as FUD.

Google does not own you. The only way they get access to your eyeballs is with your consent.

Most people never imply that when they say that consumers are the "product". Google is not the only company that does this. There are a ton of other companies out there which provide lead generation services and sell existing databases of leads and demographics.

In that context, the consumer is the product. Specifically, the information about them. Some people don't like the privacy implications about that, which is why every business generally has a privacy policy now. Instead of it just being unsaid, it needs to be said now.

The average user of Google services is the product, the advertisers are the consumer.

The advertisers are not customers, they are suppliers.............The advertiser is willing to pay a penny for you to consume an ad.

That is a contradiction. Which is it? Customers pay money. That's how it works. Otherwise they are not customers. You have buyers and sellers, products, and end users. You can tell which is which by following the money.

Your mental and semantic gymnastics aside, suppliers don't typically pay retail stores. That is like Walmart charging Chinese companies and manufacturers for the privilege of selling their product. That is not how it works (kickbacks aside). Walmart pays for the product from the suppliers, and then delivers it to the consumer in their retail stores.

How does Google operate?

They charge advertisers to put advertisements in front of users. In addition, to a host of other marketing products in which, the people are not charged, but the marketers and advertisers are charged.

This is not FUD, but merely a fact of how Google operates.

The reason why it is always brought up, is because corporations act in the best interests of themselves of the shareholders. Who are they going to satisfy first and foremost (within reason)? The Advertisers because that is where the money comes from one way or the other. Saying otherwise is just strange.

There are extremely few products that a regular consumer can purchase from Google that does not have to do with advertising . Google docs is one that I can think of. Perhaps they may sell mail services too, although I really could not say.

So in the end, people really are the product that Google sells. We don't need hyperbole to imply slavery, loss of freedom, etc. It simply means that Google sells data about you (anonymized or not), and makes its business by putting advertisements in front of you.

To think they put your best interests ahead of their own, or their customers (the advertisers), is just being naive. Do I think they will go too far and jeopardize their relationship with their users to make more money? Perhaps, but unlikely anytime soon. It's a fine line between complete loss of privacy, and giving marketers everything they want. Google will pay attention to what the average user expects for privacy and act accordingly, and will act within the laws that apply to them. A difficult task considering they are a global company and need to operate in some pretty freedom unfriendly countries.

In order for me to buy into your post I would need to believe that Google is going to ignore the people giving them the money to favor people that do not. Sorry, but that makes no sense.

Re:Aardvark the extension

[Sneeka2]

I love knee-jerk responses just as much as the next guy, but please slowly read again what I wrote.

Does Google make any money from letting you search the web for free? No.
Does Google make shitloads of money from displaying ads next to those free search results? Hell yeah.

So which one is their business?

Re:Aardvark the extension

[swillden]

That is a contradiction. Which is it? Customers pay money. That's how it works. Otherwise they are not customers. You have buyers and sellers, products, and end users. You can tell which is which by following the money.

The way Google looks at it is that both the users and the advertisers are customers. Of the two, Google focuses the vast majority of its attention on the users, not the advertisers. The reason is that Google largely views the money as a means to an end. The end is to create cool technology that improves peoples' lives.

Okay, I know you're barfing... but I'm telling you that's what people inside Google really talk about and focus on, at all levels, impossible as it may seem to believe of a for-profit corporation. The advertising, and other (much smaller) revenue streams, are seen as an unfortunately-necessary diversion from the main task, one that is justified in part with the idea that advertising can theoretically provide useful information to users, if it's well-targeted and not annoying.

Granted, there's a little cognitive dissonance in this viewpoint. If Google employees were really all about making the world a better place, we'd forgo our nice salaries, expensive offices and all of the well-publicized perks. But it's a cognitive dissonance that rarely comes to the surface, because so far in the company's history, other than the first big concession to reality when Page and Brin decided they could swallow their pride and sell advertising, the money has pretty much rolled in continuously, in ever-increasing amounts, so no one really feels the conflict between do-gooder intent and the necessity of collecting tens of billions of dollars. I mean, thanks to the AdWords auction, Google doesn't even have to dirty itself setting prices. The advertisers set the prices they pay to Google, and they just keep bidding 'em up.

The result is that the academic, blue-sky, make-the-world-better thinking that Google claims, really is how the company's collective culture "thinks", and the "Don't Be Evil" mantra really is important. The funny thing about this situation is that everyone who is used to the way that normal companies behave looks at this and assumes that it must be fake, because no corporation could really be like that. Therefore, it must not only not be true, but there must clearly be a concerted attempt to hide the truth from the world. All this do-gooderness must be a sham front put up to hide some deep, nefarious plot. So, when Google stumbles and does something that isn't so good for the world, people cry "Ah ha! I knew it! They really are Evil!". And even when Google doesn't stumble, widespread skepticism ensues.

