Thursday, May 7, 2015

Robots, start your engines

The Indianapolis 500 automobile race has been a Memorial Day tradition in the United States since 1911, going back almost as far as the last time the Chicago Cubs won the World Series in 1908. (We Cub fans live on in everlasting hope and frustration!) The dramatic starting command of the race is: "Gentlemen, start your engines," which is modified to "Ladies and Gentlemen, ..." when female drivers are in the race.

Could this starting command be further modified for races in the decades to come?

In early 2014, Google acquired DeepMind for a reported $625 million. DeepMind is an artificial intelligence company that builds learning algorithms for applications such as recommendation systems for e-commerce. The company was founded by neuroscientist Demis Hassabis (former chess child prodigy and master gamer), Jaan Tallin (Skype and Kazaa developer), and Shane Legg (researcher).

Google's acqui-hiring of Deepmind helps it compete against other players focusing on deep learning. Facebook has recruited Yann LeCunn (former NYU professor) to head the company's artificial intelligence lab. IBM is investing $1 billion in its Watson supercomputer division that is working on deep learning to support applications such as medical diagnosis. Yahoo acquired the LookFlow team to lead its deep learning initiative. And on it goes.

The field of artificial intelligence (AI) has undergone several cycles of boom and bust since AI was christened and sent out the door with research momentum at The Dartmouth Conference of 1958 organized by Marvin Minsky and others. Periods of buoyant optimism for the technology have given
way to AI winters. But in 2014, an AI spring had returned. Google’s purchase of DeepMind  reflected the new-found confidence in what AI could accomplish in multiple business sectors of interest to Google.

In March 2015, Google's DeepMind team revealed an algorithm that can teach itself from scratch to play early computer games with skill equal to or better than a human. The team eventually plans to work on three-dimensional games. According to Dennis Hassibis: "if this algorithm can race a car in a racing game, then with a few extra tweaks it should be able to drive a [real] racing car,"

Am wondering if DeepMind could start working on a pitching algorithm for the Chicago Cubs. Help us, Dennis Hassibis, you're our only hope.



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.