Last week, Senator Amy Klobuchuar introduced a major antitrust reform bill, entitled the Competition and Antitrust Law Enforcement Reform Act. This isn't much of a surprise, as Democrats have made it quite clear that they seek to use antitrust much more aggressively than it's been used over the past few decades. I'm a big believer in the need for more competition, in general, but often worry that antitrust is not the best way to get there.
The bill will put more budget and power in the hands of the DOJ and the FTC, and also would change the legal standards for anticompetitive mergers, as well as put the burden on merging companies to prove that they are not violating antitrust, rather than as it stands now, with the burden being on the DOJ to show that the merger violates the law. Better funding the DOJ and the FTC on competition issues strikes me as a sensible move here (more the FTC than the DOJ, but no need to get that picky). However, a lot of the rest of the bill seems like it could have the opposite of the intended effect.
I get the thinking behind this, but as structured, it appears like it could have significant unintended consequences that actually decreases competition rather than increases it. In a lot of ways, the key thing this bill would do is to significantly reduce merger and acquisition activity. It has two main mechanism that would basically kill a significant number of deals:
Update the legal standard for permissible mergers. The bill amends the Clayton Act to forbid mergers that “create an appreciable risk of materially lessening competition” rather than mergers that “substantially lessen competition,” where “materially” is defined as “more than a de minimus amount.” By adding a risk-based standard and clarifying the amount of likely harm the government must prove, enforcers can more effectively stop anticompetitive mergers that currently slip through the cracks. The bill also clarifies that mergers that create a monopsony (the power to unfairly lower the prices to a company it pays or wages it offers because of lack of competition among buyers or employers) violate the statute.
Shift the burden to the merging parties to prove their merger will not violate the law. Certain categories of mergers pose significant risks to competition, but are still difficult and costly for the government to challenge in court. For those types of mergers, the bill shifts the legal burden from the government to the merging companies, which would have to prove that their mergers do not create an appreciable risk of materially lessening competition or tend to create a monopoly or monopsony. These categories include:
Mergers that significantly increase market concentration
Acquisitions of competitors or nascent competitors by a dominant firm (defined a 50% market share or possession of significant market power)
Mega-mergers valued at more than $5 billion
On that first one -- changing the standard to "create an appreciable risk of materially lessening competition" seems potentially insurmountable for nearly any merger. Any merger decreases competition in some form, because (definitionally) it's removing one competitor from the market. But that doesn't mean that it's necessarily damaging to the market, to innovation, or to consumers. Say, for example, there's a market with 10 firms, and one of them is struggling and likely to go under. A merger between it and one of its more successful competitors technically "lessens" competition, but it might mean that that same firm doesn't go out of business at all. Or, it might mean that by combining two of the companies in the market that they can better compete with some of the others.
I recognize this becomes a very different story when the market is down to just a few players -- and that's certainly true of a few too many industries these days. But that's why the standard is set at the current "substantially lessen competition" not "creating a risk" that it might "materially lessen competition."
The second one, on the burden shifting is perhaps equally problematic. And, here, the real risk is in killing off new startup creation. When VCs invest in a startup, their hope is that the startup is their unicorn or rocketship -- becoming a multi-billion dollar market leader. These are the deals where VCs make all their money -- on the huge success stories, the 100x return investments. But only a very small percentage of investments are such hits. The second best result for a VC is to have the startup acquired for a decent gain. A 10x gain is nothing for them to write home about, though it's nice. A 2 to 3x gain is a failure in the world of VC, but it's better than... nothing at all.
So, for an investor to fund startups, it helps to know that the backup plan for companies that don't become billion dollar unicorns is that they can sell out to someone else, and at least get some return. But under this bill, the deal flow for those kinds of deals will dry up. The big companies that startups and VCs rely on for decent (but nothing special) exits go away. As a result, it makes VCs less interested in investing. Because the expected returns drop significantly. That means it's likely that they'll invest in fewer startups, thereby diminishing innovation and competition.
This is the exact opposite of the intention of this bill, but it (tragically, again) suggests how little regulators understand how startups, investments, and competition actually work.
And, of course, none of this even touches on the fact that we just had a DOJ and Attorney General in place who, it was revealed, deliberately used antitrust as a weapon against companies the president disliked. It's kind of amazing that not even a year after that was revealed, Democrats are quick to make it even easier for a future Bill Barr to have even more power to do that.
