Google's Startup Shopping Spree
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We've all been through this at the store: we get staples such as bread, milk and eggs, and we come across a few things we've forgotten we wanted in the checkout aisle, like a candy bar, a pack of gum or a tech startup.
That last one isn't common for most of us, even if this site does cater to investors, but it's increasingly common for companies like Google (NASDAQ: GOOG).
Google has just announced that it has acquired Wildfire, a company that specializes in social media management for businesses. This comes not long after Google announced that it had acquired Sparrow, producers of a popular email client for the Mac.
Of course, mergers and acquisitions are routine in the tech industry, indeed, in any industry. A Google blog post announcing the new acquisition praised the team in particular.
What's different about acquisitions like these is that Google appears to be buying the company more for its talent than its actual product. It's what's become known in the industry as an "acquihire," a portmanteau of "acquisition" and "hire."
When Sparrow was acquired, or perhaps more accurately "acquihired," it made Google's intentions even more explicit. "We care a lot about how people communicate, and we did our best to provide you with the most intuitive and pleasurable mailing experience," the company's home page said.
While Google benefits in the form of talented developers and the startup employees benefit in not having to subsist on ramen noodles, it's the users who are left in the lurch. Sparrow's widely-used email client for Mac OS X and iOS won't receive any new features as the developers focus on their work at Google, although they will receive support from the team.
On the other hand, the market obviously benefits. If you're a Milton Friedman devotee, you might think that as long as Google delivers a profit to its shareholders, that's all that matters.
On the other hand, people do depend on these products to get things done, and having a piece of essential software essentially taken away from them can cause lots of problems for other people trying to make a profit.
Businesses, both large and small, rely on a pool of talented employees. Founding a startup, getting funded and releasing a real product shows real dedication on the part of the startup's staffers. Plus, these teams develop close relationships which can allow them to do great work in the future, even in a large corporation. With the Wildfire acquisition, Google is also getting deeper into social media, an area where the Mountain View, Calif.-based search giant is still surprisingly weak compared to its rival Facebook (NASDAQ: FB).
Of course, if you've been paying attention to Facebook's stock price in the wake of its IPO fiasco, you'll know it has problems of its own. To add insult to injury, Facebook tried to acquihire App.net to build up its own app store, but founder Dalton Caldwell refused. "I told your team I would rather reboot my company than go down that route," Caldwell said in an open letter to Facebook CEO Mark Zuckerbeg.
Some startups are willing to stay around, but the actual business of running a business might prove too daunting for founders, making an established company's offer to hire them, even if it means gutting their product. If a company has a choice between some fresh computer science graduate or someone with experience running a business, it's obvious which one they're going to pick.
In this light, it might be understandable why Google and other companies treat startups like the minor leagues, acquihiring the most promising players.
On the other hand, not all startups are gutted in order to improve the parent company's offerings. One of Google's most popular products, YouTube, is still around and still happily hosting people's cat videos, while Google killed off its own pre-YouTube video service.
If you favorite app or service gets aqcuihired, don't panic. Even if the startup is cannibalized, the developers should still end up making its parent company's product even better. (At least if management lets them, but that's another story altogether.) As a shareholder, hring talented people with proven track records is exactly what you want a company to do.
Fool blogger David Delony has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google. Motley Fool newsletter services recommend Facebook and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
