On Google’s “Build And Buy” Acquisition Strategy
Invite Media – where I cut my startup and adtech teeth – is the best performing acquisition in Google’s history by revenue growth, quickly scaling from tens of millions into the billions in only a few years.
This incredible feat is as much the result of Google’s Corp Dev and Product teams as it is the Invite Media founders, team and investors. By executing an acquisition strategy that I call “Build And Buy”, Google established a basis for cleaner technical and team integration of our growth machine, and they also insured they had people on staff with domain expertise that could steer the ship even after the original Invite Media team members left Google (the Invite Media mafia is strong).
Any company attempting to solve a problem using technology they fully control and own faces a choice of Buy or Build. Buy means acquiring another piece of technology outright, most often by acquiring the company that created that product. Build means developing the technology product in-house.
Early in a tech startup company’s life, the only choice is to Build. But as a company’s coffers grow, whether to Buy another company to enter a new business area becomes an important question. If the company chooses Build, then Engineering and Product teams are typically lead the process. If the company chooses Buy, then the Corp Dev team is running the show (though Product and Engineering may still have input in the process).
Gmail is an example of a pure Build. The product was built internally, tested internally, then released to the rest of the world. Nest Labs is an example of a pure Buy. Google had no smart home division (though they did own a hardware co: Motorola) prior to buying Nest Labs.
For some product areas, especially any ad technology related products such as Invite Media, Google implements a hybrid “Build And Buy” acquisition strategy.
Here’s how Build And Buy works:
- Big Company starts Building the product internally.
- Sometimes Big Company releases this product publicly and other times they only use it internally or in private beta.
- In either case, if an outside company beats them to the punch by acquiring more customers/data/revenue with a competing product, then they pull the trigger on Buy.
- Once acquired, Big Company keeps the acquired company running biz as usual (rather than an immediate push to integrate), then gradually merges the two teams and products over the course of several years.
When Google bought Invite Media, they were already building a competing product internally. They bought us primarily for our customer list, brand and business (this is the case for most adtech acquisitions). Of course they wanted our technology as well, and wanted us to continue operating and growing the business. But on a pure race to build better tech, Google will almost always crush a startup because of their high number of excellent engineers and data center and server tech. However, even if they build a better product, that better product is useless without customers to use it. And that’s why they purchased us. After buying the leading brand and customer list in the space, the Invite Media Bid Manager product (built on our own custom software stack) evolved into Doubleclick Bid Manager (built entirely on the Google stack using Google design and software engineering best practices).
Why pursue the “Build And Buy” strategy instead of “Buy” alone?
- A Winning Chance
If you launch publicly and win the market, no need to buy any companies.
- Domain Expertise
Even if you eventually buy the leading company in the space, you’ll already have internal expertise in the product area. The internal product managers can help Corp Dev with more accurate valuations of the acquisition targets. Also, if the acquiring company is public, Wall Street is likely to view the acquisition in a more favorable light if they know the company already has expertise in the space because this increases the chances of a clean integration of the acquired product/team/services.
- Negotiation Leverage
Existing relationships, existing customers, and existing product all give more leverage to the acquiring company. This is especially important early in the game when there might be a few leaders in the space in question, but no single company is dominating.
- Ready for Integration
Building before Buying will make product and even culture integration of an acquired company much easier because a framework of people and technology (and sometimes an entirely separate customer base!) is already in place to connect with acquired company.
The massive growth post-acquisition would have been much harder to accomplish without the framework of knowledge and people Google had already established. This strategy sounds expensive on the front-end, but isn’t a failed acquisition much more expensive?