Sunday, August 23, 2009

Strat"e"gic Acquisitions

Acquisitions are very easy to look at and talk about especially if one talks and hears about the success stories. Though it's not easy to decide until at least 4-5 years of an acquisition about the true outcome - before either it starts showing some continuous benefits(revenues) or it collapses after a quick growth, and the third and desired option is that it becomes a visionary fitment into the organization and it doesn't just grow because of the acquisition but also gains market value and respect.

There are certain parameters for an acquisition to be successful, these parameters not necessarily are ingredients of a magic potion, but they certainly are worth looking into while I do a necropsy of some of the acquisitions that have happened in the last 10 years I'll try to highlight some of those points and map them with what went wrong and what were the success factors:
  • Fitment into the business for improvising the business model - "e-bay's purchase of bill-me-later" : Payment mechanism has been one of the most important factors driving success of the online sellers. In today's world even though credit reliance has taken a toll on the economy - it's never been more important to gauge whom to give credit and whom not to. (Bill me Later)BML's model is interesting - it offers transaction-based credit to online shoppers at the time of checkout. Consumers provide BML with their date of birth and last four digits of their social security number. BML's engine decides whether to approve and extend credit for the transaction. Though this acquisition has come in at slightly a wrong time when a seller would hesitate to offer a sale at credit to any individual however excellent the past credit history of an individual be, but this acquisition for $820 mn comes in 6 years after e-bay had done another strategic acquisition to bolster their online payment model - Paypal! e-bay being the gorilla in the online auction market in 2002 they wanted a best of breed online payment mechanism. Even after acquisition of Bill point in 1999 they could not match the trust that pay pal had developed in the minds of the people. And it was for this mindshare that e-bay decided to acquire paypal in 2002 for around $1.5bn. The moved did work wonder very well for e-bay and they managed to maintain their status of market leaders in the online auction world. It would take another couple of years to gauge the true benefit of BML acquisition but I think very few of e-bays decisions have gone wrong in terms of acquisitions or purchase of stakes that they have done. (I would certainly want to talk about they taking 25% stake in craigslist in one of my subsequent blogs)
  • Common vision - "Google's purchase of Youtube": This was termed as "CRAZY" by strategists when Google decided to do the acquisition in 2006 for a gargantuan sum of $1.65 bn. All google had to do was to fit in the 65 odd employees that youtube then had into their 10,000 + employees. But google had one clear intention that they wanted to continue and enhance their ability of delivering content in all forms to users. Today, 3 years from the deal though am not sure of the financial figures but it's obvious that Youtube seems to be the choice of viewers on any of the social networking sites apart from the demand that youtube has generated and the coverage it gets to all possible TV shows, movie clippings, sports world et al. And google has come a long way since then knowing how to best capitalize with youtube by using various mash up techniques to integrate youtube not just into google acquired platforms but also on outside networks. What's important here is to also understnad that it's not just the common vision that drives this but also a technological fitment in terms of strategy and platform.
  • Increase the market coverage and penetration - "New York Times's (NYT) acquisition of about.com": New York Times has been one of the oldest and most read newspapers in the United States and currently is the larget metropolitan newspaper in the United States. It was one of the early adopters of the web and it has been available online since 1995 and today it boasts of around 160 mn readers. But in 2005 a need was felt to grow the readers and they had to find a perfect mix of a similar entity that had the web presence for it content in varied fields. This is when they decided to acquire about.com to get the 22 mn users of about.com compared to 13 mn users of NYT to aggregate the users and increase the readership, and this deal came in for $ 410 mn. The deal has certainly worked wonders for NYT and it has been a continuous growth since then for NYT in terms of market presence.
These are some of the acqusitions that according to me have really worked well for the parent company but there have been several other's worth a mention and although they have been much bigger in size in terms of the dollar value of transaction like AOL or Hotmal acqusitions by Time Warner and Microsoft, but they are contentious deals and need a different level of discussion on whether they were success or failures!

Power of on"e" liners

Who could have imagined in 2006 that the 140 characters that twitter assumes are just sufficient to build an ecosystem will become talk of the town today and it will not just influence social behavior, but also various business initiatives! Today with millions of registered users on platforms like Twitter, myspace and other social networks emulating the model to not let go the immediate connect and impact which sites like Twitter have created. Facebook, Orkut, gmail chat, linkedin and all other social network sites today let people quote what's in their mind and this one development according to me was the next best advancement in networking. Being able to be in a community and chat, write on wall and scrap was started by social networking sites but being able to interact on every moment of life or at times on just a teatime session, walk round the street with Ralph (the dog) or a trip to Smokey's creates so much buzz around you in the community that with these status messages one cannot contain themselves from commenting on these status leading to discussions which would lasted over several snail mails 20 years back.

I am not a very strong advocate of making myself so open to the outside world, that the whole world can do an autopsy of my life. But today the trends are changing & people have been geographically dispersed and hence there is a continuous need for people to know about family and friends! Also there's a lot happening these days in everybody's personal, family, social and sociological lives which has made people try to open themselves to those who are in their network(circle) to share and seek from.

This is one side of the story where companies are creating networks and each and every of the networks have a different region for dominance in the social behavior of people. It's another story worth discussing on how these social networks are led by different factors which in turn had given varied coverage to these in geographies globally. But today corporates worldwide are moving to using these network and leverage the social behaviour of people, and some of the networks like facebook, twiter and Linkedin are gradually establishing leadership status in social, professional and micro-blogging sectors of business. Companies today are working on their web presence to create an impact by having their presence across all the social networking sites and through blogging and various microblogging techniques. It's a way of of not just increasing awareness of various initiatives that corporates are taking but also to get maximum mileage out of the growing acceptance of web 2.0 models. One should not be surprised if very soon corporates would have their own social network platforms to aggregate the various partners, prospects and alliances and use this platform for increasing market presence and transform their organizations.

Might sound overbearing but imagine a status message from a CEO of a Fortune 100 company -" Completed a board room meeting to decide the initiative in the LTAM region towards legacy system consolidation" or a CFO of a multinational trying to discuss -" Latest trends in outsourcing of AP and AR" with his peers! But for now it's just living with reality and predictions by various research research firms on getting the maximum out of the social networking platforms and performing innovative marketing techniques as quoted by Forrester.