Yes, competition is important -- and there are certainly many industries that have become too consolidated. Indeed, I've been coming around to the belief that almost every "problem" people describe when talking about the tech industry (and a bunch of other industries) simply comes down to a lack of viable competition. But assuming that the only tool to increase competition is via antitrust, you run the risk of having exactly the wrong result. It can lead to a world in which you get less investment in startups and new competitors, since the risk becomes much greater.
Several weeks ago, Microsoft bought Zenimax Media, the parent organization of Bethesda Softworks for over $7 billion. Bethesda is a celebrated studio best known for its Fallout and Elder Scrolls titles. Both series have long histories of being published across a wide range of gaming platforms, including the PC, PlayStation, and Xbox markets. Almost immediately after the deal, however, many gamers openly worried that Microsoft would warehouse the properties to either the PC or Xbox markets exclusively.
The worry didn't cease when Kotaku interviewed Xbox chief Phil Spencer about the implications of the deal and Spencer's remarks were decidedly noncommittal.
“Is it possible to recoup a $7.5 billion investment if you don’t sell Elder Scrolls VI on the PlayStation?” I asked.
“Yes,” Spencer quickly replied.
Then he paused.
“I don’t want to be flip about that,” he added. “This deal was not done to take games away from another player base like that. Nowhere in the documentation that we put together was: ‘How do we keep other players from playing these games?’ We want more people to be able to play games, not fewer people to be able to go play games. But I’ll also say in the model—I’m just answering directly the question that you had—when I think about where people are going to be playing and the number of devices that we had, and we have xCloud and PC and Game Pass and our console base, I don’t have to go ship those games on any other platform other than the platforms that we support in order to kind of make the deal work for us. Whatever that means.”
Whatever that means. Well, what it means is that there has been enough conversation of how Bethesda franchises will be distributed and sold that Spencer felt confident saying that those games didn't need to be multi-platform in order for the deal to still be profitable. Couching this all in the fact that the specific language of the acquisition didn't mention exclusivity is all fine and good, but Spencer had this answer ready to go. That likely means that there has been at least some discussion about taking those games exclusive to the Xbox, or Microsoft's forthcoming game-streaming services. Coupled with a growing trend in exclusivity both in the console and PC gaming spaces, this wasn't exactly encouraging for those that think exclusivity deals are a terrible idea and terrible for the industry.
"I would agree that is hard to imagine" The Elder Scrolls VI restricted to Microsoft platforms, Howard said in response to a direct question on the matter.
Elsewhere in the interview, Howard admits that the parties haven't fully discussed the details of multiplatform publishing as part of the purchase deal, which won't be finalized until next year. "We haven't gone through all of that, to be honest," he said. Howard also stressed Bethesda's autonomy to "[run] our games and [push] everything the way that we have," even as a Microsoft subsidiary. "We felt very strongly about their view of access; games for everybody that we can bring to anybody regardless of where they are, what devices they're playing on. We're very, very passionate about that, and at the end of the day we're convinced we'll make better products and get them to more people easily by being part of Xbox as opposed to being just a third party."
But that's still not really a firm answer. Bethesda's vision can be whatever it wants, but its part of Microsoft now. If you're into reading industry tea leaves, it doesn't look like there are any serious plans by Microsoft for locking up these beloved franchises. But sans a commitment by the company to not do so, there is still much worry that access to them may go away for many.
Why anyone would think that would push more people to buy an Xbox in significant numbers is an mystery.
Comcast's latest effort to grow even larger is spooking even the company's investors. "Growth for growth's sake" has been the mantra of the telecom and TV sectors for years. Once growth in any particular market (like broadband) saturates, companies begin nosing about for efforts to grow larger in other sectors, even if it it's well outside of their core competencies (see Verizon Sugarstring, Go90). Unfortunately for the end user, such growth isn't accompanied by any meaningful parallel investment in quality product or customer service, a major reason so many users "enjoy" Comcast services today.
At the same time, this growing power results in increased efforts to thwart any effort to rein in this power, leaving oversight of the natural monopolies more precarious than ever (see: net neutrality). That's exceptionally true for Comcast, where the one-two punch of fading state and federal oversight, expiring NBC Universal merger conditions from its last 2011 megadeal, and a growing monopoly over broadband is forging a perfect storm of trouble.
