When Google decided to buy Double-click it knew that the diversification move can back-fire. For much of the early success, that the online search titan had achieved, was because of the focus on a singular service offering which was providing users with links to popular search items. The 3.1 billion dollar deal that was struck in April of 2007 meant that Google had an entry into the lucrative advertisement and market campaign business.
The strategic move that Googles CEO Eric Schmidt made at the time of Double-clicks deal must be explained only after we really understand the business model that was established by Double-click (DC). DC is a market leader in digital marketing and it provides services that allow companies to have banners, adverts and other marketing tools on websites that are visited by the target audience. The reason why smart marketing was so successful at Double-click was because DC uses the DART technology which gives it the ability to send a cookie to a users computer. This cookie helps the company generate important demographic and other kinds of information about the many users.
Google ended up paying a bigger price tag than it was initially expected. The buyout price was 20 times more then the expected revenues of 150 million dollars at DC during that time. One wonders why Google paid so much extra money to buy this marketing business. The answer to this question lies in the diversification strategy that Google and other technology companies have accepted as the way forward if survival has to be guaranteed.
In terms of the potential that the company offers this was a good purchase and worth the cash considering there were other buyers such as Yahoo and Microsoft with substantial paying powers. Secondly, the deal was worth the sum because the advertising markets future was related to the technology that was being developed and used at DC. The fact of the matter is that Google had to enter this lucrative market, especially with the clientele that DC had, it was only time before one of the big three would step up and bought the company it was Google who did it. DC had Time Warners Sports Illustrated, Viacom, MTV networks and some other big name clients and that meant that for Google, which had made billions out of the small text advertising market, it was time to make the next big leap in the revenue model.
In terms of the strategic viewpoint, we must understand that in the technology sector, higher revenues are dependent on higher volumes and economies of scale. This is because the amount of money spent on research and development is only recouped over a period of time. Therefore, Googles extra billions for DC are justifiable as they were paying for the RD and the goodwill that the marketing company has built with its clients.
In recent times, we have seen that Google and Microsoft were vying to buy Yahoo though the deal could never materialize this gives us an important talking point i.e. is acquisition or merger the only way for technology companies to expand The answer for the time being is yes. What we mean is that in the short-run we can not expect Google or Microsoft to come out with another ground-breaking and revolutionizing technological product, therefore, to maintain market share, these companies have to buy brilliance and great ideas in the short-run and look to develop their own great ideas in the longer-run.
Google must understand that expansion and diversification through acquisitions might be considered a strong and aggressive way of moving forward but such steps come at a price and companies like Google must be willing to accept the disadvantages of acquisitions along with the large amounts of benefits that come with them. Google must analyze factors such as will the future cash flows justify the acquisitions of companies for billions of dollars Secondly, Google must also look at the integration aspect of an acquisition because eventually all these small companies that are being acquired today will need to be integrated later once they form an important part of Googles operations.
The Googles move to buy DC is an important aspect to the technology sector. It provides an exit strategy to young entrepreneurs with great ideas to move in and out of the market with the desired results. On the other hand, we also see the strength of the top three companies in the technology sector and how they can become collusive oligopolies in a few years time. In a nutshell, the Googles buyout of Double-click was seen as a necessary move so that the company could maintain its profitability because if it was not bought by Google somebody else would have done so.
Google must understand that just because it has got enough free cash flows and great ability to borrow from banks that does not mean it should go on and buy low value or even costly companies. The company must resort to applicative tools such as the McKinsey Pentagon. Frameworks such as the one stated above give companies a fair idea about how the company will do financially in the future for the acquirer. Google should not only go for great ideas because there are many of them around but it should also look at market practicality and the ability of an idea to be successful in the market.
If Google can factor in both options available to buy potential new market firms and the costs of an acquisition, then it can master the art of buying reasonable good companies, turning their ideas into as big success as Google itself did.
Analysis of the Case
The Googles move has long-term implications for the technology sector this is because companies in the technology sector will now be more dependent on mergers and acquisitions in a climate of great competition and cut-throat cost cutting. Companies like Yahoo, Google and Microsoft have been locked in extreme competitive battles for the past few years and they are trying their best to eat each others market share in a bid to drive the other out of the market.
How do companies maintain competitive edge and advantage over their competitors in such an environment One definite answer is related to buying companies that have a competitive edge or merging with those companies that can protect your market share and give you financial cover in the long-run. Although some might term Google buyout as expensive and even unethical as it tried to takeover a business just by offering irresistible amount of money, the reality is though quite opposite. The fact is that when technology companies are formed, the owners plan the exit strategy and ensure investors that large returns would be gained once the company is up and running.
