Is Google's Proprietary Tech Stack Destroying Its Acquisitions?

from the not-invented-at-Google-syndrome dept

While Google has bought plenty of small startups, almost none of those deals have amounted to very much. It almost seems like most of the startups disappear into Google forever. There are a few exceptions such as YouTube and (maybe) Writely. But the list of startups that have simply languished or died is much longer. TechCrunchIT is running an interesting post that suggests one of the key reasons: Google's proprietary tech stack. While Google is a big open source supporter for lower level infrastructure, once you get above that -- it's very much a strong believer in doing everything its own way. I've heard from friends at Google about the difficulty they've had learning to deal with Google's tech stack -- and certainly have heard how it's slowed down the progress of some Google acquisitions while they learn how to "transition."

In fact, some have pointed out that this is one of the side benefits to Google's AppEngine offering. Since it exposes some of Google's tech stack to folks for them to develop and run their applications, it will make it much easier to integrate them into Google at a later date. So, for startups whose strategy is to get acquired by Google (and, I should note, if you start with that strategy, you're probably going to fail), it may make sense to develop on AppEngine just because you're already signaling to Google that the integration costs are significantly lower.

Still, this highlights one of the major downsides to Google's belief that it can do everything much better than everyone else by starting from scratch: in doing so, it actually makes it much harder to capitalize on synergies from many acquisition targets. Yes, there are reasons to go against the "standard" way of doing things, but there are significant costs as well.

Filed Under: acquisitions, open, proprietary, standards, synergies
Companies: google

Do Big Tech Acquisitions Ever Work Out?

from the destruction-of-value dept

With the positively yawn-inducing news over the weekend that Yahoo had rejected yet another offer from Microsoft, Joel West is reminding people that big acquisitions almost never make sense and very often destroy value. As an example, he points to the news that AMD is writing down $880 million on its acquisition of ATI only 8 months after it already wrote down $1.6 billion. That's $2.5 billion wiped out in a very short period of time. As West notes, small acquisitions can make sense for small companies, at least in allowing their founders to cash out -- but for big companies it's usually more about ego: helping them move up the Fortune 500. But those deals almost never work out:

The fundamental problem of acquiring public companies is that you have to pay more than the market price -- so the claim is either you know better than the market (never true) or that you will realize synergies that increase the value of the acquired company (almost never true). So the choice is between buying overpriced good companies, or troubled companies not worth buying at any price. Acquiring a troubled company means you acquire their troubles -- whether it's exposure to an industry past its peak (AOL Time Warner, Viacom-Blockbuster) or a company with a justifiably lousy market position (Daimler Chrysler).

The other aspect that he doesn't touch on is that with big companies, there are always investment bankers crawling all over management trying to convince them to buy up other companies one week, and sell off pieces the next. This "buy 'em up, sell 'em off" strategy almost never works for anyone but the investment bankers who take their fees both coming and going. So as the silly battle continues around Microsoft and Yahoo, rest assure that pretty much whatever happens, you can expect to see a destruction in value rather than any "synergies" revealed.

Filed Under: acquistions, mergers, synergies
Companies: amd, ati, microsoft, yahoo

So Much For Those Synergies Between Time Warner Cable And AOL, Huh?

from the nice-work,-guys dept

While the AOL/Time Warner merger has gone down in the record books as one of the worst mergers ever, I still contend that it could have gone much better if stronger management had been in place. Most specifically, there were obvious synergies between aspects of Time Warner and AOL -- but petty squabbles and turf wars kept most of those synergies from being realized. The most glaring and obvious of these was Time Warner Cable (or RoadRunner) and AOL. Both offered internet access, and it seemed perfectly reasonable to merge the two properties, and use RoadRunner to upgrade all those dialup users onto broadband, and then keep them engaged with all the Time Warner content. Of course, the Time Warner content people freaked out about content on the internet of course, so that would never have worked -- but the failure to link up RoadRunner and AOL never made any sense.

In fact, the two services began aggressively competing with each other. Then, after three years, someone finally realized that maybe the two should work together and made an announcement saying so. Of course... an announcement without action is worthless. So, another year goes by and another exec trots out with an announcement that the two divisions will work closely again. And again... nothing. Give it almost another year... and yet another announcement. Sense a pattern? In the end, the two groups never actually did combine, and with today's announcement that Time Warner is selling off the cable business entirely, it just puts an exclamation point on all these years of keeping the two businesses separate. Of course, in selling off Time Warner Cable, it will also likely lead to speculation that the company will sell off AOL (or merge it with Yahoo -- remember that plan?) as well -- though, as an entirely separate entity.

While I tend to be skeptical of mergers based on vague "synergies," it's still rather amazing that in all this time, no one at Time Warner ever got these two divisions together -- and now the company may end up selling each off separately. In the end, this was a deal that only worked out for the investment bankers. Remember, they love to convince companies to consolidate one year and diversify the next -- because they make money on both transactions.

Filed Under: internet access, mergers, synergies
Companies: aol, time warner, time warner cable

Then Again, eBay Claims It's Still Hunting For Skype Synergies

from the there-must-be-a-pony-in-there-somewhere dept

Just a month ago, the guy in charge of Skype finally admitted that eBay had given up trying to find the mythical "synergies" between eBay and Skype as the few they had suggested turned out not to exist. Apparently, Skype's GM isn't on the same page as his boss, eBay CEO John Donahoe. He was just quoted saying that eBay will spend this year trying to find synergies with Skype and if it still can't find any, it may sell off or spinoff the unit. Given the lack of synergies so far and the massive write down on the purchase price, you have to figure they're going to be digging pretty deep to turn up any kind of synergy between Skype and eBay.

Filed Under: skype, synergies
Companies: ebay, skype