Who Apple, Google and Microsoft Should Acquire NextReading Time: 8 minutes
On Tuesday night, TechCrunch’s Alex Wilhelm asked on Twitter:
If you were Microsoft/Google/Apple what company would you buy?
— Alex Wilhelm (@alex) August 27, 2014
It was late and I fired off a quick response but I thought it was a question interesting enough to be worth thinking and writing about here in more depth. So, for today’s column, I’m going to spend some time asking which companies Apple, Google and Microsoft should consider acquiring. As a bonus, I’m also going to include Amazon, which of course has just announced a major acquisition. I’ve deliberately been mutually exclusive in my recommendations, but the fact is a number of these companies would be a reasonable fit for several of the potential acquirers, since they’re all to some extent targeting the same opportunities, albeit in different ways.
Until the Beats purchase, Apple’s acquisition strategy was so predictable, you already knew the official comment the company would put out as a result: “Apple buys smaller technology companies from time to time, and we generally do not discuss our purpose or plans.” Apple has focused almost entirely on acquiring smaller technology companies and typically shuts down the products while building some of the functionality into future Apple products. But the Beats acquisition either changed all that or was a one-off anomaly. I suspect most of Apple’s acquisitions going forward will be more along the lines of its past acquisition than the Beats acquisition, but it might still make sense for Apple to buy something bigger “from time to time” as the company might put it.
This is a bit of a cheat because it’s so similar to Beats, but it’s also different in important ways. Bose is the headphone brand many people thought Apple should have bought because it’s a much better fit with Apple’s core product values: a premium, high end, high quality product that’s well respected and has a brand cachet among the same sort of people likely to buy Apple products. I think it’s possible Apple may use Beats and the technology it licenses to build premium headphones under its own brand and, as such, it may not be necessary to buy Bose to achieve this. But with Bose, it would acquire an existing known brand which would nicely complement the Beats brand.
Broadcom’s baseband business
This is also a bit of a cheat, because it’s not apparently for sale anymore, as the company is planning to wind it down. But it seemed an obvious fit at the time when it was for sale, because it’s well aligned with Apple’s strategy of steadily owning more and more of the components in its devices, and it would provide useful leverage against existing suppliers. It appears Apple is investing in this area organically already, and acquiring this business would have given that effort a big boost. For now, though, it appears as though Apple will continue to pursue this strategy internally rather than through an acquisition.
Apple Maps has come a very long way since the early awful reviews. I use it regularly to get from point A to point B and it’s absolutely fine for navigation purposes. But where Apple Maps falls short is its point of information (PoI) database – i.e. the set of information it has about stores, restaurants, and other businesses in any given area. I regularly find Apple Maps is unable to find the nearest location for a particular franchise or company when Google Maps finds it without any problems. This is Apple Maps’ single biggest weakness today, at least in the US, and it should invest in fixing it. Apple currently buys this data from third parties like Yelp, but it has little control over the quality of that data as a mere licensee. Acquiring Yelp would allow Apple to control the data and use it as the foundation for a more aggressive effort to build an extensive, up-to-date PoI database to help power Apple Maps.
Google’s acquisitions have been much less predictable than Apple’s, both in their scale and scope. It’s acquired companies as diverse as YouTube, Picasa, Dodgeball, Keyhole, Android, DoubleClick, GrandCentral, Motorola Mobility, Nest, Skybox and Zync Render. There is almost nothing all these companies have in common and some of its acquisitions have been pretty sizable. But given its current focus areas and the domains Google is likely to invest in next, it’s still possible to identify some possible opportunities.
This was the one company I listed in my response to Alex Wilhelm’s tweet, and it’s an obvious one. To the extent Google is serious about getting into the music subscription business, it could acquire a lot of market share and a strong existing brand in the form of Spotify. Some people questioned why Apple pursued Beats instead of Spotify, but I think the reality is Apple didn’t want the baggage of millions of users across iOS, Android, Windows Phone and the web to support, and it was partly attracted by Beats’ relatively small base. Google, on the other hand, works on a massive scale, and already operates one of the other most popular music streaming services in the form of YouTube. While Google Play Music has been somewhat successful, it’s limited in terms of the countries where it’s available and is far from a leading brand. Spotify would quickly leapfrog it into a top two position in digital music.
Jawbone, Fitbit or Withings
Google has already shown that it’s willing to acquire to establish a position in one of the three key new domains in consumer technology: home automation. But in the other two (the connected car and wearables) its efforts have largely focused, so far, on extending Android. However, there are a number of companies which have established a strong position in wearables from a fitness and health tracking perspective and which Google could potentially snap up. Jawbone, Fitbit and Withings are three obvious examples (and Withings in particular is doing interesting things in the smartwatch space). Any of these companies could give Google the sort of jump start in wearables Nest has given it in the smart home market and could be a core to wrap around other acquisitions, as Nest has become a vehicle for purchases such as Dropcam.