Research and text material shows that when companies go for limited and related diversification, the financial rewards are the highest compared to any other combination of achieving expansion. The move by Google was essentially linked to diversification i.e. the company expanded by acquiring another company which had a similar consumer base but an entirely different business model. The value addition in this case is mostly on the technological and customer base level this is because the move was meant to benefit from the impressive costumer list of DoubleClick and at the same time also transfer valuable technology features from the companies marketing techniques.
Another important thing to understand is that companies like Google pay such large amounts because they have a fair idea of the future potential of a company like Double-click. In terms of the finances, the deal was fairly well balanced and it had advantages for both parties. If we look at the deal from Googles stand point we realize that Google has a lot to gain from this buyout.
The main advantages of this takeover to Google are firstly related to the instant boost to its advertising revenue that were stagnant under the old model of simple text adverts. Secondly, the company has greatly benefited from the transfer of marketing specific technologies and developments. This gives the company an all important edge over competitors which it otherwise would have never achieved in such a small time frame. Another advantage that Google stands to gain is the potential of new products and services that can be formed through the infrastructure that it acquired along with DC. For instance, the amount of data that it can now generate through cookies can go a long way in helping provide data mining services and other important services that can enhance Googles product offering. Another potential advantage that Google had from this acquisition was that its corporate resources were upgraded so that it had access to higher management and standard operating procedures.
In terms of the potential disadvantages, the move was costly and Google can only expect returns once the acquisition is about 5-7 years old. One more issue that the company might face is that of integration as soon as the operations of DoubleClick are important enough to be sub-merged with other mainstream Google operations. Integration would be a major issue at both human resource level and at the operations level since there are marked differences in the way both companies used to work when Google had not acquired DC.
Another key factor that must be analyzed is the fact that, strategically speaking, the move was a good one. This is because at one time Yahoo and Microsoft were also trying to buy the company and if Google had not bought it, they would have done so. In a cost benefit analysis, paying a higher price is better than losing market share in a market where costumers are using many products of the same company.
It is important to note that Googles buyout on a strategic level meant that a company like DC would always have an exit strategy as this firstly gives other new entrepreneurs hope and courage secondly, such a move allows Google to buy what it can not develop in-house. Not only does buying a company in the same industry reduce competition it also gives strength to the product portfolio as more successful products come in.
The strategic move that Googles CEO Eric Schmidt made at the time of Double-clicks deal must be explained only after we really understand the business model that was established by Double-click (DC). DC is a market leader in digital marketing and it provides services that allow companies to have banners, adverts and other marketing tools on websites that are visited by the target audience. The reason why smart marketing was so successful at Double-click was because DC uses the DART technology which gives it the ability to send a cookie to a users computer. This cookie helps the company generate important demographic and other kinds of information about the many users.
Google ended up paying a bigger price tag than it was initially expected. The buyout price was 20 times more then the expected revenues of 150 million dollars at DC during that time. One wonders why Google paid so much extra money to buy this marketing business. The answer to this question lies in the diversification strategy that Google and other technology companies have accepted as the way forward if survival has to be guaranteed.
In terms of the potential that the company offers this was a good purchase and worth the cash considering there were other buyers such as Yahoo and Microsoft with substantial paying powers. Secondly, the deal was worth the sum because the advertising markets future was related to the technology that was being developed and used at DC. The fact of the matter is that Google had to enter this lucrative market, especially with the clientele that DC had, it was only time before one of the big three would step up and bought the company it was Google who did it. DC had Time Warners Sports Illustrated, Viacom, MTV networks and some other big name clients and that meant that for Google, which had made billions out of the small text advertising market, it was time to make the next big leap in the revenue model.
In terms of the strategic viewpoint, we must understand that in the technology sector, higher revenues are dependent on higher volumes and economies of scale. This is because the amount of money spent on research and development is only recouped over a period of time. Therefore, Googles extra billions for DC are justifiable as they were paying for the RD and the goodwill that the marketing company has built with its clients.
In recent times, we have seen that Google and Microsoft were vying to buy Yahoo though the deal could never materialize this gives us an important talking point i.e. is acquisition or merger the only way for technology companies to expand The answer for the time being is yes. What we mean is that in the short-run we can not expect Google or Microsoft to come out with another ground-breaking and revolutionizing technological product, therefore, to maintain market share, these companies have to buy brilliance and great ideas in the short-run and look to develop their own great ideas in the longer-run.
