Meadville Tribune

Community News Network

January 15, 2014

Google outspends top five rivals combined in move beyond Web ads

SAN FRANCISCO — Google, drawing from its $56.5 billion cash pool, is spending more money than five of its biggest U.S. competitors combined to buy into new markets as growth in Web advertising slows.

Including this week's announced deal to buy Nest Labs for $3.2 billion in cash, Google has spent more than $17 billion in the past two years to purchase hardware, software and advertising-technology companies, according to data compiled by Bloomberg. Apple, Microsoft, Facebook, Amazon.com and Yahoo have spent less than $13 billion in total to buy companies in the same period, based on deals with disclosed prices.

The spending blitz, which is mostly in cash instead of stock, underlines how Google is paying top dollar to expand its reach and acquire the talent necessary to push deeper into areas such as smartphones and Web-enabled gadgets. While Google has dominated Internet search, a business that generates billions of ad dollars each quarter, the company is seeking new revenue from other sources and turning to its cash hoard to provide an advantage.

"They're looking at what's next," Sameet Sinha, an analyst for B. Riley & Co. in San Francisco, said in an interview. "They're saying we're going to keep our cash for acquisitions."

Leslie Miller, a spokeswoman for Mountain View, Calif.- based Google, declined to comment.

Google's cash and equivalents jumped 24 percent from a year earlier in the third quarter to $56.5 billion, while net revenue increased by 5.2 percent to $11.9 billion. Google gets 84 percent of sales from Internet ads, even after diversifying into hardware and other areas.

Revenue growth slowed last year and is expected to do so again in 2014 based on analysts' estimates as more online activity shifts from personal computers to smartphones, tablets and other connected devices. That hurts Google's sales because mobile ads typically cost less and because search is less prominent on other devices. By 2017, PCs will account for 13 percent of connected-device shipments worldwide, down from 29 percent in 2012, according to researcher IDC. Tablets will make up 17 percent by 2017, and smartphones will account for 71 percent, IDC said.

Google's all-cash acquisition of Nest, its third biggest, gives the company a maker of smart thermostats and smoke alarms built by Tony Fadell, who previously helped Apple co-founder Steve Jobs create the iPhone. Fadell's co-founder Matt Rogers is also an Apple alumnus, as are at least 97 Nest employees, according to LinkedIn Corp. That's talent Google can put to use.

"They know from their Apple days how to scale something," said Rob Coneybeer, a partner at Shasta Ventures in Menlo Park, Calif., which was an early investor in Nest. "These guys are not just good startup designers who can work on a shoestring, but they know how to deploy and leverage lots of capital."

The Nest deal follows the June 2013 purchase of mobile mapping software maker Waze Inc. for almost $1 billion in cash, Google's fifth-largest acquisition. Waze provides social tools that Google can incorporate into maps, along with showing real- time road hazards and alternate routes. Facebook had been in talks to buy Waze before Google succeeded with its offer.

Google's biggest acquisition was its $12.4 billion deal for Motorola in 2012, which gave the company a smartphone maker along with a portfolio of wireless patents. It's all part of Google's recognition that the Internet is everywhere, with search and display ads making up just a piece of it, according to Frank Gillett, an analyst at Forrester Research in Cambridge, Mass.

"In this world of interacting with lots of different connected products, the integration of hardware, software and cloud service will be really important," Gillett said. "At some point, really good advertising starts to cross the boundary into assistance and advice."

Google later sold off a piece of Motorola for more than $2 billion to Arris Group.

Among top U.S. competitors, Microsoft has been the biggest buyer in the past two years after Google, spending about $9 billion. Most of that was on the pending $7.4 billion purchase of Nokia's handset unit and the $1.2 billion acquisition of business-software provider Yammer .

Facebook's biggest deal was mobile photo-sharing application Instagram Inc. for more than $700 million in 2012. The company was spurned in its effort last year to purchase mobile app Snapchat Inc. for $3 billion, a person with knowledge of the matter said in November.

