Wednesday, September 28, 2005

Growth by acquisition

Many companies grow their revenues and profits through acquisition. Recently a spate of acquisitions have included Skype, Siebel, PeopleSoft, etc. The key points for the acquring companies are:
  • Has the (large) company stopped innovating?
  • How will the innovations by the acquired company be leveraged? Is it a new line of business and profits will mainly come from cost-cutting? Or do the acquired assets add value to my existing assets?
Microsoft acquired Hotmail and for many years simply ran it as a separate business without really utilizing the power of its reach. It did not (or could not) use the user base and the intellectual capital to come up with new offerings like a search engine. In other words, Microsoft was not able to convert Hotmail into a Google-like behemoth. In fact, Microsoft spun off Expedia realizing that it is not really a technology business.

Things are different when two merging companies have real synergies. Imagine Expedia-Google combination. Or, Ebay-Paypal.

Yes, the shareholders of Siebel, PeopleSoft and Skype are better off today. But will the customers see more innonvation? I would have loved to use VoIP to call into Google to ask it to search and retrieve information on my neighbourhood businesses. I am not so sure who wants to call into an auction site? Last call... Going! Gone!!

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