Comcast's latest gambit came over the weekend, when the nation's biggest cable operator toppled 21st Century Fox with a $39 billion for Sky broadcasting, Europe's biggest pay TV operator. But even Wall Street stock jocks, traditionally more than happy to cheerlead mindless growth for growth's sake, have become nervous about the expansion, worrying that Comcast's overseas exploits are little more than a pricey distraction:
"Craig Moffett, an analyst at MoffettNathanson LLC, downgraded Comcast’s stock Monday to neutral, saying the company had “grossly overpaid for Sky.” Timothy Horan, an analyst at Oppenheimer, also downgraded Comcast’s stock, citing the company’s need to invest instead in the U.S., where it faces growing competition from wireless and online TV rivals."
“It’s going to be incredibly hard to justify having paid such a high price,” Moffett said in an interview Sunday. “This is an asset that neither Disney nor Comcast investors wanted to win.”
Comcast stock price took a major tumble as a result. The biggest problem for many investors is debt. Like AT&T's acquisition of Time Warner, the deal saddles Comcast with so much debt it's going to be forced to cut corners on other fronts in order to shore up the losses. Usually, at least in telecom, that results in cuts to customer service. It also results in companies nickel and diming captive customers harder than ever, whether that means usage caps and overage charges, bullshit fees, or even charging users more money if they want to protect their own privacy.
As you might expect, Comcast tried to put a more positive spin on its latest looming acquisition, company CEO Brian Roberts bubbling over about the overseas expansion:
"This is a great day for Comcast. Sky is a wonderful company with a great platform, tremendous brand, and accomplished management team. This acquisition will allow us to quickly, efficiently and meaningfully increase our customer base and expand internationally. We couldn’t be more excited by the opportunities in front of us. We now encourage Sky shareholders to accept our offer, which we look forward to completing before the end of October 2018."
The problem, of course, is the same one Comcast has always faced. Its ragingly incompetent customer service has made it the laughing stock of the tech industry for the better part of the last decade. What Comcast actually needs is to pause, invest in overall quality and support, and focus on its core competencies. But because traditional broadband is never profitable enough, quickly enough for Wall Street, Comcast executive eyeballs are always fixed everywhere other than fixing some of the company's many, fatal flaws.
As you almost certainly know by now, earlier this week Microsoft announced that it was acquiring Github. There's been plenty of hand-wringing about this among some. Microsoft has a pretty long history of bad behavior and so many of the developers who use Github don't have much love or trust of Microsoft, and thus are perhaps reasonably concerned about what will happen. While I'm disappointed that another interesting independent company is being snapped up by a giant, I'm not completely convinced this will be a bad thing in the long run. Microsoft is a fairly different company than it was in the past, and there are reasons to believe it should know enough not to fuck things up. Alternatively, if it does fuck it up, it's really not that hard for a new and innovative company to step into the void (and certainly, others are already jockeying for position to attract disgruntled Github users).
For this post, however, I wanted to point to three different reports in reaction to the news -- because I was fascinated by all three of these takes. More specifically, I found two of them thought-provoking, and one laugh-inducing. And it made me realize just how poorly many non-specialized reporters understand the stuff they're reporting on, while how those who have a really deep and implicit understanding of things provide so much greater insight. Let's start with the laugh-inducing one, before moving on to the thought-provoking. The hilariously bad take is found as an editorial in the Guardian, which has already been corrected once for falsely claiming that Github was open source software, rather than that it hosted open source software (among other things). But the really insane paragraph is this one:
GitHub, by contrast, grew out of the free software movement, which had similar global ambitions to Microsoft. The confused ideology behind it, a mixture of Rousseau with Ayn Rand, held both that humans are naturally good and that selfishness works out for the best. Thus, if only coders would write and give away the code they were interested in, the results would solve everyone else’s problems. This was also astonishingly successful. The internet now depends on free software.
Confused ideology? Mixture of Rousseau with Ayn Rand? What the fuck are they talking about? And then after noting how free software has been phenomenally successful, it then says this:
But the belief that everyone coding would solve anyone’s problems has been shown up as completely ludicrous. If anything, computer literacy has declined over the generations as computers have got easier to use. In the heyday of Microsoft, almost everyone knew some tricks to make a computer do what it should, because almost everyone had to if they wanted to get anything done. But hardly anyone today has the first idea of programming a mobile phone. They just work. That’s progress, but not in the direction some idealists expected. Significant open source software is now produced almost entirely by giant commercial companies. It solves their problems but could be said to multiply ours. Huge cultural and political changes are presented as technological inevitabilities. They are not. The value of GitHub lies not in the open-source software it hosts, which anyone could copy, but in the trust reposed in it by users. It is culture, not code, that’s worth those billions of dollars.