Amazon's only notable deal in the past two years was for robotics company Kiva Systems Inc., which cost about $700 million. Yahoo's disclosed deals total about $1.2 billion, with most of that spent on blogging startup Tumblr last year.

Apple's spending amounted to less than $1 billion since early 2012, with about $350 million spent on fingerprint- technology company AuthenTec Inc. The company has been using its cash, which totaled $146.8 billion at the end of September, to placate shareholders like Carl Icahn, who are demanding greater returns. The company paid out $2.8 billion in dividends and bought back $5 billion of its shares in the fiscal fourth quarter.

While Google has resisted returning cash to shareholders, not all of its money is being spent on acquisitions. The company is investing internally on products like computerized Google Glass eyewear and driverless cars.

To bolster its experiments in robotics, Google acquired Boston Dynamics Inc. in December. The company, which makes robots for the Defense Department, will be part of a new product area led by Andy Rubin, former head of the Android software unit.

Gene Munster, an analyst at Piper Jaffray Cos., said Google will need to continue making "big bets" to move its leadership in search into new areas.

"They're trying to solve bigger longer-term problems, and to do that they need platforms," said Munster. "They're willing to pay up for those platforms."

1
Text Only
Community News Network
  • Screen Shot 2014-04-16 at 12.51.22 PM.png VIDEO: Toddler climbs into vending machine

    A child is safe after climbing into and getting stuck inside a claw crane machine at a Lincoln, Neb., bowling alley Monday.

    April 16, 2014 1 Photo

  • portraitoflotte.jpg VIDEO: From infant to teen in four minutes

    Dutch filmmaker Frans Hofmeester’s time lapse video of his daughter, Lotte — created by filming her every week from her birth until she turned 14 — has become a viral sensation.

    April 16, 2014 1 Photo

  • Victimized by the 'marriage penalty'

    In a few short months, I'll pass the milestone that every little girl dreams of: the day she swears - before family and God, in sickness and in health, all in the name of love - that she's willing to pay a much higher tax rate.

    April 15, 2014

  • Allergies are the real midlife crisis

    One of the biggest mysteries is why the disease comes and goes, and then comes and goes again. People tend to experience intense allergies between the ages of 5 and 16, then get a couple of decades off before the symptoms return in the 30s, only to diminish around retirement age.

    April 15, 2014

  • treadmill-very-fast.jpg Tax deduction for a gym membership?

    April marks another tax season when millions of Americans will deduct expenses related to home ownership, children and education from their annual tax bill. These deductions exist because of their perceived value to society; they encourage behaviors that keep the wheels of the economy turning. So why shouldn't the tax code be revised to reward preventive health?

    April 15, 2014 1 Photo

  • bomb1 VIDEO: A year after marathon bombing, Boston remains strong

    The City of Boston came together Tuesday to honor those who were injured and lost their lives at the Boston Marathon on the one-year anniversary of the bombing. While the day was sure to be emotional, those affected by last year's race are showing they won't let the tragedy keep them down.

    April 15, 2014 1 Photo

  • Google acquires drone maker Titan Aerospace to spread Internet

    Google is adding drones to its fleets of robots and driverless cars.
    The Internet search company said it acquired Titan Aerospace, the maker of high-altitude, solar-powered satellites that provides customer access to data services around the world. Terms of the deal weren't disclosed.

    April 14, 2014

  • E-Cigarettes target youth with festivals, lawmakers say

    The findings, in a survey released Monday by members of Congress, should prod U.S. regulators to curb the industry, the lawmakers said. While e-cigarettes currently are unregulated, the Food and Drug Administration is working on a plan that would extend its tobacco oversight to the products.

    April 14, 2014

  • Search teams will send unmanned sub to look for missing Malaysian airliner

    Teams searching for a missing Malaysian airliner are planning for the first time to send an unmanned submarine into the depths of the Indian Ocean to look for wreckage, an Australian official leading the multi-nation search said Monday.

    April 14, 2014

  • Why Facebook is getting into the banking game

    Who would want to use Facebook as a bank? That's the question that immediately arises from news that the social network intends to get into the electronic money business.

    April 14, 2014

Business Marquee
AP Video
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Stocks