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Monday, February 25, 2008

Why Google Buys Companies

Watching Google from the outside – with the limited information that offers – it seems they buy companies mainly to get more:

Some of above items are interrelated; especially with technology and developers, there’s not always a clear distinction.

Furthermore, Google sometimes invests in foreign partners out of legal or political necessity, like when they partner with Tianya or Ganji in China; or they may subsidize a company to skew the market in disfavor of competitors... e.g. when they pay Mozilla developers to progress Firefox, or pay Mozilla when users search Google using Firefox, to balance the market against Microsoft Internet Explorer. While there isn’t a lot of evidence it may also be possible they sometimes buy companies just to silence a competitor, or to prevent a competitor from acquiring it and growing too strong. The philanthropic arm of Google, called, also invests in green energy and more to improve the world at large. But again, as we don’t sit inside Google’s strategic company meetings, much of this is just speculation.

The end goal of acquiring a company may be aligned with Google’s overall mission. We can paraphrase it as 1) grab all the world’s data, 2) make that data useful and accessible in order to direct user attention towards it, 3) profit from ads displayed with the data. Google’s hardware business aside, the company indeed just sells attention. If you look at it from a bird’s view, you could perhaps split up Google’s goals into the two philosophies make money (more the manager or ad sales types) and build the ultimate AI (the developer types). Ideally, these two camps work hand in hand, as the ultimate AI would generate the ultimate user attention generating loads of money.
This whole mission is then accompanied by a moral framework that started with “do no evil” and changed to “do good,” a more traditional but less powerful construct as it transcends from a restrictive consideration to a potentially restriction-free justification... a self-referential “do Google.”

Looking at past acquisitions

Here is a limited selection of Google’s many past acquisitions, checked mainly against the four parameters data, users, technology, and developers:

Trends in Google’s acquisition strategy

As the chess master once replied when asked about his favorite piece on the board: “My favorite piece is whichever wins the game.” Google seems to be getting more and more pragmatic about acquisitions in terms of buying whatever advances their strategic interest. Formerly, the focus was slightly more on technology and data acquisitions, while nowadays it’s also often about mere land-grab of user base. But even one of the earliest acquisitions – Blogger – was a lot about users, albeit in a more technical and geeky space (blogging) than e.g. the acquisition start of DoubleClick (hit-the-monkey ads). If Google starts focusing too much on land grab acquisitions though, they may get into legal troubles due to accusations of being a monopoly – just buying market share does not progress technology, which in the end hurts users.

When looking into the future to understand which companies Google might buy next, it still helps to check against all four main parameters. Some companies sole reason of existence seems to be trying to create “Googlebait,” wanting to be snapped up by Google. This hardly seems to work because the goals of a company which has time to think about being acquired are apparently not sufficiently directed towards data, users and technology, perhaps due to a lack of great developers on-board.

Some companies also try to make it seemingly really easy for Google to acquire them, by already working a lot within Google frameworks: RememberTheMilk’s todo suite (which works on top of Google Calendar) or the Zoho office suite (using Google Gears) come to mind. Indeed, Google may look at these companies in terms of adding new good developers to their own teams in that space. However, in many acquisitions Google may also want precisely the opposite, namely to increase their developer knowledge delta. Just buying a team that understands Google may not help Google tackle new problems.


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