The whole piece seems premised entirely on a near total misunderstanding of the reasons why people use Github, the ethos of free software, and well... just about everything. Of course it's culture that's important... but it's so odd that this editorial goes out of the way to insult a strawman culture it believes permeates Github, while then claiming that it's what's valuable.
So let's move on to the better takes. I'll start with Paul Ford who is, hands down, the absolute best, most thoughtful, insightful and thought-provoking writer about technology issues around. His piece for Bloomberg Businessweek, entitled GitHub is Microsoft's $7.5 Billion Undue Button is truly excellent. It not only does one of the best jobs I've seen in explaining Github for the layman, but does so in the context of explaining why this deal makes sense for Microsoft. Amusingly, I think that Ford is making the same point that the Guardian's editorial was trying to make, but the difference is that Ford actually understands the details, whereas whoever wrote the byline-less Guardian editorial clearly does not.
GitHub represents a big Undo button for Microsoft, too. For many years, Microsoft officially hated open source software. The company was Steve Ballmer turning bright colors, sweating through his shirt, and screaming like a Visigoth. But after many years of ritual humiliation in the realms of search, mapping, and especially mobile, Microsoft apparently accepted that the 1990s were over. In came Chief Executive Officer Satya Nadella, who not only likes poetry and has a kind of Obama-esque air of imperturbable capability, but who also has the luxury of reclining Smaug-like atop the MSFT cash hoard and buying such things as LinkedIn Corp. Microsoft knows it’s burned a lot of villages with its hot, hot breath, which leads to veiled apologies in press releases. “I’m not asking for your trust,” wrote Nat Friedman, the new CEO of GitHub who’s an open source leader and Microsoft developer, on a GitHub-hosted web page when the deal was announced, “but I’m committed to earning it.”
But perhaps most interesting in Ford's piece is that, while it understands why Microsoft is doing what it's doing, it's also a bit wistful of how he'd always kind of hoped that Github would become something more -- something more normal, something that applied to much more of what everyone did. While it doesn't directly say it, it does imply that that dream probably won't happen with Microsoft in control.
I had idle fantasies about what the world of technology would look like if, instead of files, we were all sharing repositories and managing our lives in git: book projects, code projects, side projects, article drafts, everything. It’s just so damned … safe. I come home, work on something, push the changes back to the master repository, and download it when I get to work. If I needed to collaborate with other people, nothing would need to change. I’d just give them access to my repositories (repos, for short). I imagined myself handing git repos to my kids. “These are yours now. Iteratively add features to them, as I taught you.”
For years, I wondered if GitHub would be able to pull that off—take the weirdness of git and normalize it for the masses, help make a post-file world. Ultimately, though, it was a service made by developers to meet the needs of other developers. Can’t fault them for that. They took something very weird and made it more usable.
The final thought provoking piece comes from Ben Thompson at Stratechery, who sees the clear business rationale of Microsoft's decision. Microsoft built its entire business as a platform for developers (who it sometimes treated terribly...). But as we've moved past a desktop world and into a cloud world, Microsoft has much less pull on developers. Github brings it tons and tons of developers.
Go back to Windows: Microsoft had to do very little to convince developers to build on the platform. Indeed, even at the height of Microsoft’s antitrust troubles, developers continued to favor the platform by an overwhelming margin, for an obvious reason: that was where all the users were. In other words, for Windows, developers were cheap.
That is no longer the case today: Windows remains an important platform in the enterprise and for gaming (although Steam, much to Microsoft’s chagrin, takes a good amount of the platform profit there), but the company has no platform presence in mobile, and is in second place in the cloud. Moreover, that second place is largely predicated on shepherding existing corporate customers to cloud computing; it is not clear why any new company — or developer — would choose Microsoft.
This is the context for thinking about the acquisition of GitHub: lacking a platform with sufficient users to attract developers, Microsoft has to “acquire” developers directly through superior tooling and now, with GitHub, a superior cloud offering with a meaningful amount of network effects. The problem is that acquiring developers in this way, without the leverage of users, is extraordinarily expensive; it is very hard to imagine GitHub ever generating the sort of revenue that justifies this purchase price.
