Google’s Rules of Acquisition: How to Be an Android, Not an Aardvark
In the technology world, acquisitions so often go awry that it’s a wonder big corporations keep shelling out to buy smaller ones at all. Just look at disasters like News Corp’s acquisition of MySpace, eBay’s acquisition of Skype, or more recently, AOL’s acquisition of TechCrunch. Acquirers are so likely to overpay for their purchases, misjudge the potential synergies, or bungle the integration process that the majority of post-merger companies end up doing worse than their competitors, according to a litany of management studies.
But there are a few special tech companies where the executives seem to have figured out how to make acquisitions succeed—or at least, how to lower their failure rate. One of these is Google (NASDAQ: GOOG). In many of the markets where it’s now a huge player, Google got there through an acquisition: think of Keyhole (online mapping, 2004), Android (mobile operating systems, 2005), YouTube (user-generated video, 2006), Writely (online documents, 2006), Doubleclick (display advertising, 2007), AdMob (mobile advertising, 2009), and ITA Software (travel planning, 2010). Together, Google’s acquired companies generate billions of page views every day, along with the resulting ad profits.
Of course, some of Google’s acquisitions haven’t turned out so well. After buying Dennis Crowley’s startup Dodgeball in 2005, Google famously missed out on its opportunity to build a location-based social network; Crowley left to found Foursquare. Google paid $50 million for social search startup Aardvark in 2010, only to shutter the service a year later. And most of the key executives who joined Google through the 2009 acquisition of AdMob—a $750 million deal—have already left the company.
But given the pace of acquisitions at Google (48 in 2011 alone), there are bound to be a few derailments. Overall, Google has a remarkably good track record at getting what it paid for—and sometimes a lot more. David Lawee, the company’s vice president of corporate development, says two-thirds of Google’s recent acquisitions have been successful, based on measures such as employee retention and revenues from the acquired teams or products. That’s a far higher success rate than the industry average, which studies put at roughly one-third to one-half.
Success at M&A, though, didn’t come naturally. It was an acquired skill, so to speak—something the company only learned through practice as it grew. “Integration is a really well-honed process now,” Lawee says. “I certainly wouldn’t have said that four years ago. Four years ago we could get away with, ‘You are smart, figure it out,’ because it was a smaller business.”
I went down to the Googleplex last month to meet with Lawee (pictured above right) and find out how the company honed its process. I subsequently interviewed three other Google executives who either help to manage acquisitions or have recently joined Google through an acquisition. I wanted to know what Google has learned that other companies haven’t. How does it figure out which companies it wants to buy, and whether their technologies will fit with existing Google products? How does it smooth the transition for newly acquired teams? How do former startup founders stay productive—and entrepreneurial—once they’re inside a 32,000-employee company? And when Google acquisitions do go wrong, why?
Speaking from Experience
The acquired Googlers I’ve talked with say it’s a friendly place for people who bring the typical startup founder’s passion and ambition. If there’s a source for that friendliness—other than the fact that Google was so recently a startup itself—it’s probably Lawee, the guy at the top of Google’s M&A operation.
It’s not a stretch to say Lawee is uniquely qualified for his job. He spent three years running marketing and product launches at Google before switching over to corporate development, so he has an insider’s understanding of the company’s needs. But he’s also ex-entrepreneur and ex-venture capitalist, so he’s seen every side of the startup process. “I understand viscerally what it’s like to 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.
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 measures social actions relating to Web content: blog comments, votes on Digg or Reddit, bookmarking on Delicious, tweets, and the like. PostRank’s tools for measuring user engagement complemented—but went well beyond—the free traffic-measurement tools available to website owners through Google Analytics. In fact, when it developed its user interface, PostRank decided to presented its findings as a data layer on top of information from Google Analytics.
After integrating so deeply with Google’s tools and sharing the stage with Google at a number of conferences, PostRank could hardly avoid having business-related conversations with the Google Analytics team. “We found ourselves talking about quote-unquote ‘deeper partnerships,’ and the rest is history,” says Ilya Grigorik, PostRank’s founder and chief technology officer. Google bought the startup last summer with the goal of formally integrating PostRank and Google Analytics. Soon, Google Analytics users will be able to see not just how people are using content within their site, but what they’re saying about it outside. “The idea that we could come in and integrate and provide more insight to customers was very, very appealing,” says Grigorik, who is now a software engineering manager at Google.
What Google Can Do for You
Even more than the money or the prestige, it may be the opportunity to solve problems “at Google scale” that prompts many startup entrepreneurs to accept Google’s purchase offers. Lawee says the company doesn’t invest in an acquisition unless it thinks it can use its resources and existing products to leverage the acquired company’s technology into something bigger. “As an entrepreneur, you are irrationally passionate about what you are trying to achieve,” he says. “So it is quite critical to you that you achieve it, and if there is a place you can achieve it more easily than on your own, that is a special place.”
