“No Brainer” Startup Acquisitions

Monday’s announcement of Google’s acquisition of AdMob for $750M seems to be a good outcome for both companies. AdMob has established itself as the leading mobile ad network in the US, with a focus on contextual text ads on mobile web sites analogous to Google’s AdSense network on the web. Google’s efforts to extend their dominance in search and web contextual ads have been mixed at best, so the opportunity to buy the leader in this space makes a ton of sense.

To me, this deal falls into a category of tech startup acquisitions that I’d describe as “no brainer” deals. These are more than just “tuck in” acquisitions of a similar business to achieve greater scale or a far away leap into a new market.
Of course integration of people, technology, and business practices is never easy and doesn’t always work out as anticipated. But for the startup there’s a strategic fit with the larger company, an opportunity to extend reach or grow faster than as a standalone business, and typically a great outcome in terms of a premium acquisition. For the acquirer there’s a chance to own a market leader, an ability to forgo further expenditure on internal efforts to compete with the startup, and hopefully a chance to accelerate the growth of the startup’s business by bringing the resources and capabilities of the new parent to bear.
In addition to AdMob / Google, some other acquisitions that I think fall into this no brainer category:
1) Intuit’s acquisition of Mint for $170M (Sept-09) –> from a user adoption standpoint, Mint was killing Quicken Online. Plus Mint’s revenue model of targeted offers from financial services is a business model innovation from Intuit’s traditional software license or subscription approach.
2) Amazon’s acquisition of Zappos for ~$900M (July-09) –> Shared core competence in zealous consumer satisfaction, Zappos category leadership in shoes, easily merged physical operations.
3) eBay’s acquisition of PayPal for $1.5B (Oct-02) –> At the time PayPal went public in Feb-02, roughly 2/3rds of our payment volume was directly attributable to eBay transactions. On the other side, eBay’s own payment platform (Billpoint) never got traction from sellers despite deep integration and tens of millions of investment. The proof on this one has been in the pudding… as a division of eBay, PayPal did ~$2B in revenue last year on >$50B in payment volume. It accounts for more than 25% of eBay’s total revenue and is the fastest growing component of the company.
What others am I missing here? My point isn’t simply to highly the “no brainer” nature of these deals. Put simply, these acquisitions are classic 1 + 1 = 3 opportunities… and the ability to spot these opportunities for partnership, investment, or acquisition are the key for success in collaboration between startups and big companies.

Lee Hower

I’m an investor, entrepreneur, and helper of technology startups. I’m currently a General Partner of NextView Ventures, which focuses on seed stage internet-enabled businesses. I co-founded NextView in 2010 with my partners Rob Go and David Beisel. I started in the VC business as a Principal at Point Judith Capital, an early-stage firm. I joined PJC in 2005 and served as a Principal at the firm through early 2010. During this time I co-led investments in FanIQ, Sittercity, and Multiply and sourced investments in Music Nation and NABsys. Prior to becoming a VC, I was a startup guy myself. I was part of the founding team of LinkedIn, and served as Director of Corporate Development from the company’s inception through our early growth phases. Before that I was an early employee at PayPal, and worked in product management and corporate development roles through the company’s IPO in 2002 and subsequent sale to eBay later that year. I went to college at UPenn and received degrees from both the School of Engineering and Wharton School of Business.

    • I think Intuit is in for a big surprise if they transition away from a subscription or license model. Mint's service is great, but credit card and savings account offers aint going to keep the lights on.

    • Lee

      I'd agree that targeted offers may have been a great revenue model for Mint, but may or may not scale to hundreds of millions or more in revenue for Intuit (time will tell). Perhaps as part of Intuit they'll also adopt a premium service tier as well, who knows.

      But Quicken Online was offered for free to compete w/ Mint, so from Intuit's standpoint they go to a product w/ less traction generating zero revenue to one w/ significant user growth generating at least some revenue.