Thompson's piece (among many other good insights) suggests why developers might not need to fear Microsoft's ownership, because of all the potential acquirers, Microsoft probably has the least incentive to ruin Github:
This, by the way, is precisely why Microsoft is the best possible acquirer for GitHub, a company that, having raised $350 million in venture capital, was possibly not going to make it as an independent entity. Any company with a platform with a meaningful amount of users would find it very hard to resist the temptation to use GitHub as leverage; on the other side of the spectrum, purely enterprise-focused companies like IBM or Oracle would be tempted to wring every possible bit of profit out of the company.
What Microsoft wants is much fuzzier: it wants to be developers’ friend, in large part because it has no other option. In the long run, particularly as Windows continues to fade, the company will be ever more invested in a world with no gatekeepers, where developer tools and clouds win by being better on the merits, not by being able to leverage users.
My own take is somewhere between all of these. As soon as I heard the rumor, I started thinking back to the famed Steve Ballmer chant of "Developers, Developers, Developers!"
Microsoft has always needed developers, but in the past it got them by being the center of gravity of the tech universe. A huge percentage of developers were drawn to Microsoft because they had to develop for Microsoft's platform. That allowed Microsoft to get away with a bunch of shady practices that certainly created a bunch of trust issues (Facebook might want to take note of this, by the way). Nowadays, in the cloud world, Microsoft doesn't have that kind of leverage. It's still a massive player, but not one that sucks in everything around it. And, it does have new leadership that seems to understand the different world in which Microsoft operates. So it will be interesting to see where it goes.
But, as someone who believes in the value of reinvention and innovation among the tech industry, it's not necessarily great to see successful mid-tier companies just gobbled up by giants. It happens -- and perhaps it clears the field for something fresh and new. Perhaps it even clears the field for that utopic git-driven world that Ford envisions. But, in the present-tense, it's at least a bit deflating to think that a very different, and very powerful, approach to the way people collaborate and code... ends up in Microsoft's universe.
And, as a final note on these three pieces: this is why we should seek out and promote people who actually understand technology and business in understanding what is happening in the technology world. The Guardian piece is laughable, because it appears to be written by someone with such a surface-level understanding of open source or free software that it comes off as utter nonsense. But the pieces by Ford and Thompson actually help add to our understanding of the news, while providing insightful takes on it. The Guardian (and others) should learn from that.
On the campaign trail, you might recall that Donald Trump threatened to block AT&T's $89 billion acquisition of Time Warner, insisting that the deal was "an example of the power structure" he was fighting, because it would deliver "too much concentration of power in the hands of too few." Granted he subsequently appointed an FCC chairman in Ajit Pai who's little more than a rubber stamp for companies like AT&T, and nominated an antitrust boss already on record stating he has no real problems with the merger, leading most analysts to believe the deal will be approved anyway.
There are of course a number of legitimate reasons to block the deal, including concerns that AT&T will make licensing access to necessary programming more difficult than ever for streaming video competitors. Or the fact that AT&T's using its dominance in wireless to give Time Warner content an unfair advantage over competitors via usage caps and overage fees (aka "zero rating"). It would be foolish to think a company with such a rich history of anti-competitive and anti-consumer behavior wouldn't use this greater size and leverage anti-competitively.
But these are complicated nuances it's not-terribly-likely the current President actually understands. Instead, his focus in recent months has been the fact that he doesn't like Time Warner-owned CNN's critical coverage of his administration, and, according to the New York Times, hopes to use the deal as "leverage" to force CNN to soften its critcism of the President as part of his broader assault on the media:
"White House advisers have discussed a potential point of leverage over their adversary, a senior administration official said: a pending merger between CNN’s parent company, Time Warner, and AT&T. Mr. Trump’s Justice Department will decide whether to approve the merger, and while analysts say there is little to stop the deal from moving forward, the president’s animus toward CNN remains a wild card."
Other news outlets noted that the Trump administration is also contemplating demanding the ouster of current CNN boss Jeff Zucker in exchange for approving the deal. The news was quick to result in letters to the DOJ from several Senators who claimed Trump was "interfering" in an approval process that should be left up to regulators and the DOJ to decide:
"Any political interference in antitrust enforcement is unacceptable," Minnesota Sen. Amy Klobuchar wrote in a letter to Attorney General Jeff Sessions. "Even more concerning, in this instance, is that it appears that some advisers to the President may believe that it is appropriate for the government to use its law enforcement authority to alter or censor the press. Such an action would violate the First Amendment."