Google has worked to refine a set of procedures and resources—a whole infrastructure, really—to make sure every acquired team finds a foothold within the company, a home where they can get to work on achieving their vision. The reorganization under Page was the starting point. “There has been a sea change that makes it easier to help people understand where they fit in,” says Butler. “If we are going to make an acquisition for Chrome, then Sundar [Pichai, vice president of product management] and his vice president and directors are going to be behind it, and there is going to be an executive at Google responsible for those people. There is always a sponsor.”
Butler herself is a key facilitator. Over the last year, she’s doubled the size of her integration team, from four to eight—and she says there are another 80 M&A experts across Google’s core product areas. There are specialists who handle setting up newly acquired teams with office space, desks, and chairs; making sure that patents, contracts, and other assets and obligations are smoothly transferred; training managers to understand how performance reviews, promotions, and other procedures work inside Google; and even transferring an acquired company’s software into Google’s code base. “My team works as the quarterback and keeps all the other teams moving,” Butler says.
When it all goes smoothly, former startup founders usually find that their lives inside Google have been vastly simplified. “Acquired Googlers consistently rank their work-life balance at Google higher than they did before, and I think it’s because we make it easier for them to do the things they love,” Butler says. The free meals in Google’s famously high-end canteens are just one part of it. (Outside estimates are that the company spends $20 per employee per day on food—or well in excess of $100 million per year.) “When you take an entrepreneur who has been watching their pennies and doing things with chicken wire and duct tape, and suddenly you put them in an environment that is rich in resources—intellectual, technical, storage-wise, and even culinary—then you free them up to do the things they are best at and the things they are most passionate about. They don’t have to worry about anything other than innovating.”
Grigorik says Butler’s team helped PostRank’s entire 12-person team in Ontario get work visas and find new homes in Silicon Valley. “There is a lot of built-in structure that made the transition really painless,” he says. And once the team arrived at the Googleplex and connected with the Google Analytics group, managers made sure to keep them together. “Google is this ginormous entity with many products, but even though it is a big organization it is driven by small individual teams,” Grigorik says. “We managed to preserve the team identity, which I think was very important. It isn’t the case that we were just dissolved into some sort of larger organization.”
To help acquired Googlers find their way inside the “ginormous” company, Google organizes an “Entrepreneurs at Google” conference and speaker series two to three times per year, according to Butler. It’s a place for former startup entrepreneurs—who may have known or worked with one another in previous phases of their careers—to reconnect and network. One of the first gatherings was held at Lawee’s home, with Larry Page in attendance. The company is also piloting a private e-mail discussion group for acquired Googlers, so former founders “feel they have a smaller community that they can share concerns with,” says Butler. About 40 former startup founders are active on the list so far.
What You Can Do for Google
But no one should think that joining Google is all puppies and rainbows. The external support is there to free up mental bandwidth for real work. Explains Butler, “When people ask ‘Is Google a fun place to work?’ I say ‘Yes, but,’ and the ‘but’ is that it’s a very productive place to work.”
Lawee and Butler say it takes a special kind of person to thrive inside Google. It’s not just that they have to be passionate and hard-working. Another key asset for a newly acquired Googler is the ability to keep thinking like an entrepreneur, even inside a big organization where existing product goals would, on the surface, seem to limit the possibilities for risk-taking.
And the key to that task, acquired Googlers say, is getting to know one’s managers and one’s managers’ managers, understanding their priorities, and figuring out how the startup’s vision meshes with theirs. “It is absolutely critical that you identify what are the company’s strategic goals and what are the goals of the executives, vice presidents, senior vice presidents, all the way up to Larry,” says Max Ventilla, a senior product manager. Then new Googlers have to “figure out how to translate those higher-level visions into a product or a cross-cutting piece of infrastructure.”
Ventilla joined Google in 2010 when it acquired Aardvark, the social search company he co-founded in 2007 with Damon Horowitz, Rob Spiro, and Nathan Stoll. That’s a story I’ll return to in a moment; Google discontinued Aardvark’s social search service last year, and Lawee cites the episode as an example of an acquisition that failed. But Ventilla and his team—because they’d spent time talking with people responsible for social initiatives—ended up making major contributions to Google+, the company’s big social networking play. “Until you get into the company, you don’t know what’s in the works. You don’t know what’s most strategic,” Ventilla says.
“It’s not complete smooth sailing when you walk into Google,” Lawee confirms. “You still have to be an entrepreneur in terms of making it happen. You have to figure out the language. The [entrepreneurs] who are successful here are the ones who spend the time to get to know the landscape.”
There’s one more important quality for acquired Googlers, and it may be even harder to find: a dose of humility. “A healthy dose,” says Lawee, “both because there is a very high caliber of people here, and because what usually happens is that the entrepreneur’s goals become much bigger once they get here.”
Typically, a startup founder has been working for years to build the best product in a specific niche, Lawee observes. But now he or she is suddenly being challenged to think about what their product might look like if it had a billion users, and how it might change the whole company. “The most common feedback coming out of a meeting with Larry and Sergey is, ‘We need to think about this bigger,’” says Lawee. It was Page, for example, who first pushed John Hanke, co-founder of Keyhole, to adapt his desktop digital mapping software—-previously used mainly by government officials and urban planners—to work on the Web. The result was Google Maps, now the world’s leading source of location-related data.
