Techs Stay Hot as Acquisition Targets
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you are one of the world's biggest technology companies, with rapid advances in technologies related to mobile and social media, how do you remain relevant and not fall behind? The solution that many of the largest technology firms have hit upon is the same: Buy start-up companies that you think have technology which will keep you in the game. That theme was touched upon in a recent article which discussed the growing battle between network equipment companies like Cisco Systems and virtualization companies such as VMware.
Take Google (NASDAQ: GOOG) for example. It recently moved boldly in on Facebook's (NASDAQ: FB) social advertising territory with its $250 million purchase of Wildfire Interactive, a marketing company which started out a few years ago by placing ads on Facebook. With this acquisition, Google is trying to play to its strength in the analysis of advertising (what works and what doesn't). This is an area which Facebook investors have become aware is a major weakness of the company, failing to meet the demand of advertisers, such as General Motors which quit advertising on Facebook.
Social media was also the focus of a deal not long ago by Salesforce.com (NYSE: CRM) with its $689 million acquisition of Buddy Media, a social marketing platform that competes with Widfire Interactive. As Salesforce's CEO Marc Benioff said at the time, “The marketing industry is undergoing the biggest transformation it has seen in 60 years. Facebook has become the new corporate homepage.”
Perhaps the company using the strategy of buying start-ups the most is Oracle (NASDAQ: ORCL), which has been very busy acquiring a host of companies in recent months. It just acquired Xsigo in the virtualization sector whose software simplifies cloud infrastructure and data center operations. It has also been buying up companies in the social media space, including Virtue ($300 million deal) and Involver, which aid large firms in managing customer service relations and marketing on Facebook.
The biggest deal to date in this flurry of M&A activity of big swallowing small is the $1.2 billion cash offer by Microsoft (NASDAQ: MSFT) for Yammer. This company started less than four years ago and had revenues last year of only $20 million, a drop in the bucket to Microsoft. This company is a social network operator for corporations. Microsoft felt this was a necessary tool in its Office suite of productivity software, helping woo businesses with its Facebook-like features that enhance the ability of employees collaborating more easily in the workplace.
Of course, this strategy of acquiring hot technologies does not always work. One only has to look at Microsoft's purchase of aQuantive, an online advertising company, in 2007. It recently took a $6.2 billion charge as the company wrote down nearly the entire purchase price of aQuantive.
That is probably the biggest risk in the current wave of takeovers of small start-up companies by the big technology firms...the risk of overpaying for some start-ups whose technology, service or product will just not pan out. But the large technology companies have to 'play' in order to stay ahead of the competition...this is a macro trend which looks set to continue for years. Tech firms just hope not many of their bets go as bad as aQuantive did for Microsoft.
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