Tuesday, July 1, 2014

Quest for the perfect playlist

Google has acquired Songza, a music streaming service that develops Android and iOS apps for delivering human-curated music stations based on individual mood and activity. Songza has built data and algorithms that predict what users will enjoy listening to given geography, time of day, weather, or activity -- from sleep to sex.

Google plans to use Songza’s expertise in other products such as Google Play Music and YouTube. The company stated: "We view the Songza acquisition as a way to further enhance our radio feature by adding their expertise on context."

The acquisition reflects the steady heating up of the music platform wars among Google and competitors that include Amazon and Apple. A new era for digital music delivery has dawned and may the best mood win.

Sunday, June 29, 2014

Google's schizophrenia

In a highly controversial 2011 transaction, Google purchased ITA software. ITA offered Internet-based software to the airline industry. The company's products included an airfare pricing management system for airlines and travel distributors as well as a passenger reservation management and departure control system. The deal raised questions how far Google would attempt to go into the online travel business.

Later in 2011, Google launched Flight Search, the first product resulting from its purchase of ITA. Also, Google continued to improve its hotel listing service by including virtual tours as well as pricing information.

As reported by The Economist in "Sun, sea, and Surfing" (June 21. 2014), analysts estimate that some 5% of Google's advertising revenue comes from online travel agents such as Expedia and Priceline. So Google may be reluctant to compete too aggressively in this space.

In 2014, online travel agents were spending some $4 billion in digital advertising. Google perhaps was pondering a lesson from the AOL/Time Warner merger, in which AOL struggled (often unsuccessfully) to harmonize the conflicts that emerged with its advertising partners after it owned competing media and other content as a result of the Time Warner deal.

Google appears to be wrestling with its two minds about becoming a major online travel service. Expedia and Priceline are not without some leverage in helping Google make up its mind.

Thursday, June 26, 2014

Google purifies Android

Google has acquired Appurify, which offers technology to automate the testing and optimization of mobile apps and websites for developers. Appurify was founded in 2012 and current has 20+ employees who will join Google. Google Ventures had led an investment round in Appurify, so the deal represents a staged acquisition.

Application testing and optimization is a big deal for Android. Tim Cook (Apple CEO) has highlighted Android's fragmentation problem, glibly quoting others who have dubbed Android a “toxic hellstew of vulnerabilities.”

We'll now see how much the Android developers' stew can be consecrated.

For a complete review of Google's M&A activity during 2014, see http://www.trivergence.com/market.asp?MarketID=4115.

Wednesday, December 18, 2013

Google robotic acquisitions: a cluster of deals

Google's recent acquisition of eight robotics companies  has garnered as much attention as Amazon's futuristic plan for package delivery via drones. Speculation abounds on Google's goals for its robot menagerie -- from delivery droids to elder care assistants. Stephen Colbert quips that Google intends to enslave humanity, and thus Colbert is breeding an Ewok army to counter a forthcoming invasion.

An acquisitions cluster involves a series of company purchases in a highly related sector. This is not the first time Google has bunched deals in a given sector, but this concentration of eight clustered acquisitions in a short time is unprecedented. (A cluster differs from an ecosystem in that ecosystems typically cut across the value chain of an industry, whereas clusters tend to be focused a specific sector.)

True, each of Google's acquisitions has distinctive attributes. For example, Industrial Perception focuses on robotic "sight", Boston Dynamics emphasizes mobility, and Meta stresses humanoid features. But all companies fit cleanly in the robotic sector.

Whatever robotic applications spring forth from this acquisition frenzy, the size of the cluster signals Google is serious about this moonshot initiative.

You can find details about Google and its robotics deals at http://www.trivergence.com/market.asp?MarketID=4112

Friday, September 20, 2013

Semi-organic growth

One of Google's best acquisitions in its short history was completed in 2003, before the company went public. Google bought Applied Semantics, a developer of semantic text processing and online advertising technology. Applied Semantics' 45-person team became instrumental in building AdSense, a cornerstone of Google's paid advertising platform.

This successful "acqui-hire" imprinted in the minds of Google's senior management a form of corporate development that set the stage for many of Google's M&A transactions. Let's call this corp dev approach semi-organic growth, meaning Google acquires an external team/company and then skillfully attaches that team to a specific internal product area to accelerate the growth of that product.

For details on Google's use of semi-organic growth, as well as other key aspects of Google's M&A program, see my lecture given at Darden/University of Virgina -- http://youtu.be/ZeCf3C86IBU.

Monday, March 11, 2013

Goodwill -- here today gone tomorrow?

Goodwill is a big number on the balance sheets of many technology companies. Google has $10.5B of goodwill, Microsoft 14.7B, Cisco $17.0B, and Hewlett Packard $30.9B.

How does this asset arise? Contrary to how it sounds, goodwill is not booked as a result of strong brands, excellent customer relations or talented management admired by shareholders. As much as a business might like to claim its "favor" with customers or other stakeholders as a asset, it can't be done.

Goodwill results from acquisitions and acquisitions only. Goodwill arises when an acquirer pays more than the fair market value of acquired net identifiable assets. For example when Google bought YouTube in 2006 it allocated over $1.1B to goodwill, far more than the $.1B allocated to trademarks and customer contracts.

For a number of technology companies goodwill is much larger than other major balance sheet items such as property, plant and equipment (PP&E). Cisco's goodwill it currently about 500% of its PP&E; HP's is 265%; Microsoft's is 169%.

For other tech companies, goodwill is a relatively minor asset. For low-acquisitive Apple, goodwill is only 9% of PP&E. And Samsung's goodwill is less than 1% of its PP&E.

Goodwill must be tested for impairment at least once/year, and impairment charges reduce operating income. For example, last November HP announced it was taking a $5B goodwill impairment charge related to its Autonomy acquisition. And last July, Microsoft announced its was taking a $6.2B charge to write down goodwill relating its aQuantive online-advertising acquisition.

Google, although extremely acquisitive, has never taken a charge for goodwill impairment. This hardly means that all Google acquisitions have been successful. Goodwill impairment is typically analyzed at the operating segment level, and success can continue to occur within a segment even if some deals within that segment have failed.


Thursday, July 12, 2012

Apple Acquisitions

Apple acquisitions since 2001
By my count, to date Apple has made 20 company acquisitions since 2001. Apple is somewhat secretive about its M&A activity, so some digging is required to get to 20. Capital IQ (an authoritative deal source) lists only 16 company acquisitions for Apple during this period.

Apple has not been a particularly acquisitive company over this 12 year period. In contrast, Google acquired about twice as many companies in the year 2011 alone.

The infographic on the right depicts these 20 acquisitions, clustering the deals by market segment. You can view much more detail at Apple acquisitions since 2001.

Three clusters stand out: 1) Media application software (Spruce, EMAGIC, Silicon Color, Proximity and Redmatica). The most recent deal (Redmatica) develops applications used for sampling and editing audio files and for managing audio libraries; 2) Semiconductors (P.A. Semi, Intrinsity and Anobit). The most recent deal (Anobit) makes a key component that improves the performance of NAND flash memory chips, which are used in products such as iPhones, iPads, and iPods; 3) Mapping, imaging, drawing (Placebase, Poly9, Imsense, C3 Technologies). The most recent deal (C3) is a developer of three-dimensional mapping technology and now operates as the "Sputnik" division of Apple. This latter cluster of deals was particularly important as Apple moved away from using Google Maps in its new iOS 6.

Curiously, Redmatica (Italy), Anobit (Israel), and C3 Technologies (Sweden) were all headquartered outside of the US. Apple's M&A reach clearly has a global perspective.