Google must understand that expansion and diversification through acquisitions might be considered a strong and aggressive way of moving forward but such steps come at a price and companies like Google must be willing to accept the disadvantages of acquisitions along with the large amounts of benefits that come with them. Google must analyze factors such as will the future cash flows justify the acquisitions of companies for billions of dollars Secondly, Google must also look at the integration aspect of an acquisition because eventually all these small companies that are being acquired today will need to be integrated later once they form an important part of Googles operations.
The Googles move to buy DC is an important aspect to the technology sector. It provides an exit strategy to young entrepreneurs with great ideas to move in and out of the market with the desired results. On the other hand, we also see the strength of the top three companies in the technology sector and how they can become collusive oligopolies in a few years time. In a nutshell, the Googles buyout of Double-click was seen as a necessary move so that the company could maintain its profitability because if it was not bought by Google somebody else would have done so.
Google must understand that just because it has got enough free cash flows and great ability to borrow from banks that does not mean it should go on and buy low value or even costly companies. The company must resort to applicative tools such as the McKinsey Pentagon. Frameworks such as the one stated above give companies a fair idea about how the company will do financially in the future for the acquirer. Google should not only go for great ideas because there are many of them around but it should also look at market practicality and the ability of an idea to be successful in the market.
If Google can factor in both options available to buy potential new market firms and the costs of an acquisition, then it can master the art of buying reasonable good companies, turning their ideas into as big success as Google itself did.
Analysis of the Case
The Googles move has long-term implications for the technology sector this is because companies in the technology sector will now be more dependent on mergers and acquisitions in a climate of great competition and cut-throat cost cutting. Companies like Yahoo, Google and Microsoft have been locked in extreme competitive battles for the past few years and they are trying their best to eat each others market share in a bid to drive the other out of the market.
How do companies maintain competitive edge and advantage over their competitors in such an environment One definite answer is related to buying companies that have a competitive edge or merging with those companies that can protect your market share and give you financial cover in the long-run. Although some might term Google buyout as expensive and even unethical as it tried to takeover a business just by offering irresistible amount of money, the reality is though quite opposite. The fact is that when technology companies are formed, the owners plan the exit strategy and ensure investors that large returns would be gained once the company is up and running.
Research and text material shows that when companies go for limited and related diversification, the financial rewards are the highest compared to any other combination of achieving expansion. The move by Google was essentially linked to diversification i.e. the company expanded by acquiring another company which had a similar consumer base but an entirely different business model. The value addition in this case is mostly on the technological and customer base level this is because the move was meant to benefit from the impressive costumer list of DoubleClick and at the same time also transfer valuable technology features from the companies marketing techniques.
Another important thing to understand is that companies like Google pay such large amounts because they have a fair idea of the future potential of a company like Double-click. In terms of the finances, the deal was fairly well balanced and it had advantages for both parties. If we look at the deal from Googles stand point we realize that Google has a lot to gain from this buyout.
The main advantages of this takeover to Google are firstly related to the instant boost to its advertising revenue that were stagnant under the old model of simple text adverts. Secondly, the company has greatly benefited from the transfer of marketing specific technologies and developments. This gives the company an all important edge over competitors which it otherwise would have never achieved in such a small time frame. Another advantage that Google stands to gain is the potential of new products and services that can be formed through the infrastructure that it acquired along with DC. For instance, the amount of data that it can now generate through cookies can go a long way in helping provide data mining services and other important services that can enhance Googles product offering. Another potential advantage that Google had from this acquisition was that its corporate resources were upgraded so that it had access to higher management and standard operating procedures.
In terms of the potential disadvantages, the move was costly and Google can only expect returns once the acquisition is about 5-7 years old. One more issue that the company might face is that of integration as soon as the operations of DoubleClick are important enough to be sub-merged with other mainstream Google operations. Integration would be a major issue at both human resource level and at the operations level since there are marked differences in the way both companies used to work when Google had not acquired DC.
Another key factor that must be analyzed is the fact that, strategically speaking, the move was a good one. This is because at one time Yahoo and Microsoft were also trying to buy the company and if Google had not bought it, they would have done so. In a cost benefit analysis, paying a higher price is better than losing market share in a market where costumers are using many products of the same company.
It is important to note that Googles buyout on a strategic level meant that a company like DC would always have an exit strategy as this firstly gives other new entrepreneurs hope and courage secondly, such a move allows Google to buy what it can not develop in-house. Not only does buying a company in the same industry reduce competition it also gives strength to the product portfolio as more successful products come in.
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