If you're at all familiar with the ethical behavior over at AT&T (like the times it ripped off a program for the hearing impaired or made bills harder to understand to help criminals scam its own customers), it would certainly be in character for AT&T to agree to trample the editorial firewall between itself and CNN to get the deal done -- it just wouldn't be stupid enough to put any such agreement in writing. As the net neutrality fight makes clear, telecom giants aren't particularly concerned about the whole free speech thing (check out Verizon's first foray into tech content, for example).
AT&T's also a world-class expert at making utterly bogus claims when it comes to its latest megamergers, consistently claiming such deals will lower prices, expand broadband coverage and create oceans of new jobs (telecom megamerger history makes it abundantly clear the exact opposite almost always occurs). Given some similar expertise over at the Trump camp, there's an incredible opportunity for some amazing bullshit here; an opportunity Trump likely won't want to waste by continuing what's become an arguably unhealthy fixation on CNN.
The likely outcome is that we'll get to have our rotten cake and eat it too: a torrent of bogus job and broadband expansion promises the likes of which we've never seen before -- and a CNN left bridled by a meddling new corporate parent focused exclusively on currying favor in the Trump administration to anti-competitive benefit. Just think of the incredible potential for synergies...and bullshit.
EA, a company right up there with Comcast in terms of consumer disdain, has a long and proud history of gobbling up talented developers, then either obliterating them outright, or homogenizing them until the products are the very pinnacle of bland. Studios like Bullfrog, Westwood Studios, and Origin were all near legendary game developers when acquired, but are now little more than fond memories after ham-fisted attempts to cash in on the catalogs (Ultima IX, anyone?). Other studios like Maxis were similarly legendary, but now struggle to put out rushed, highly-flawed simulacrum under the EA banner.
After twenty years of such stumbling, scorched-earth acquisitions, EA's bloated belly appears to be full, and the company has finally decided that perhaps it should focus on developing content with the acquired talent army it already has. Company CFO Blake Jorgensen would even go so far as to admit EA's history with such acquisitions is "marginal" at best:
"I think our history with acquisitions is somewhat marginal in performance," Jorgensen said when asked if EA has identified any acquisition targets in the industry. "We have some that are spectacular, and some that didn't do so well. It's a headcount business, right? You're buying headcount, and that's always difficult to manage in acquisitions. It doesn't mean we won't do them, but I think where we've been most successful is in smaller acquisitions that we've integrated very quickly."
In other words, EA finally has all the talent it needs to keep rolling out barely-interesting Madden after Madden updates (shielded from competition via their exclusive NFL arrangement) and a decade of new, semi-interesting Star Wars games courtesy of its deal with Disney. If EA's stock is any indication, investors think EA has learned a thing or two about making friends with consumers, and the company claims it's working hard to change its customer reputation in the market (EA gave away several free games as a promotional effort over the weekend). Though dysfunction may just be grafted to EA's genetic code, 2015 might be the year that Ubisoft steals EA's consumer annoyance crown.
You may recall, back in 2005, that the tech world let out a massive "Huh? when eBay acquired Skype for somewhere around $2.6 billion. eBay kept insisting there were synergies there, and lots of people tried to puzzle out what those might be. Calling people to discuss auctions? Auctions embedded in your phone? There was some vague talk about China, but it amounted to "lots of people use Skype in China," and didn't get much further than that. Just a couple years later, eBay was already writing off the supposed synergies and then gave up looking for the synergies altogether. Not so long ago, it spun the company out, and there were plans for an IPO.
Just a few days ago, there were rumors that both Facebook and Google were considering buying Skype at around $3 or $4 billion. In both cases, you could make out some potential synergies. Facebook has become a huge communications platform, and adding more voice capabilities could be compelling. Google, obviously, has Google Voice and owns Skype-clone Gizmo.
However, at the last minute, it appears that Microsoft swooped in and more than doubled the asking price, paying $8.5 billion. And, we're left with deja vu. It seems we're not the only one asking how this makes sense. It certainly has all the earmarks of a big company with too much cash feeling the need to do something to be considered relevant, especially after hearing that two of the newer darlings in the tech world were considering the buyout themselves.
