Google’s Rules of Acquisition: How to Be an Android, Not an Aardvark

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be an entrepreneur,” Lawee says. “That really makes a difference in the way I think about companies and my ability to evaluate [potential acquisitions].”

A Canadian who earned a law degree from McGill and an MBA from the University of Chicago, Lawee started out his career at consulting firm McKinsey, a colander for future business leaders. From 1997 to 2002 he ran Mosaic Venture Partners, a Toronto-based venture firm with $130 million under management. Then he caught the startup bug and co-founded Xfire, an instant-messaging network for PC gamers.

The service attracted millions of users, but when it came time to sell the company in 2006, things didn’t go quite as Lawee had hoped. “It was not a great experience,” he says today. “We’d had discussions with EA, but we had a much higher offer from Viacom”—$102 million, according to news reports at the time. Viacom wanted to make Xfire part of its MTV unit. “It wasn’t the kind of company for me, and it wasn’t really the kind of company for the product,” says Lawee. But when a big offer is on the table, startup boards aren’t typically disposed to consider fit over finances.

Lawee left the startup rather than join Viacom. And he says his fears were realized as the Xfire product languished inside the media giant, and other startups leapfrogged ahead in social gaming. Viacom sold Xfire to Titan Gaming in 2010, in essentially unchanged form, Lawee says. “It kills me that [the vision] is actually starting to be realized now by other game companies like Zynga,” he says. “So I understand what it’s like not to be in the right place and why entrepreneurs typically punch out” after an acquisition.

Looking for Alignment

In an earlier phase of its history, Google itself didn’t always put tremendous thought into the fit between acquisition targets and the existing organization. Often, acquisitions were conceived as a way to enter new markets (e.g. Pyra Labs in blogging, Picasa in photo organizing, Android in mobile operating systems). They could also be a way to give Google a stronger foothold in a market it had already begun to explore (Google went after YouTube only after its own Google Video effort fell flat), or simply to hire a bunch of talented engineers all at once. There wasn’t much incentive to focus, executives say, since growth targets within the company were set across big functional areas. “Product management” broadly defined had a hiring quota each year, and so did “engineering.”

But over the last five years, that’s all changed. Around 2006, Lawee says, Google founders Larry Page and Sergey Brin started to feel that the company had built or accumulated too many separate products. Users were having trouble keeping them all straight. “Sergey spread this mantra internally that he wanted more features, less products,” says Lawee.

Marcella Butler

Universal search, a 2007 innovation that brought Web links, news, images, maps, weather, and other kinds of results together on a single search result page, was one of the first signs of consolidation. After Larry Page reassumed the CEO mantle in 2011, Google went much further, reorganizing most of its functions into six or seven core product areas. Each of these areas now has its own hiring targets. “That is a big change from three years ago,” says Marcella Butler, who reports to Lawee as senior director for corporate development and M&A integration. “Larry has been really public about putting more wood behind fewer arrows.” That means Google is doing fewer “acqui-hires,” and only buys whole businesses when they fit into a distinct product area.

So if you were trying to discern the rules or patterns in Google’s recent acquisition strategy, here’s one: only buy companies whose product vision already coincides with your own. “The most important thing I look for is alignment between what the entrepreneur wants to do with their product and their company and what Google wants to do,” says Lawee. “If there is perfect alignment, then it has a very high chance of success. If there is not, then we should not be doing it.”

Most Google acquisitions today come about after someone inside Google spies a startup outside with a technology that could enhance an existing product. PostRank is a good example. The Waterloo, Ontario-based startup developed analytics software that … Next Page »

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Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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