Apple: Innovations through Acquisitions
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Technology acquisitions sometime get a bad reputation. The large tech company gobbling up the smaller tech company in the pursuit of new products and avenues of growth; some financial commentators are not fans of this. Outside product acquisitions are looked upon much less favorably than in-house product development. Not only are these acquisitions looked upon unfavorably, but some view such acquisitions as innovation killers that suck the life out of the acquiring company.
Some of the recent and prominent tech acquisitions have brought this anti-acquisition mindset to the forefront again. Many financial commentators have questioned the wisdom of Microsoft’s (NASDAQ: MSFT) acquisition of Skype. And there have been similar question about Google’s (NASDAQ: GOOG) acquisition of the handset maker Motorola Mobility.
Now there are many perfectly fair and valid criticisms of both of those acquisitions. Microsoft may have overpaid for Skype and eBay’s (NASDAQ: EBAY) own attempts for years to monetize Skype were not very successful. And Google’s acquisition of Motorola Mobility (a hardware company) takes Google out of its comfort zone as an advertising and software company. But whether these two individual big name acquisitions are wise or not is not the issue I wish to discuss. These two are part of a larger overall tech industry critique that sees these acquisitions as anti-innovative.
I would like to counter some of those criticisms by briefly chronicling a company that has turned acquisition after acquisition in multiple innovative success stories. A company considered by some to be the most consistently innovative company of our generation. Apple (NASDAQ: AAPL)
Let us begin with the biggest acquisition for Apple (in terms of both the dollar amount and the enormous importance for the company). The acquisition that brought Steve Jobs back to Apple and likely saved the company for the possibility of bankruptcy.
In 1985 Apple’s Board of Directors forced Steve Jobs out of the company he founded. A few months later that same year, Jobs founded a new computer hardware and software company called NeXT. The computer hardware this company developed never sold very well (as was later discontinued), but the company proved adept at creating innovative software and did so for about 10 years.
Fast forward to 1995. Apple’s stock is falling, the dividend has just been suspended and the company is in serious financial trouble. Apple is attempting to develop a new operating system to replace its outdated Mac OS. After numerous setbacks and a general lack of any real progress, in-house development was abandoned as the company decided that looking outside the company would be the best solution. Mac OS would continue to be released until 1999 (with two additional major iterations), but it was apparent that Apple’s operating system needed a clean slate.
To right this sinking corporate ship, Apple looked to the man they had effectively fired 10 years ago. And in 1996 Apple purchased Jobs’ NeXT Software for the sum of $430 million and 1.5 million shares of Apple. The purpose of the acquisition was to use NeXT’s software, technology and human talent to create would eventually be known as Mac OS X. The same desktop operating system that would later be the basis for Apple’s mobile operating system iOS (the operating system of the iPhone and iPad). Other NeXT Software technology would also be incorporated to power the iTunes Store; the online store at the center of Apple’s desktop, laptop, set-top and mobile devices today. Quite the innovate acquisition.
Yes, quite the innovative acquisition indeed. But it would not be the only major acquisition Apple would make. None as important as one that saved the company and brought about the return of Steve Jobs, but acquisitions are varying degrees of importance nonetheless.
Jumping ahead in my timeline a bit: In 2000 Apple acquired SoundJam MP, developed by two former Apple engineers. SoundJam MP was an MP3 player developed for Mac OS. After it was acquired by Apple, it was renamed iTunes and the rest was history. Both former Apple engineers are now once again current engineers, one working as the lead developer of iTunes today. Another example of an innovative product and human talent acquisition.
Going in chronological order now:
From 1998 through 2001 Apple made many acquisitions to bolster their presence in the video editing space. Macromedia Final Cut was acquired in 1998. Later renamed Final Cut Pro, this became the very popular video editing software suite used by armatures, independent film makers and studios of major blockbuster films. In 2000 and 2001 Apple acquired various companies whose technologies went into the creation of DVD Studio Pro, another popular video editing program.
In 2002 Apple acquired Emagic, a music-creation software company. The company was known for its Emagic Logic program, later renamed Logic Pro by Apple. Technology and talent from this acquisition would also be used to create GarageBand, the popular music and podcast creation software and part of Apple’s iLife application suite and now available for iOS on the iPhone and iPad.
The next few years saw acquisitions that would be a significant part of Apple’s iPhone and iPad mobile strategy. In 2005 Apple acquired FingerWorks, a company that developed and patented various gesture recognition technologies. This technology that would find its way into the iPhone, iPads and iPod Touches. 2008 saw another company acquisition that would make contributions to Apple’s mobile devices. The PA Semi acquisition brought with it technologies used to create Apple’s A4, A5 and A5X mobile processors used in the iPhone 4 and all iOS devices since.
2009 and 2010’s acquisitions gave Apple some much needed services for Apple’s mobile devices. The 2009 acquisition of LaLa, a music streaming company, would be used to create the iCloud and iTunes Match services for iPhone, iPad and Mac OS X. The 2010 acquisition of Quattro Wireless would allow Apple to be able to compete with Google for mobile advertising dollars with what would become iAds. Also in 2010 was the acquisition of the already popular voice control application Siri, which would later be incorporated direction into iOS 5 operating system.
And it does not stop there. Apple has also acquired various companies and technologies over the past two years that will make their way into future Apple products. While obviously not every company can be as successful as Apple at turning acquisition into innovations, Apple has shown that ‘acquisitions’ and ‘innovation’ are not diametrically opposed concepts.
Brenton Flynn has no positions in the stocks mentioned above. Max Macaluso has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's. WhichStocksWork has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, eBay, 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.