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May 14, 2007

Google CEO Eric Schmidt said at the company's annual shareholders meeting that the company intends to increasingly focus itself on targeted acquisitions of smaller companies.

Google's CEO seemed to suggest that the company might be embarking upon a major aquisition spree. However, Schmidt didn't rule out more large-scale transactions akin to its recent purchases of YouTube for US $1.65 billion, and of ad firm DoubleClick for more than $3 billion.

Schmidt added "overall, we are more comfortable today than we were a few years ago in acquiring real businesses. However, we are not doing this for competitive reasons. We are doing it simply because it's part of building out a long-term portfolio."

Additionally, even more acquisitons are likely as Google finds additional opportunities in its offerings and beef up its technology selection, Schmidt noted. He added "For the short-term, I think the pace will accelerate, but it is not a fundamental shift and we are certainly not going to do it every day."

Google's acquisition strategy is important not only because of the direct impacts, but also because it has a significant ripple effect, with other players in the Internet content, search and advertising area often forced to react when Google makes an important move.

As an example, within a few days of Google's DoubleClick acquision (apparently out-maneuvering online rivals in the process) Microsoft was said to be in talks with another ad firm, 24/7 Real Media.

Shortly after, Yahoo acquired Right Media and word broke that Microsoft and Yahoo were talking a potential merger. However, those talks we soon nixed and both companies said there won't be any merger after all.

Despite all of this, Google will become involved in the consolidation trend now taking place in the traditional media and news delivery world, Schmidt said. Currently, Thompson Financial is bidding to acquire Reuters, and Rupert Murdoch's News Corp. has made an unsolicited bid to buy Wall Street Journal parent Dow Jones.

Schmidt said "a lot is going on right now, and we made a decision to focus primarily on user-generated content, and not on businesses where we would own the content." He also added that "it often makes more sense for Google to partner with such content owners."

Nevertheless, Google co-founder Larry Page suggested that the company remains interested in journalistic content, though it believes it can help democratize that content along the way.

How to get more people working on reporting and commenting on news is a question the company often ponders, he added. Google's acquisition strategy is often more about acquiring engineering talent than a brand name or even a product, Schmidt said.

He added "in the past, we would acquire businesses in lieu of engineers," he explained. Google still makes such acquisitions on a regular basis, scooping up under-the-radar startups at the rate of one a week. Whether through acquisitions or its own organic growth, keeping Google's culture and spirit alive amid the rapid growth is also a major concern for Schmidt.

Google's CEO said "in 2006, my biggest worry has been scaling the business. When you grow this quickly, you are bringing in employees who believe they understand the Google vision, but there's always the possibility you will lose the formula in the process."

The backdrop of the recent Google moves and potential next acquisitions is a large-scale wave of consolidation that is driven by the presence of large amounts of cash, both on company balance sheets and in the hands of private equity firms.

Enderle Group Principal Analyst Rob Enderle recently said "overall, the company has recently been able to have its way with Yahoo and Microsoft. It seems they come out on top of every merger talk or partnership discussion that happens in the industry."

At the same time, the company told shareholders at its meeting "Google certainly isn't planning to split its stock in any way." That move would make the shares more affordable as the stock hovers at or near the $500 level.

Google also suggested a more streamlined tagline for its internal strategy: "Search, ads and apps," or applications.

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Source: The eCommerce Times