10 Most-Interesting Acquisitions of 2011
Strategy Eye reported the 10 most interesting acquisitions of 2011.
If the first couple of months of this year are anything to go by then tech M&As are back with a vengeance. According to StrategyEye data, M&A deals were worth 18 times as much in January and February this year as they were in 2010, totalling around USD32.7bn compared to USD1.8bn. And the pace now looks set to go into overdrive. In the first 10 days of this month, StrategyEye tracked 32 tech M&As; compared to 18 in the same period last year. It’s figures like these that contribute to the growing debate about whether we are now in the middle of a burgeoning tech bubble. Here are 10 of the acquisitions we think are most interesting in a strategic sense:
Does this acquisition mean Amazon is going head-to-head with Netflix in the movie streaming space? The knee-jerk reaction is yes. But the more considered answer is no, or at least later, rather than sooner. For a start, acquiring Lovefilm is (at least initially) a European play, arguably aimed at stopping Netflix from making a big push into Europe. Secondly, Netflix has a much more comprehensive content library. For Amazon to compete on an equal content footing in the US it would have to invest a significant amount in content rights. Before it does, it’ll probably test the water in Europe and see how the market develops and shakes out. Further confusing the space is Facebook’s recent tie-up with Warner Brothers and the fact that Google is strongly rumoured to be trying to negotiate with studios to launch some sort of subscription or pay-as-you-go YouTube streaming service that would directly compete with Netflix. This year is likely to be pivotal for how the movie streaming market develops.
Paying USD315m for the Huffington Post is AOL’s biggest acquisition since it spun off from Time Warner in 2009. As AOL CEO Tim Armstrong says, the purchase is “core to our strategy”, which is to refocus the company as a content hub. AOL aims to reinvent itself through acquisitions and it has made a number in the last 12 months bolstering its editorial, advertising and video capabilities. But it’s something of a risky strategy. One word – Bebo. AOL already has experience of acquiring a high-profile, much hyped online player only to see its investment fail to synthesise with the rest of its assets and depreciate in value at an alarming rate. Having bought the social network for USD850m in 2008, it sold it two years later for just USD10m. While AOL posted its best profits last quarter since splitting from Time Warner, worryingly its ad-driven revenues fell 27% year-on-year. This is a nasty contrast with the 13% increase in online ad revenues across the industry. And don’t forget in August it posted a massive USD1bn loss. What AOL is doing is an interesting experiment, but whether it results in reviving an ailing business is another question.
Google’s online tentacles extend into almost every nook and cranny when it comes to digital content. E-books are no exception. Traditional content producers from newspaper publishers to movie studios tend to scowl and shake their heads when they realise Google is encroaching on their business, but end up shrugging their shoulders and signing partnerships deals with an air of inevitability. Book publishers are doing the same. Google’s e-book store, which only launched a couple of months ago, is already the largest on the market, offering users access to 3m titles. And to date, Google has deals with around 4,000 publishers, including big players like Penguin Group, Random House and Simon & Schuster. Buying eBook Technologies is a perfect complement to Google’s e-book strategy. It plans to use its new asset to improve the reading experience on tablets and e-book readers.
At the start of the year Facebook's CTO said the social network planned to vastly up its acquisitions volume this year with a firm focus on mobile. Buying Beluga, a mobile messaging startup that enables group chats, is true to this strategy. But intriguingly it could probably also function on the regular version of Facebook. Depending on how it is deployed it could potentially benefit brands that use Facebook Pages, making the dialogues that go on via what are essentially message boards at present more dynamic, instant and, crucially, more sticky. Whatever happens with Beluga, expect more acquisitions like this from Facebook as the year goes on. [Read More]
One of last year's digital media darlings isn't finding the environment as easy in 2011 post its USD1.5bn IPO. First it posted a profit warning in February despite reporting a profit for the first quarter. Having lost USD5.3m in 2010, it says this could widen to as much as USD7.4m this year. Next it was hit by Google going good on its commitment to fight spam and “low-quality” content by changing its search algorithms. While Demand claims is has not seen a material net impact on its business, in an SEC filing Demand admitted that it relies heavily on its relationship with Google to drive its revenue, and that breakdown in that relationship "would adversely affect our business". Content farming is a dirty word in some circles and receives a lot of criticism, but it’s not going away and nor is Demand Media. It is still looking to grow and expand the business, as the acquisition of live-blogging firm CoveritLive proves. It’s actually a very good complement to Demand’s business.
Zynga is incredibly active in the acquisition space, but Flock is arguably its most interesting in a strategic sense because it suggests the social gaming company is keen to liberate itself from total dependence on Facebook. Flock is a social web browser that allows users to access their social network profiles while browsing the internet. Most famous for Farmville, Zynga looks intent on spreading its reach. Already diversifying into mobile gaming, the purchase suggests that it may be looking to move into more traditional web-based casual gaming. Last year Zynga made 10 acquisitions and its rate does not appear to be slowing down: This year it’s made two in a little over two months. Consolidation in the social media gaming space is a natural consequence of the way a growth market has rocketed and fragmented in a short space of time.
Arguably the biggest beneficiary in the smartphone space of the Android operating system bar Google, HTC is intent on maintaining last year’s impressive growth this year. Tablets is one focus area for growth, but content will straddle both its smartphone and tablet interests. That is what these two investments are about. In OnLive it is gaining a stake in mobile gaming software, while Saffron Digital means it acquires more video functionality. Investing in content is a sound strategy for a mobile device vendor in theory, but a harder one to master in practice. Apple is the best example of marrying devices and content; Nokia a worse role model. The latter has tried to transform itself into a services-led company for years with limited success. What HTC does is make great devices. It should not neglect this and make sure any forays into content are device focused.
YOUTUBE-NEXT NEW NETWORKS
YouTube’s biggest issue is turning eyeballs into profits and always has been. Considering its traffic, its returns are disappointing to put it politely. One way to change this people argue is to complement the user-generated content with more professional content and original content. Whether this is true is highly debatable. Look at the most-popular videos of all-time on YouTube. For every dancing stormtrooper there’s a professional music video from someone like Coldplay. Ad returns remain low. But providing original, professional is what buying online video production and distribution firm Next New Networks (NNN) is all about. It’s being folded into a new division that will include a network of partners and provide a platform for content creators. [Read More]
It is not yet clear whether UberMedia has acquired TweetDeck or not, but it seems a very good fit for the app developer and was reported in many quarters as a done deal. UberMedia is busy buying up some of the best third-party clients in the Twitter ecosystem, having already UberTwitter, Echofon and Twidroyd. TweetDeck is bigger than the others and would be a core part of its eventual offering. In such a fragmented space consolidation makes some sense and if it can intelligently and inventively combine these assets then it could have a very interesting proposition on its hands.
As predicted Groupon will only get bigger this year and it will do this by extending its reach into new territories and increasing its grip on countries it already has a presence in. One route is via acquisitions. These three acquisitions should strengthen its business in India, Israel and South Africa.The daily deals space is ripe for acquisitions and though Groupon may be leading the way there is a lot of M&A activity across this sector at the moment. [Read More]
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