All of this, of course, is really annoying and disheartening to Google insiders who spend their days focused on trying to create the next great improvement in Google's services, or the next great service, or even just improving the user experience of what Google does now. And so there is much unhappiness among Google employees about the way some of the world views their selfless work. Unhappiness which is typically expressed while drinking free barista-prepared lattes after a free gourmet lunch before hitting the free gym and then returning to their cubes in posh offices and working on their expensive computers before going home to estimate their next bonus and tot up the value of their next block of stock to vest.

Yes, Google is a weird place. But, honestly, profits really are a second-order concern, because -- so far -- as long as Google has made users happy, advertisers have been happy to keep throwing money. So advertisers really aren't the focus of the vast majority of Googlers.

Re:Aardvark the extension

[Sneeka2]

Let me put this another way:

Ninety-nine percent of Google's revenue is derived from its advertising programs.

How can you possibly argue that they're not in the advertising business?
Their main business is advertising. It's a fact. And that's all I said. They get (virtually) no revenue from anything else they're doing. That doesn't mean they're not doing anything else, just that their main business is in advertising.

obligatory Ferengi reference

[MacColossus]

Well done Quark Brin! The Grand Nagus will be pleased!

Re:obligatory Ferengi reference

[Samantha Wright]

Interestingly, Oracle also has a set of rules of acquisition. You can read about them here.

Re:obligatory Ferengi reference

[tehcyder]

Interestingly, Oracle also has a set of rules of acquisition. You can read about them here.

Presumably along the lines of " There will be no glory in your sacrifice. I will erase even the memory of Sparta from the histories! Every piece of Greek parchment shall be burned. Every Greek historian, and every scribe shall have their eyes pulled out, and their tongues cut from their mouths. Why, uttering the very name of Sparta, or Leonidas, will be punishable by death! The world will never know you existed at all!"

Amazing given the statistics.

[SexyKellyOsbourne]

The fact that Google achieves a 66.66% success rate in acquisitions is amazing. Most M&A's have a success rate of 17%.

According to a quote from the Wharton School of Business:

"Various studies have shown that mergers have failure rates of more than 50 percent. One recent study found that 83 percent of all mergers fail to create value and half actually destroy value. This is an abysmal record. What is particularly amazing is that in polling the boards of the companies involved in those same mergers, over 80 percent of the board members thought their acquisitions had created value.

— Robert W. Holthausen, The Nomura Securities Company Professor, Professor of Accounting and Finance and Management

http://executiveeducation.wharton.upenn.edu/open-enrollment/finance-programs/mergers-acquisitions-program.cfm

What statistics

[MushMouth]

the 2/3rds quote was what Google said they achieve, but there is nothing in the article which actually quantitates it, so I'm going to go with the M&A exec blowing smoke.

Re:What statistics

[icebike]

On the other hand, how does the Wharton School really know what does or does not "create value", and is that the real measurement?

Acquiring a business that runs a real risk of eating your lunch may not actually create any value at the visible level, but you may gain things (patents, customers) that my not appear or may not be visible to outsiders for years. Acquisition is a preventative measure in many cases. Business schools are not in the best position to judge what might have happened had not the merger taken place.

(Actually nobody really is in a good position to judge this, its the experiment not run to completion).

It seldom as simple as adding the net worth of two companies separately and then comparing that to the value after the merger.

If they want their money back...

[SleepyHappyDoc]

Give it to them??

Contacting Google is VERY difficult

[colordev]

I made a tool that can semi-automatically set the colors right in adsense ads; in about 30 seconds
And I thought google might be interested as with their webmaster center tools, the same task takes ~30 minutes (to match the colors to the hosting web-page).
As Adsense is basically their money making machine, so one might think they would be interested to see a demo of that technology - NOT.

As of now there's probably noone at the google who knows about the tool / technology. And it is not because I would not have tried enough. To summarise I tried to call to at least 30 people at the Google headquarters (found couple of answering machines) , I send a message *twice* to all kinds of "business proposal" "partner with google" mailboxes at Google's website. And based on my logs nobody ever came to test drive the tool. And I send a message to Google adsense forum. Still no comment from anyone. And I kept calling google offices around Europe and the most human contact was with the telephone answering machine. Well, except in spain and (I think) Norway? there was a receptionis who said she was just a hired office receptionist not working for google and there's noone at google she could connect me to.

