Who Will Google Buy Next?

Google CEO Eric Schmidt told Bloomberg this week that he’s doubled the pace of Google’s acquisitions and expects to keep it up.

Just this month, Google acquired Slide — one of Facebook’s top application developers, even though it had trouble making money — and Instantiations, a tools developer for Java/Ajax.

Google is rumored to have acquired Jambool, which makes social currency for games, and invested in the game developer Zynga. There are probably others.

We also know Google can change strategy fast — last week they killed one of their social projects, Google Wave, despite a keynote speech from the chief developer and nearly 20 companies claiming to support it at Google’s annual developer conference in May.

So it’s worth looking again at this conversation we published last November, when David Lawee, Google’s VP of corporate development, spoke along with his counterparts from Microsoft and Cisco on what they’re looking for in an acquisition.

For context, this was shortly before Yelp, which was rumored to be in talks with Google, either walked away from a deal or lost it (depending on whom you believe).

WHAT IS GOOGLE’S STRATEGY FOR ACQUIRING COMPANIES?:

I’m underqualified – I don’t know what I’m doing. I feel like the minnow. What’s most distinctive is how old the company is. We’re much younger and so much earlier in a lot of things in terms of how we’re evolving. The biggest focus is on the caliber of leadership coming into the team and the execution capacity they’re bringing….The people motivated by stock price aren’t the people we’re good at retaining – Google is like landing in China. Great entrepreneurs can figure it out and end up succeeding. Those are people who have the vision, they’re about something bigger (than money).

WOULD GOOGLE LIST THE MARKETS IT’S LOOKING AT ON ITS WEB SITE, LIKE CISCO DOES?

Maybe we would, if it was a good idea. We’re less established, we’re learning from these guys. Cisco is admired within Google as one of the best tactical M&A companies. You want to test THE boundaries of what you’re doing to make sure you’re innovating in every function that you have—HR, real estate. HR has stock options that are tradeable…In M&A, we’re innovating, and the founders are a big part of that process. The landscape is changing at lightening speed. The undercurrent of the industry is large discontinuities, such as mobile and the smart phone market, the cloud space and the degree to which people are willing to share private information. It’s a very active environment for entrepreneurship.

DO VENTURE BACKERS HELP OR HURT A DEAL?

I can only think of one transaction where VCs have been a negative. It’s the biggest transaction of your life; it’s good to have people who’ve done it before. You don’t want to share too much information early on; VCs can help you navigate that.

CULTURE IS THE CRITICAL SAUCE. HOW DO YOU HAVE TIME TO UNDERSTAND WHAT YOU’RE BUYING?

That’s the hardest part of the job. When a set of execs meet with a large number of people inside the company, you get a pretty good feel. It’s like the interview process. People feel great about Omar (AdMob). All the leaders of the business loved him. I’d been keeping up a relationship with Omar for almost two years, just because I thought he was a phenomenal entrepreneur.

WHAT’S YOUR OUTLOOK FOR 2010?

It’s easy to gravitate to big-dollar deals. But Android, Keyhole, Urchin were seminal deals for Google. Android has a huge impact in terms of our tactics in the mobile space. Keyhole was our first step out from pure search. The impact of Urchin and Google Analytics really facilitated our advertisers. I’d suspect we’d continue to be just as aggressive in terms of the number of those things we do.

DO YOU FIND YOURSELF IN COMPETITIVE SITUATIONS?

As an entrepreneur, it behooves you to get more than one person to the table. My expectation is entrepreneurs will do that; I don’t begrudge anybody the right to optimize value for shareholders. We do have walkaway prices; you don’t want to blow your hand. That’s why experience in VCs is so important. Finessing that very important time; it might be a few days or a week to end up at a place you’re happy to work with for the rest of your life. That’s a tough job as a CEO.

I feel like every deal is competitive.

WHAT SORT OF EVALUATION PROCESS DO YOU GO THROUGH?

Every approval process for a deal, every meeting, has a buy-build-partner slide. It’s how you have to think about it. Sometimes you can’t get to market fast enough by building, that’s why you’re in the room. So buy versus partner, the need to understand the objectives of business as standalone versus our own objectives at Google. So Maps-Keyhole, they were selling an enterprise product. That’s not where we wanted them to spend development resources. Better for us to acquire the company, for the common goal they wanted to pursue. If you can achieve things through partnership, great.

WHAT ABOUT THE USE OF INVESTMENT BANKS?

Anything that prevents the natural dialog between company and entrepreneur impacts our conviction, which impacts price. In almost every circumstance where there’s been a banker, we bid less. We don’t know, because we’re not talking to the principals.

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