Friday, March 17, 2006

What Does Big Boys Wants to Buy? Part –1


Every aspiring entrepreneur wants to come up with the next killer application. But the question is what is a killer app actually? How do you validate that your application is a killer app? A common rule of thumb is if any of the Big Guys (Read Google, Yahoo, MSN, Amazon, Ebay etc) wants to buy you than your application can be a killer application?

Success for a startup approximately equals getting bought. You need some kind of exit strategy, because you can't get the smartest people to work for you without giving them options likely to be worth something. Which means you either have to get bought or go public, and the number of startups that go public is very small.

If success probably means getting bought, should you make that a conscious goal? The old answer was no: you were supposed to pretend that you wanted to create a giant, public company, and act surprised when someone made you an offer. Really, you want to buy us? Well, I suppose we'd consider it, for the right price.

Paul Graham In "Ideas For Start Up"

With this thought in my mind I begin to explore what the big guys of Web 2.0 would like to buy? This proves to be a Holy Grail. Especially when we have the example of EBAY buying Skype with out any possible synergy between their lines of business.

So I thought lets compile the data and do some crunching to predict who may wants to buy what. J . I begin by analyzing what ultra cool Google might be interested in buying? What's there in Google shopping list? I will analyze the buying pattern of all the three big boys in subsequent posting.

Lets start with Google 

I found a complete list of acquisitions made by Google at wikipedia . Even in Pre IPO phase Google was always scouting for good start up. But post IPO its acquisitions are more widely know and good news is currently Google is on a Shopping Spree .at first glance they all look like madness and without any master plan. But on a deep analysis you can find some strange pattern.

Surprisingly most of the acquisitions made by Google are in the category of "Shadow Applications " very few of them are in the front end? Only a very Few of the companies were bought in order to enter the new business (Read: Picassa, Pyra Labs, KeyHole Outride etc).

Most of them were just applications which can strengthen the existing product offering which are not in leadership position in their respective markets.  Something likes a steroid for a dull application in Google Basket.  Like Deja which was bought to re launch Google Groups. "Applied Semantics " which was bought to develop contextual advertising like Ad Sense and Ad Word. They paid 102 Millions for net semantics. Later on they acquired sprinx to enhance these contextual Ad services.

Zip Dash was bought to provide a revenue stream on the top of Google Maps.

Reqwireless was acquired to avail Gmail on wireless devices .

dMarc Broadcasting was acquired to extend advertising onto audio channels.

Writely was acquired to provide online web based word processor

Baidu was acquired to get a geographical reach in a niche market.

Cut a deal with AOL to get a lot of user base, which stick to Default.


There are many more. But I guess this list is enough for the purpose of discussion

So? Does that Looks like a totally random selection with out any coherent logic? It looked like this to me initially. I thought money has got in to the head of folks at Google. Predicting what Google will buy is not easy.  Can I do it? 

Honestly I can't but I can find some common characteristics, which are present in all these firms and try to extrapolate from the data. We can only point in the general direction of the next buy of Google.

With all these data I set down to do crunching and finding a pattern, super imposing one model after another.  (Actually I had dinner with one Investment Banker last night so I am still under the hangover J).

Sadly I still can't shout Eureka! So I share my finding with you and trust "wisdom Of Crowd " to help me.  So you go thru the details I have given here and come up with your own predictions.

I will post my analysis some time soon during the day or tomorrow.  Now it's Time to Go Back to work J.

stay tuned



Manu Sharma said...

> EBAY buying Skype with out any possible synergy between their lines of business.

There is synergy indeed, just not apparent on top. I wrote a few of posts on Ebay-Skype deal during the speculation stage and when it actually happened. Some of these were noticed in the blogosphere (including by one by Om Malik).

On Google, well there are typical characteristics in their acquisitions and investments that continue to hold true:

1. As with Google's own products they are interested in products / services that solve users' problems. And these must be big problems and/or provide a much enhanced user experience. It's very important to them that their products are useful to the masses. They are not interested in something that caters to a niche audience or has limited utility.

Although it might seem that they buy the "coolest technology" but that's a myth. They will never invest in something just because it's cool. It's a coincidence and some of the early acquisitions aren't even consumer facing products.

2. Although they are generally guided by their mission of "organising world's information and making it universally accessible" but that will not limit them into investing into a space that doesn't qualify. They're after technologies that solve big problems and provide a great user experience.

3. They like to invest at a very early stage. This makes their investments very risky but also have big returns as the earlier in the startup lifecycle you buy, the cheaper it will be. This is very unlike most public companies that must satisfy their stakeholders before making a risky investment. Google actually built this condition into their public filing that they will continue to pursue high risk high return investments.

4. Just as with their own products, they don't care about monetization at the initial stage. They'll buy even if there's no business model or no proven business model. That doesn't interest them as long as the product satisfies the first criterion. They argue that whats important is that the product provides a great user experience to a big audience. They might figure out a way to make money later or continue to offer the service for free to enhance loyalty to its main revenue earning services such as Adsense and Adwords.

Nilesh Trivedi said...

Google is trying to keep its long-term competitor microsoft in check by acquiring Writely and coming out with products like google desktop. All these products google is coming out with, are intended to weaken the reliance on the user on his desktop operating system.

Plus, by providing free google chat, they want to strengthen their expertise of understanding the users by the contextual information which fits nicely in their online ad industry.


well Manu ,that make the puzzle harder to solve.

As a start up on a shoe string budget and VC pressure to exit . entrepreneur needs a revenue stream right from the business plan stage.with VCs on your back . you really don't have eternity to "Perfect the technology "

Buying a start up in very early stage (Riya Alpha ) poses another problem you need to have a proximity to Deal Makers
(Read : you need to be there at Silicon valley Dinners and Cocktails ) .

You need to have a substantial user base in US . apart from Alibaba there is no deal where we have a substantial non US/Europe user Base ?

do you agree ??

About Nilesh's view about Rivalry with Microsoft i agree to it in principal

But throwing away windows require something more than a hand full of web technologies , Google Guys need to offset the fear of Biz user to host data on third party server .

they need to do a application like Backpack by

Balaji S said...

Thanks Prashath for your rant about BarCamp, I got to know about it and attended BarCampChennai. I am glad I did.

My take on what the big boys want: They will buy the company that best reflects the basic force that powers the wave/trend.
For example Internet growth implied shift in communication paradigm. Email was the manifistation of it. Hotmail acquired by M$.
With the explosion of web sites, search became improtant. Connecting the content with the consumer was the force. Google came into existance.
In Web2.0 attention, social networking are the forces. Anything that enhances the 'attension experience' which intrun will grow and sustain the userbase for the experience will be a killer app.

More in the next post.

-Balaji S.

Young J said...

Nice post, atleast for starters that you can be bought over for a large sum :-))


i am counting on that Yong J .Don't feel like working all my life :-)
look for an idea , some thing people wants , scale up, sell it and than collect money .

Than blog about it rest of your life

jokes apart i think if money is the motivation that you will run out of fuel very soon .
very few companies get attention of Google or MSN or anyofthe big boys and rare ly any starup goes public .

honestly what drives an enterprenuer is the joy of creation and giving something to world which is missing

i think you are an aspiring enterprenuer , i wish you good luck . may the force be with you :-)