Claremore Daily Progress

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
  • How spy agencies keep their 'toys' from law enforcement

    A little over a decade ago, federal prosecutors used keystroke logging software to steal the encryption password of an alleged New Jersey mobster, Nicodemo Scarfo Jr., so they could get evidence from his computer to be used at his trial.

    July 25, 2014

  • Russia's war on McDonald's takes aim at the Filet-o-Fish

    Russia said earlier this week that it had no intention of answering Western sanctions by making it harder for Western companies to conduct business in Russia.
    But all bets are off, apparently, when you threaten the Russian waistline.

    July 25, 2014

  • cleaning supplies Don't judge mothers with messy homes

    I was building shelves in my garage when a neighbor girl, one of my 4-year-old daughter's friends, approached me and said, "I just saw in your house. It's pretty dirty. Norah's mommy needs to clean more."

    July 25, 2014 1 Photo

  • 072214 Diamond Llama 1.jpg Llama on the loose corralled in Missouri town

    A llama on the lam cruised Main Street Tuesday before it mistook a resident’s fenced backyard for a place to grab a meal and freshen up.

    July 22, 2014 2 Photos

  • NWS-HB0713-HowardMartin-004.jpg Airman laid to rest back home in Indiana six decades after death

    The mystery of what happened to a military transport plane that disappeared in the fall of 1952 into an Alaskan glacier was solved two years ago when a helicopter crew spotted the wreckage. But it took another two years to retrieve the remains of Airman Howard Miller and 16 other servicemen passengers. Saturday, Miller was laid to rest in his hometown of Elwood, Ind., with full military honors. Hundreds turned out for the funeral and burial services.

    July 13, 2014 2 Photos

  • New York to offer free lunch to all middle-school students

    New York's $75 billion spending plan for the fiscal year that began last week includes the first step toward offering free lunch for all 1.1 million students, expanding a program now reserved only for the city's poorest children.

    July 9, 2014

  • Screen Shot 2014-07-09 at 11.24.10 AM.png VIDEO: Pilot buys pizzas for storm-delayed travelers

    A Frontier Airlines pilot went above and beyond the call of duty when a recent flight from Washington, D.C. to Denver was diverted to Cheyenne, Wyoming due to bad weather.

    July 9, 2014 1 Photo

  • Why North Korean cheerleaders may soon descend on the South

    When you think of North Korea, "cheerleaders" may not be the first thing that springs to mind. The Hermit Kingdom is perhaps better known for less savory things like gulag-like labor camps and leadership purges.

    July 8, 2014

  • Screen Shot 2014-07-08 at 11.46.13 AM.png VIDEO: Foiled beach gear theft goes viral

    Video capturing a bizarre confrontation with two women allegedly attempting to steal beach gear on a Florida beach has gone viral.

    July 8, 2014 1 Photo

  • Screen Shot 2014-07-08 at 10.40.20 AM.png VIDEO: Sleeping fan suing Yankees, ESPN for $10M

    A fan caught on camera sleeping during a recent game at Yankee Stadium has filed suit against the Yankees and ESPN, claiming he suffered emotional distress when two announcers mocked him on the air.

    July 8, 2014 1 Photo