As Google and Amazon increasingly square off against each other across a number of areas, Google has been investing in various retail and commerce-related initiatives. But almost all of these so far have been organic and tied to existing Google properties. Pinterest would fill an interesting gap in two different parts of Google’s business: a channel for commerce and a social network. Google+ has largely failed as a social network on a grand scale (though it’s arguably succeeded in various niches), but Pinterest has massive appeal among a segment of the population. It sits quite a long way down on ComScore’s list of top mobile apps by unique visitors (number 20, just above eBay and below Snapchat and Netflix), but comes in the top 10 by time spent among users over 24. Pinterest also has enormous potential to drive commerce activity, which could help reinforce some of Google’s other commerce-related activities.
Square is, depending on who you believe, either expanding rapidly or struggling mightily. But it’s establishing itself as one of only two or three players that’s starting to build a presence in the local retail space. Amazon’s now entered that space organically with Local Register, but Google’s various efforts in mobile payments have so far failed, largely due to lack of carrier support. Acquiring Square would tackle the market from a different perspective but also potentially give Google a local footprint which could be used to re-launch Google Wallet in future.
Microsoft has made one big acquisition recently, in the form of Nokia’s devices business, but it’s clear Satya Nadella thinks less of that business than Steve Ballmer did (and may well have opposed the acquisition at the time). Other larger acquisitions in the past have included Danger, aQuantive, Skype and Visio. But Microsoft is in transition, both culturally and strategically, and it’s not yet clear what the new focus areas for acquisitions might be. However, there are a few areas where Microsoft could use some help.
I’m not going to focus on the wisdom or otherwise of acquiring Nokia’s devices business, but where I think the board made its biggest mistake was not acquiring the Here location and mapping business from Nokia when it bought the mobile phone arm. There are only three meaningful mapping businesses in the world today, and they’re owned by Google, Apple and Nokia. Only two of these companies own major computing platforms, and the third major computing platform company is conspicuous by its absence. Having licensed maps content from Here for several years for use in Windows Phone, and since Nokia devices have used it for much longer, it was perfectly logical for Microsoft to acquire this business. But the board balked at the time and so Microsoft is left licensing one of the core elements of its platforms instead of owning it outright. It could still fix this.
Along similar lines, Foursquare has begun providing PoI data to Microsoft for use in Bing Maps and Cortana but, as with Apple’s relationship with Yelp, there’s a lack of control and ownership. Unfortunately, Here’s mapping data suffers from the same PoI weakness as Apple’s Maps product, especially in the US, and Foursquare would be helpful both in filling gaps and as a foundation for building a much better, more comprehensive database. Given Microsoft’s existing relationship with Foursquare both as a licensee and an investor, an acquisition would be straightforward and a good fit.
Everpix assets or Picturelife
One of the main selling points on Microsoft’s Lumia devices is the cameras, and yet neither Nokia nor Microsoft has ever provided a great way to store, manage and share these pictures. OneDrive is a storage option which should be increasingly integrated into the process of capturing and storing photos, but it suffers from the same fundamental limitations as other storage services: once you put pictures in, it’s almost impossible to find, manage and organize the pictures afterwards without heavy manual intervention. Everpix, before its demise, was one of a handful of services which promised to help with this task, and I always thought Nokia should have snapped it up. Picturelife is a similar service, though not as good, and there are others out there with similar capabilities. Such an acquisition could help set Microsoft’s photo management capabilities apart and would be a great strategic fit with the Lumia devices’ emphasis on photography.
Amazon has obviously just announced a major acquisition in the form of Twitch, and perhaps its appetite for other big purchases might be limited at present. But as I’ve written elsewhere, there are several possible motivations for the Twitch acquisition, among them an extension into new categories within Media and a pursuit of the broader advertising opportunity. There are a number of other acquisitions which might fit into this strategy, as well as Amazon’s broader e-commerce ambitions.
Hulu has been on the block and then off again, and at present is theoretically not for sale. But it would be a great complement to Amazon’s existing position in digital video, which is mostly focused on catalog content rather than new shows. Hulu is the only service that brings fresh content from several of the biggest US broadcasters on both an ad-funded and subscription basis, and both models are a good fit with Amazon’s new approach to media. Video advertising is an important area of expansion for Amazon and subscription content services are a business model Amazon appears to be pursuing too. It would also make Amazon a stronger competitor to Netflix, which currently dominates the US video streaming business.
Pandora is by far the top online music service by usage in the US, second only to Facebook’s apps among all age groups in the ComScore data by usage, and in the top five by unique users, with only Facebook and Google products ahead of it. And yet it’s perennially unprofitable, because of the high content costs. With revenues and costs under a billion dollars a year, Pandora is the kind of business Amazon could swallow relatively easily, while turning it into an important part of its growing digital media offerings. And it would do for Amazon what a Spotify acquisition would do for Google: immediately vault it from an also-ran proposition to a market leader in digital music, at least in the US, which is still by far Amazon’s most important market.
Etsy or Shopify
Amazon dominates the traditional e-commerce space in the US and certain other markets, but there’s a lot more to online buying than traditional retail. Etsy and Shopify are two companies which target adjacent spaces in a way that would be a good complement to Amazon’s current business. The obvious risk here is these companies have sprung up in part as an alternative to Amazon, and their users may not be all that happy about an Amazon acquisition. But either would help Amazon to expand into new areas within e-commerce (and m-commerce).