Google Deals - A Case For and Against M&A
The Microsoft-Skype announcement reminded me of an earlier post which discussed why most large deals fail to create value. There is probably a case for M&A in some instances, however. When can an acquisition create meaningful gains to both companies as well as consumers in general? Let's look at Google, a case study for everything these days, including the merits of deal making.
In 2005, Google made its first foray into mobile with the acquisition of a small start up called Android. Fast forward six years later, Android has now become the top smartphone OS with a 30% market share. That same year, Google also acquired location-based Dodgeball. This time, the Google experiment flopped. The company ultimately killed the service, and the founders left to create an exact replica company (you've heard of a little company called Foursquare). How could the same company buy two different start ups the same year, employ the same management structure, and have such divergent results?
With Android, there was a defined, specific goal in mind. Google wanted to give away a mobile OS to layer in its search, so it bought Android. There was no need to create some new product or capability that didn't exist. As we all know, large companies don't accelerate innovation or product development (not even Google), but they provide the thing that startups need the most: money and distribution. How else could Android have forged partnerships with all the major handset makers and carriers in such a short amount of time? Given the size and savvy of its competitors (Microsoft, Blackbery, Apple), they might have missed the window of opportunity had it chose to go alone.
What was Google going to do with Dodgeball? They knew social networks were a threat but didn't know how to combat it (and still don't for that matter). Buying Dodgeball got them "in the game", but there was no clear cut strategy for what to do with the company. Dodgeball didn't need distribution the way Android did, they simply needed time to grow.
If company executives can't explain why they are doing a deal in 20 words or less, it's probably not one worth having. Ballmer probably needs 12 powerpoint slides to outline the Skype rationale, whereas its far more clear what Nestle plans to do with the Austin-based Sweet Leaf deal it announced last week (say it ain't so).