Why do companies keep buying others? Why on earth there is such a drive to buy overvalued and overhyped companies that will ultimately take years to absorb and, when it is the absorption is finished, it usually means that the potential benefits have gone and other new challenges are in the market place.
I cannot understand why Google recently bought DoubleClick and before that YouTube. Google keeps saying that it makes sense and that it fits with their corporate strategy, but if it did then they should’ve been doing it already and not buying companies on top of burger joints for over $2bn.
I beg to disagree with the Larry and Sergey. I think it ultimately this acquisitions mean two things:
- We don’t like competitions because we are afraid; and,
- We don’t believe our staff is capable to beat or be more creative than the competition.
As far as I understand, Google has GoogleVideo, so what is wrong with that? Why was Google video not a viable competitor? The reason is simple: it lacked the right technology, YouTube technology is far superior, but it also highlights that Google doesn’t believe that its engineers would have been able to improve GoogleVideo to a decent enough standard. This is the key argument, after all they want to distribute TV online with advertising.
The other argument is about the community and the user generated content. YouTube has tons of ‘customers’ unlike GoogleVideo, which has none. I dismiss that completely. Anyone that has seen the user generated content and read the user comments can quickly understand that we are talking about morons and any company with a brain would distance themselves from this. On top of that everyone knows how fickle these users are. Today is YouTube, tomorrow GodTube and after that GoKnowsWhichTube.
I think there is no point of in most these acquisitions. Historically companies that begin focusing on buying others lose focus on the core business – the product they initially developed – and ultimately succumb to competitors coming out of nowhere. In the car world, Toyota is now the market leader and it seems to be the only car company that hasn’t been indulging in buying and selling other companies. On the other hand, Daimler-Benz, for example, bought Chrysler and now wants to get rid of it.
In the entertainment world Warner Brothers is a fantastic example. They got Time magazine, even tough they never made the same amount of money and then they merged with by AOL (the largest merger in history) and the result was totally disastrous. They even drop the AOL name from its name in less than 5 years.
The real drive between these acquisitions are the shareholders and board members with stock options. They make lots of money because they sell overvalued stuff to others by making them believe that it is a good business. Ultimately this is only about a few men/women that stand to gain personally. The companies ultimately always lose and more significantly their key asset: the workers.