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Google Goes to Market
Firm's Niche Deals Point to a Strategy of Measured Expansion

By Alan Sipress
Washington Post Staff Writer
Thursday, September 14, 2006

When Google Inc. quietly bought a software shop called Android Inc. a year ago, neither the suitor nor the quarry revealed much about the terms of their attraction.

Google never said how Android, a 22-month-old start-up that described itself solely as a maker of software for mobile phones, would fit into its grand strategy.

Yet Android was typical of the acquisitions made by Google: a modest firm with niche expertise to help the Internet giant build on its core businesses rather than strike into wholly new frontiers.

Most of Google's purchases have been so small as to barely attract notice, and the company has done little to highlight them. But taken as a whole, the company's record of acquisitions offers a few signposts toward its future.

In the two years since it went public, the company has bought at least 15 enterprises, including four start-ups that specialize in mobile software, a clear signal of Google's interest in bringing search and other Web-based services to mobile customers.

Google has also gone to market for firms that can help it build on its core businesses of searching the Internet and selling online advertising. When Google has gone farther afield, it has not gone very far. For example, it acquired dMarc Broadcasting Inc., a company that allows marketers to automatically place ads on the radio, and Upstartle LLC, which provides the online word-processing software Writely to complement Google's other office applications.

As active as Google has been, the company has spent far less on acquisitions than some other technology firms, in particular Yahoo Inc. and eBay Inc., paying out less than $400 million over the period, often for obscure, even minuscule, start-ups, according to an analyst report. This reflects a fundamental divide over philosophy: While other companies have tried to transform themselves through hefty purchases, Google has so far declined to buy its way into new fields.

"It seems like their preference is to develop things in house," said Mark S. Mahaney, director of Internet research at Citigroup Inc. "But if they're going to buy promising applications, they prefer buying them in as early a stage as possible."

During the previous year, Google also picked up Dodgeball.com and Zipdash Inc., which provided, respectively, a social networking service and traffic information for mobile customers. Google would later buy Reqwireless Inc., which developed software for Web browsing and e-mail on mobile phones. Together, these acquisitions helped move Google closer to achieving the aspiration of company co-founder Larry Page to develop a "smart phone."

"We are bringing more of our products to mobile phone users. Since there are at least twice as many mobile phones than PCs in use globally, and mobile usage is growing faster than PCs, we want to make Google available in a device-independent way," Page said this summer during rare public comments on the subject. He added that the company was developing new ways for marketers to advertise on mobile phones.

Industry analysts say the mobile Web is a natural fit for Google. According to a report prepared last month by Mahaney, less than 1 percent of Google searches are conducted on a phone, but that number will grow significantly as phone and network technologies advance. Safa Rashtchy, senior analyst with Piper Jaffray & Co., predicted that mobile search and related applications would be a substantial part of Google's business within five years.

"They have been somewhat silent on mobile," Rashtchy said. "But it's clear that's a big focus for Google."

Google declined to detail its acquisitions and would not confirm a list compiled from other sources.

"Historically, our [mergers and acquisitions] strategy has been to look for unique products, technologies and engineering teams that can help us provide innovative products to our users or enhance existing services," said Google spokesman Jon Murchinson. "Aside from that, we don't comment on future products or business plans."

Google's penchant for quietly collecting technology tuck-ins contrasts sharply with the approach of several other Internet titans. Since 2001, eBay has spent four times as much as Google on mergers and acquisitions, embarking on new ventures through the purchases of voice over Internet protocol provider Skype Inc. and online payment company PayPal Inc., according to a Citigroup analysis. Yahoo, meantime, has spent nearly three times as much as Google.

While Google made its reputation on search, pride has not stood in the way of buying better search technologies when they arise, if only to keep them out of competitors' hands.

Earlier this year, it purchased the rights to a new way of searching the Web -- allowing users to find and extract summaries of Web pages -- developed by a 26-year-old, Israeli-born doctoral student in Australia. Last month, it bought Neven Vision Inc., which makes image recognition software -- something that could help make pictures searchable. It's also picked up Transformic Inc., a tiny firm that developed an engine for searching databases that reside behind Web sites, and Akwan Information Technologies, a Brazilian maker of specialized search engines for businesses and other institutions. "When we talk about search, we talk about [searching] everything," Eric E. Schmidt, Google's chief executive, said in July.

Even its acquisitions of firms that specialize in mapping and geographic data fall into the search arena, said John Hanke, head of Google's geographic products.

The purchase two years ago of Keyhole Corp., a digital mapping and satellite imaging company run by Hanke, was especially intriguing. Google kept quiet about the financial terms but trumpeted its acquisition in a press release, saying that with Keyhole, "you can fly like a superhero from your computer at home to a street corner somewhere else in the world."

"What they got by buying us is a running start in entering that market," he said.

Buying Where2 LLC, another mapping firm, helped lay the groundwork for Google Maps, while @Last Software, a winter acquisition, allowed for three-dimensional design on top of Google's maps and images. These products create new advertising opportunities as the search engine integrates maps and local ads, said Merrill Lynch & Co. analyst Justin Post.

Google continues to favor in-house development but has shown that it's open to new technologies.

"If Google sees something that has not been done before, or not been done well before, and is well ahead of what they have internally, they'll acquire it," Rashtchy said.

Staff researcher Richard Drezen contributed to this report.

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