Friday, August 04, 2006

Google and tiny acquisitions

An interesting quote from Google CEO Eric Schmidt:
Reporter: "How many acquisitions do you do?"

Schmidt: "It's one or two a week it seems. Most acquisitions: They are very small. 1-2-3 people and you never, never hear about them."
I was just talking with someone today about how many large companies seem dysfunctional with their acquisition strategies.

I recall seeing some business research that showed that the majority of large acquisitions result in a net loss in value for the merged companies and most of the remainder fail to create measurable value. Only a tiny minority turn out to be a long-term win for shareholders.

Very small acquisitions, by contrast, are easily integrated and typically create value. They also tend to be relatively inexpensive -- few investors to buy off -- which further reduces risk.

Nevertheless, managers tend toward the big mergers, apparently because managers' personal incentives often tend to encourage empire building over maximizing long-term value.

Google's acquisition strategy sounds remarkably sane compared to most.

[via Haochi in the Google Blogoscoped forums]

Update: A month later, Alan Sipress at the Washington Post wrote an article, "Google Goes to Market", about Google's strategy of tiny acquisitions. [via Barry Schwartz]

3 comments:

Anonymous said...

hmmm, 1-2-3 people, a company you'd hardly know. i think you might know a startup that needs buying

Anonymous said...

On a completely unrelated note, how many employees currently work at Findory? :)

(Or if you'd prefer, please feel free to do this in another 'growing findory' post.)

Matthew Hurst said...

I've seen a number of cases where a Google Acquisition is the kiss of death. For example, MeasureMap - its performance is horrible. Couldn't Google find any new servers to run it on?