Photo: True Ventures
It’s become increasingly clear that what matters most in web acquisitions is what happens after the acquisition, not before.The small news that personal profile service About.me struck a partnership with Moo.com to let users print business cards for free is actually a big deal from the perspective of how big companies do M&A, because About.me got acquired by AOL recently. It’s actually quite rare for “acq-hires” like About.me to come out with cool, innovative features like that.
And it’s a good sign for AOL.
There’s basically two reasons why what happens after acquisitions matter so much to web M&A:
- The best tech entrepreneurs are motivated by vision, not money, and are allergic to bureaucracy;
- Things move so fast and barriers to entry are so low that you need excellent execution over the long run; and
- The way your previous acquisitions work out are a huge signal to the startups you may need to acquire in the future.
The last point may be the most important and the most overlooked. Given how fast the internet ecosystem moves, being considered a good acquirer is a tremendous competitive advantage for a company, not just because of the acquisition it makes but because of the acquisitions it can make.
With that in mind, here’s a few rules of thumb:
- For talent acquisitions, (“acq-hires”) give the new team responsibilities and a wide berth. The latter may actually be more important. As stated above, tech entrepreneurs are allergic to bureaucracy. If you buy their company and give them control of a business unit where they can achieve their mission, but they have to spend half their time in meetings justifying what they’ll do, they’ll leave. And you won’t just lose out on the business and the person you spent X millions to come work for you, you’ll lose out on future acquisitions.
- For strategic acquisitions, let the new operation run independently if at all possible. “Synergies”, on the web even more so than in real life, are always elusive. Relentless execution by motivated executives is what matters.
It’s crucial, and a look at the biggest acquirers in tech will show why.
- AOL has been a great acquirer of late. Things seem to be going well at About.me so far. TechCrunch, another AOL acquisition, seems to be doing well, despite founder Michael Arrington’s heroic efforts to antagonize his parent. Most importantly, the Huffington Post, the new AOL’s biggest acquisition to date, seems like it’s doing very well: it’s very clear that Arianna Huffington is in charge of AOL’s media strategy and that the goal of the acquisition is not just to let HuffPo run independently but to “HuffPo-ize” AOL’s media properties. If they can execute, the acquisition promises to be a big winner. More importantly, it means that founders will be less reluctant to sell to AOL in the future.
- Facebook is a great talent acquirer. Facebook goes to great pains to make sure that the entrepreneurs it acq-hires have big responsibilities at Facebook — and to show the world that they do. Perhaps the best example is FriendFeed co-founder and CEO Bret Taylor, who is now CTO of Facebook.
- Google has had some great successes and failures in acquisitions, and is working to right that. Google has made some outstanding acquisitions: Android, YouTube, DoubleClick. But it has also let plenty of great projects die on the vine, and it’s coming back to haunt them. Twitter and Foursquare, which can be big threats to Google and could help them tremendously with its social strategy, have both been co-founded and are run by Google alumni who have seen their previous startups be neglected at Google and now are resisting being absorbed by the tech giant. Larry Page’s massive recent re-org of the company, making divisions more independent, is designed at least in part to make the company more palatable to potential acquisitions.
- Apple is a bit of an exception. Apple is a pretty successful acquirer, only making very carefully considered moves. And this is despite tightly integrating the companies it acquires. But it seems that most entrepreneurs who stay to Apple stick around. We guess the basic reason is that if you’re bought by Apple you know that everything you and your company do is going to subsumed into Apple’s overarching product strategy, so you know what you’re getting into when you sign up. There’s less of an unpleasant surprise than with, say, Google buying Blogger and then doing nothing with it while Tumblr grows like gangbusters.
- Amazon is the best acquirer in the tech industry by far. Amazon buys companies and lets them run independently. The great example is Zappos, which is almost completely independent. Another great example is IMDB, which is run by the same guy out of the same home office in rural England since the company was acquired by Amazon in 1998. It’s one of the most unspoken of Amazon’s competitive advantages.
- Yahoo, meanwhile, shows what not to do.Flickr is described by insiders as marred by bureaucracy, which prevented it from pursuing the mobile photo sharing opportunity that plenty of startups like Instagram, Path and colour are going after. Delicious, a small but beloved service with an active userbase, is now a basket case. And Yahoo shows that it’s not just those wasted opportunities it’s paying for. Yahoo actively pursued Foursquare. That acquisition would have given it great cachet and a tremendous shot at pursuing mobile, where arch-rival Google is dominating and Yahoo is nowhere. But at the end of the day, Dennis Crowley didn’t go for it despite being offered $100+ million just a year after starting up, because he knew his baby would get bogged down into bureaucracy and whither like Flickr.
Bottomline: M&A matters. Doing it right matters. But what matters most isn’t the actual acquisition. It’s what you do after it.
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