Corporate Business Development: Apple v. Google

1. Corporate Business Development: Apple v. Google George T. Geis, UCLA Anderson Bocconi University September 13, 2012 I would like to acknowledge DebaduttaBhattacharyya and Ahreum Hong for research collaboration on this project.

2. v. • Two of the great technology companies over the past decade have demonstrated vastly different styles when it comes to merger and acquisition activity. • I’ll discuss significant differences between Apple and Google in the numbers, types and patterns of corporate business development transactions. • I’ll also suggest how M&A and other business development activity for both companies might change in the future.

3. M&A transactions since 2001 Apple Google Source: Capital IQ (Note: Capital IQ lists most, but not all transactions)

4. Google M&A infographic (2010) Source: http://www.trivergence.com/market.asp?MarketID=4087

5. Apple M&A-related infographic (2010) Source: http://www.trivergence.com/market.asp?MarketID=4089

6. MIT sector classification scheme • We analyzed M&A activity from 2005-2011 for Apple and Google, classifying each transaction within a Media-Internet-Technology (MIT) sector scheme • Media includes sub-sectors such as advertising, broadcasting, cable and online media • Internet includes sub-sectors such as internet community, internet retail, search engine software and web analytics • Technology platform includes sub-sectors such as application software, components, semiconductors, smartphones, systems software • Unlike traditional industrial classification schemes, this scheme accommodates recent market trends. • Starting from different core sectors, Apple and Google have used M&A to help expand offerings and position themselves within a converging MIT universe.

7. Apple’s M&A activity: “MIT” sector classification

8. Apple’s acquisitions since 2001 infographic

9. Apple pattern: M&A to obtain components that enhance products

10. Apple business development related to iPod launch (M&A = 0)

11. Google’s M&A activity: “MIT” sector classification

12. Synergy • We’re familiar with the notion (all too often fanciful) ofM&A synergy -- the value of combined enterprises will exceed the sum of their individual values. Revenue synergies are anticipated top-line enhancements that will come from use of the acquirer’s superior distribution capability, cross-selling of companies’ products, or effective integration across an industry value chain. • Cost synergies (such as head-count reduction from redundant overhead) are more in control of the acquirer. And these synergies tend to be more believable by Wall Street. • Synergy can be represented by the equation V(A + T) > V(A) + V(T), where V(A) is the value of the Acquirer and V(T) is the value of the Target.

13. Ecosystem synergy • Consider what can be a potentially richer form of M&A synergy, given that evidence exists that initiation of a series of acquisitions as part of a strategic M&A program is associated with value creation. • Ecosystem synergy exists where target acquisitions have synergy with each other and not only directly with the acquirer. In other words, V(A + T1+ T2) > V(A+ T1) + V(A+ T2), where A stands for the Acquirer, and T1and T2stand for distinct Targets that have synergies with each other in addition to synergies with Acquirer.

14. A Google M&A pattern: ecosystem synergy Example: Google has engaged in a series of advertising-related acquisitions that have helped the company cover the value chain of advertising. In the Internet world, ads typically start with the advertiser and go through an ad agency to a demand side platform (Invite Media), then to ad exchange (DoubleClick), which also interacts with a supply side platform (Admeld), finally reaching users through services such as YouTube. In addition, the AdMob acquisition provided Google with one of the largest mobile advertising networks.

15. Apple/Google head-to-head competition Source: http://www.trivergence.com/market.asp?MarketID=4090

16. Future M&A • Apple >$100B cash on its balance sheet; revenue CAGR for past three years = 42% • M&A likely to become an increasingly important part of Apple’s business development initiatives • Bi-lateral (Apple/Google) bidding wars in competitive spaces such as: • Mobile communications • Smartphone/device functionality • Mobile advertising • Local search • Media cloud services • Major media content

17. Ongoing research questions • How visualization technology can support pattern recognition in complex spaces such as MIT • Illustration: dynamic infographic for Mapping and Imaging sector • Parsing of unstructured data (such as press releases) into structured M&A-related databases • Commercial products such as Autonomy vs. self-developed classification algorithms • Building a dataset for analyzing connections between areas such as MIT revenue growth & M&A activity • Sample framework