“It’s counterintuitive, because the audacity of thinking so big is risky,” says Lawee. But if you put Google-scale resources behind a project, he says, “it’s actually less risky,” because you can try it out on more people, faster.
Into the Sunset
If Google’s M&A operations have a two-thirds success rate, that means one-third of the search giant’s acquisitions don’t work out as hoped. The company’s definition of failure? When the acquired firm’s technology doesn’t get incorporated into a Google product and the company sunsets it, or the team eventually leaves, or both.
When I quizzed them on the subject, Lawee, Butler, and Ventilla were remarkably open about such cases, and about what Google has learned from them. “Every failure is personal for me,” says Lawee. “When things don’t work out—let’s say, in the case of Aardvark—that hurts. It also hurts our reputation in the market.” Any thoughtful entrepreneur working at a startup being courted by Google investigates what happened to previously acquired companies, Lawee says. “And they are like, ‘Well, I would want to be an Android, not an Aardvark.’”
Before the reorganization, Google’s acquisitions sometimes went south out of pure carelessness, or lack of forethought. Dodgeball, Dennis Crowley’s New York-based mobile social network, was the archetypal case. “That was an example where Dennis was way ahead of us in terms of his vision,” Lawee says. “There was a misalignment. He didn’t get the resources he needed. In that case, it was a very small acquisition, and we weren’t as thoughtful about it.”
These days, the failure stories are usually more complex. Google isn’t on autopilot; the company’s priorities shift in response to a changing marketplace—with Google+, a response to the rise of Facebook, as the clearest recent example. Sometimes newly acquired teams get caught in those shifts. “Product strategy changes, the markets change, something happens where an inconsistency arises between the company’s goals and the prospects for the product,” says Lawee.
That’s what happened to Aardvark. The way Ventilla explains it, the San Francisco-based startup hadn’t yet perfected its own product—a kind of knowledge market that connected users with people in their social networks to get personal questions answered—when Google came calling. For one thing, the founders felt the service would be far more useful if they could tap into an existing search index. “We felt like we were a significant pivot away from finding something compelling, and we believed we were going to have to reimagine the product in terms of how it worked with a partner, whether we stayed independent or were acquired,” Ventilla says.
That’s why the idea of continuing the work inside Google was so attractive. But by the time Aardvark’s engineers arrived in Mountain View, the company had embarked on a massive effort to catch up in the social-networking arena—the push that would ultimately result in Google+. “What ended up happening was that there was much more underway in social than we had predicted from the outside, so it just made a tremendous amount of sense to embrace that and, in some sense, hitch our ride to that wagon,” says Ventilla.
So while Aardvark may have been put down, Ventilla, Horowitz, and their team are still busy “working on ways to create a more socialized and unified user experience within Google,” which could ultimately lead to “a much bigger win” than if the team had continued to focus solely on social search, Ventilla says. He hastens to add that “the last chapter on Aardvark is certainly not written, as long as Damon and the key folks who started the company continue work on things in that space.”
The sunsetting of a product, in and of itself, does not mean an acquisition has failed, says Butler. Lawee agrees: “We chalk [Aardvark] up as a loss. But the people on the team are having a massive impact on Google. They are working on, literally, the most important strategic priority.”
13 Rules for M&A
There’s an idea in the intellectual air—stirred up most recently by Malcolm Gladwell’s book Outliers—that excellence is the product of practice more than innate genius. If that’s true, then it makes sense that Google would be getting pretty good at the M&A process.
But companies that aren’t as acquisitive as Google may still be able to learn from the search sovereign’s successes. To close, here are a few of the bullet points I’ve discerned.
• Look for near-perfect alignment between the target company’s product vision and your own.
• Delegate scouting to the business divisions—only they know what skills and assets will be useful.
• Make sure every acquired team has a sponsor and a home within the company.
• Put former entrepreneurs in charge of M&A.
• Spend extra to smooth the transition, so the acquired team doesn’t have to sweat the details.
• Shun “acqui-hiring,” unless you’ve got a specific job in mind for the team.
• Look for headstrong personalities who will nonetheless function well inside a large organization.
• Keep teams together, at least at first.
• Provide extra orientation and networking opportunities for newly acquired employees.
• If the technology part of an acquisition doesn’t work out, make sure there’s a good place for the people to land.
For the acquired:
• Spend time getting to know your new company and its needs. Start your homework even before the acquisition closes.
• Keep taking risks. You’ve got a pre-assembled team to work with—that’s a valuable asset.
• Be humble and flexible. Your skills might be best applied to a product you haven’t even thought of yet.
Lawee is clearly proud of Google’s self-reported two-thirds success rate. Interestingly, though, he says he isn’t obsessed with pushing this rate even higher. If the company got too careful about the M&A process, he says, it might forget to keep thinking big.
“The return on our acquisition dollars has been extraordinary. Keyhole, Android, YouTube—all of these things are part of the franchise. So I don’t know if we can do better. I don’t think we are really striving to do better. We want to continue to take risks. And we expect that sometimes they’re not going to work out.”