And, here in Finland, I saw Google opened office in Oulu, So I went there and meet em in person. And at the lobby hall I said I have a tood / demo that might interest Google. But no, she basically run away without checking the demo. Later last summer I challenged someone who had been co-operating with Googles Finnish leader Anni Ronkainen to try to get her to check the demo. But as this helpful person tried to reach CEO Anni Ronkainen, she never came back to this PhD lecturer person with whom she actually had agreed partisipate at a seminar later. And I send Anni couple sms - messagea asking to contact me - no reply. And someone suggested I might be able to connect Google people through one ad agency that does online-ad campaings with google, no that didn't work eather. And it didn't work eather through another guy who had written PhD thesis online advertisement - even he wan's able to contact anyone there - PhD guy was at least facined about the technology.)

To summarize, my experience is that nobody works at Google. The company is probably a front office and run by Skynet or something.

Google's Rules of Acquisition

[TubeSteak]

1 Once you have their money ... never give it back.
3 Never pay more for an acquisition than you have to.
6 Never allow family to stand in the way of opportunity.
6 A man is only worth the sum of his possessions.
7 Keep your ears open.
8 Small print leads to large risk.
9 Opportunity plus instinct equals profit.
10 Greed is eternal.
13 Anything worth doing is worth doing for money.
16 A deal is a deal ... until a better one comes along.
17 A contract is a contract is a contract (but only between Ferengi).
18 A Ferengi without profit is no Ferengi at all.
19 Satisfaction is not guaranteed.
21 Never place friendship above profit.
22 A wise man can hear profit in the wind.
23 Nothing is more important than your health--except for your money.
27 There's nothing more dangerous than an honest businessman.
31 Never make fun of a Ferengi's mother ... insult something he cares about instead.
33 It never hurts to suck up to the boss.
34 Peace is good for business.
35 War is good for business.
40 She can touch your lobes but never your latinum.
41 Profit is its own reward.
44 Never confuse wisdom with luck.
45 Expand, or die.
47 Don't trust a man wearing a better suit than your own.
48 The bigger the smile, the sharper the knife.
52 Never ask when you can take.
57 Good customers are as rare as latinum -- treasure them.
58 There is no substitute for success.
59 Free advice is seldom cheap.
60 Keep your lies consistent.
62 The riskier the road, the greater the profit.
65 Win or lose, there's always Hyperian beetle snuff.
75 Home is where the heart is ... but the stars are made of latinum.
76 Every once in a while, declare peace. It confuses the hell out of your enemies.
79 Beware of the Vulcan greed for knowledge.
82 The flimsier the product, the higher the price.
85 Never let the competition know what you're thinking.
89 Ask not what your profits can do for you, but what you can do for your profits.
94 Females and finances don't mix.
97 Enough ... is never enough.
99 Trust is the biggest liability of all.
102 Nature decays, but latinum lasts forever.
103 Sleep can interfere with profit.
104 Faith moves mountains ... of inventory.
106 There is no honour in poverty.
109 Dignity and an empty sack is worth the sack.
111 Treat people in your debt like family ... exploit them.
112 Never have sex with the boss's sister.
113 Always have sex with the boss.
117 You can't free a fish from water.
121 Everything is for sale, even friendship.
123 Even a blind man can recognize the glow of latinum.
139 Wives serve, brothers inherit.
141 Only fools pay retail.
144 There's nothing wrong with charity ... as long as it winds up in your pocket.
162 Even in the worst of times someone turns a profit.
177 Know your enemies ... but do business with them always.
181 Not even dishonesty can tarnish the shine of profit.
189 Let others keep their reputation. You keep their money.
192 Never cheat a Klingon ... unless you're sure you can get away with it.
194 It's always good business to know about new customers before they walk in the door.
202 The justification for profit is profit.
203 New customers are like razortoothed grubworms. They can be succulent, but sometimes they can bite back.
211 Employees are rungs on the ladder of success. Don't hesitate to step on them.
214 Never begin a negotiation on an empty stomach.

Shamelessly stolen from here: http://www.sjtrek.com/trek/rules/
I had to leave out the last few rules because /.'s spam filter insists on 40 characters per line

Fluff article

[slasho81]

I read TFA. Yes, I know - I must be new here, etc.

Let me save you time. It's the usual self-congratulating corporatespeak. Basically, they discovered it's a good idea to have a good fit between Google and the acquired startup, and a bunch of other common sense "rules" anyone with half a brain could come up with.