Are there synergies here that make sense? Well, certainly more than existed with eBay. But enough to make it worth so much more to Microsoft than Facebook or Google? I can't see it. Also, almost everything I can think of where Microsoft might integrate with Skype would likely make the product more annoying and less valuable. And while Skype is definitely a great product -- I use it all the time -- and usage has steadily grown over the years, the company is still having trouble finding profits. $8 billion is a lot to spend on a company that keeps using up the red ink on its income statements.
Perhaps Skype just puts something in the water it serves in conference rooms that makes big tech companies go loopy, increasing how much they're willing to pay and seeing magic synergies where none really exist.
It appears that Amazon is expanding by trying to buy up cool e-commerce companies that have unique and fun cultures that its fans love. I would imagine there are worse strategies out there. We already covered how Amazon bought Zappos, with the company culture playing an important role in the decision-making. Now Amazon has bought Woot (a site, I should admit, that I have a bit of an addiction to). And unlike the lame corporate-speak note that Zappos put out when it was acquired, Woot has handled the announcement in true Woot-like fashion with perhaps the best CEO letter you'll ever read about an acquisition. Here's just an excerpt:
Over the next few days, you will probably read headlines that say "Matt Rutledge revealed to be monstrous pseudo-human creation of Jeff Bezos." You might even see this photo making the rounds. Rest assured that these rumors have nothing to do with our final decision. We think now is the right time to join with Amazon because, quite simply, every company that becomes a subsidiary gets two free downloads until the end of July, and we very much need that new thing with Trent Reznor's wife on our iPods.
Other than that, we plan to continue to run Woot the way we have always run Woot -- with a wall of ideas and a dartboard. From a practical point of view, it will be as if we are simply adding one person to the organizational hierarchy, except that one person will just happen to be a billion-dollar company that could buy and sell each and every one of you like you were office furniture. Nevertheless, don't worry that our culture will suddenly take a leap forward and become cutting-edge. We're still going to be the same old bottom-feeders our customers and readers have come to know and love, and each and every one of their pre-written insult macros will still be just as valid in a week, two weeks, or even next year. For Woot, our vision remains the same: somehow earning a living on snarky commentary and junk.
We are excited about doing this for all sorts of reasons. One, our business model is so vague that there's no way Amazon can possibly change what it is we're truly doing: preparing the way for the rise of the Lava Men in 2012....
And then there's this lovely rap video Woot staff put together to explain the acquisition. The video even ends by noting "the preceding video does not represent the view or opinions of Amazon.com. Obviously." Let's just say that it's not your standard bland "hey we've been acquired" announcement:
Taking a step back, it's pretty interesting to see Amazon acquiring companies with such unique cultures and then leaving them alone and letting them act entirely independently. It will be worth watching to see if that lasts (or if it can last). But for now, it's cool to see.
JohnForDummies alerts us to Broadcom's latest patent infringement suit, this time against Emulex. Broadcom is quite aggressive on the patent front, so at first this didn't seem like a big deal. But, this time it's more interesting, because Broadcom just spent about a year trying to do a hostile takeover of Emulex, which failed. Basically, this seems like a sour grapes patent lawsuit. Emulex wouldn't agree to be taken over, so Broadcom decided to throw the patent book at them. Patent lawsuits as revenge? Just like Thomas Jefferson intended...
While Google has bought plenty of small startups, almost none of those deals have amounted to very much. It almost seems like most of the startups disappear into Google forever. There are a few exceptions such as YouTube and (maybe) Writely. But the list of startups that have simply languished or died is much longer. TechCrunchIT is running an interesting post that suggests one of the key reasons: Google's proprietary tech stack. While Google is a big open source supporter for lower level infrastructure, once you get above that -- it's very much a strong believer in doing everything its own way. I've heard from friends at Google about the difficulty they've had learning to deal with Google's tech stack -- and certainly have heard how it's slowed down the progress of some Google acquisitions while they learn how to "transition."
In fact, some have pointed out that this is one of the side benefits to Google's AppEngine offering. Since it exposes some of Google's tech stack to folks for them to develop and run their applications, it will make it much easier to integrate them into Google at a later date. So, for startups whose strategy is to get acquired by Google (and, I should note, if you start with that strategy, you're probably going to fail), it may make sense to develop on AppEngine just because you're already signaling to Google that the integration costs are significantly lower.
Still, this highlights one of the major downsides to Google's belief that it can do everything much better than everyone else by starting from scratch: in doing so, it actually makes it much harder to capitalize on synergies from many acquisition targets. Yes, there are reasons to go against the "standard" way of doing things, but there are significant costs as well.
