Google changes focus on dealmaking

Google has narrowed the focus of its corporate acquisitions to a smaller number of big strategic areas, according to the man in charge of overseeing one of the tech industry’s largest M&A programmes.

The new approach to dealmaking reflects a broader effort by Larry Page, who took over as chief executive last year, to throw the search company’s weight behind its handful of biggest bets, replacing an earlier, more experimental period at the company.

As a result, Google has now largely focused its acquisitions in new markets such as video and mobile, David Lawee, Google’s head of corporate development, said in a rare interview.

He added, though, that the company did not expect to use acquisitions to strengthen its presence in social networking, which has become its most important strategic drive.

“It looks now as though that’s something we build internally,” he said, adding that the new Google+ network was now on “a pretty good trajectory”.

Mr Lawee is in charge of an acquisition programme that has seen Google make 120 deals in its history. Though most have been small, acquisitions such as YouTube and Doubleclick have laid the foundation for moves into video and display advertising.

While Google will not discuss the amount it expects to spend on acquisitions, its firepower has risen in tandem with other big tech concerns, with its net cash jumping by $9bn last year to reach $40.4bn.

The new focus signals a shift from an earlier period when Google used deals to try out many potential new markets, echoing the “20 per cent time” that its engineers used to develop their own pet projects.

“It did feel a little more scattered, I wasn’t as sure of the full range of things,” Mr Lawee said. A recent spring-cleaning under Mr Page has seen Google close several of the less strategic services it acquired through acquisitions in recent years.

Acquisitions to support YouTube, such as those of Next New Networks, a video production company, and Widevine, which makes anti-piracy technology, show how the company is now using deals to expand its most promising businesses, Mr Lawee said.

“We think there will be tens of billions of dollars of value created by companies that are built on the YouTube ecosystem,” Mr Lawee said. “Anything we can do to accelerate that is in our interests.”

He brushed off concerns that Google was at risk of overpaying as the valuations of internet start-ups rise sharply and competition builds from cash-rich competitors such as Apple and Facebook.

“It’s not clear what’s overvalued and what isn’t,” Mr Lawee said. He added that the prices of deals needed to be weighed against the new scale of the new markets Google was creating. “We believe we have a huge opportunity before us.”

In another indication of the change of approach under Mr Page, Mr Lawee said that a more entrepreneurial style had taken hold at Google that was likely to match the style of the entrepreneurs it hoped to lure to the company. Meetings between senior executives now took place in the evenings “between six and 11”, he said, reflecting a greater focus on urgency and speed.

Google has been criticised by some former executives for becoming a more bureaucratic organisation as it has grown and has lost some high-profile entrepreneurs, including the founders of companies such as YouTube and Admob. However, Mr Lawee said some two-thirds of the entrepreneurs who came to Google through acquisitions had stayed with the company.

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