from the bankers-replaced-by-a-toothbrush dept.
When deciding whether Google should spend millions or even billions of dollars in acquiring a new company, its chief executive, Larry Page, asks whether the acquisition passes the toothbrush test: Is it something you will use once or twice a day, and does it make your life better?
The esoteric criterion shuns traditional measures of valuing a company like earnings, discounted cash flow or even sales. Instead, Mr. Page is looking for usefulness above profitability, and long-term potential over near-term financial gain.
Google’s toothbrush test highlights the increasing autonomy of Silicon Valley’s biggest corporate acquirers — and the marginalized role that investment banks are playing in the latest boom in technology deals.
Many of the biggest technology companies are now going it alone when striking large mergers and acquisitions. Companies like Google, Facebook and Cisco Systems are leaning on their internal corporate development teams to identify targets, conduct due diligence and negotiate terms instead of relying on Wall Street bankers.
(Score: 4, Interesting) by frojack on Monday August 18 2014, @05:45PM
Most of Google's recent acquisitions are clearly about patents or intellectual property of one sort of another.
Its pretty obvious that Google can replicate the functionality of almost anyone's applications or web based technology.
That they choose not to do so suggests they have learned its easier and cheaper to just buy the company, get the IP and the good will of the company's developers on their side rather than trying to fight them in the market place and end up in court. FTR, I think this is a much more honest approach.
Take the recent acquisition of Jetpack [pcworld.com]. Google already had some of this tech built into various apps, google shopper, Google Goggles, Google Image search, etc. Yet they went out and acquired Jetpack to improve their capabilities in this regard rather than just mine the jetpack app for technology.
It will probably meet the toothbrush test. But it meets the lawyer test too.
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(Score: 0) by Anonymous Coward on Monday August 18 2014, @06:23PM
I hadn't heard about "Jetpac" before the acquisition, but now I know that Jetpac is shutting down.
Users of Jetpac should thank Google for destroying a valuable tool and eliminating a competitor. Maybe you'll see these features added to Google Images, maybe you won't.
(Score: 2) by Nerdfest on Monday August 18 2014, @08:14PM
It meets the "Don't be Evil" test as well. It's kind of a dick move to duplicate the technology of a small innovative company and drive them out of business. Legal, but a dick move.
(Score: 2) by kaszz on Monday August 18 2014, @09:49PM
Guess they didn't want to be another Microsoft..
And Microsoft probably feels the ostracization right now. Too few wants their Win8, XBox and Surface. Security and lock-in is starting to become a even worse issue. And the willingness to sleep with NZA eradicates their trust.
(Score: 3, Insightful) by Tramii on Monday August 18 2014, @07:09PM
> toothbrush test: Is it something you will use once or twice a day, and does it make your life better?
I like the basic idea (forget what Wall Street says, it is actually something useful) but the wording is highly subjective. A lot of things start out with you using it multiple times a day, but later after the shiny factor wears off, your usage of it drops off. Also, how do you determine if something "makes your life better"? Some people would claim Facebook makes their life better; others would claim it makes their life worse.
I would propose something closer to this: "Can you actually make any money off of it, and is it more than just a passing fad?"
(Score: 2) by fishybell on Monday August 18 2014, @07:23PM
Dentists love it when you do that.
Seriously though, that happens because, unlike toothbrushes, you don't have an actual use for the app, no matter how shiny. The number of apps that are in the "wow, this made my life/job/etc. so much better I can't imagine a world without it" is like 3: instant messaging, phone calls, turn-by-turn directions. Two of those things my old phone did perfectly fine.
(Score: 2) by frojack on Monday August 18 2014, @07:55PM
Looking stuff up, password wallet, and Email. And a distant last place reserved for phone calls.
I look crap up at the drop of a hat. Web, weather apps, Ok Google, or just web search. Any question comes up and 4 smartphones come out of pockets in this household.
I suspect I'm not all that different then most people, and retrieving info is the single most frequent activity on a smart phone.
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(Score: 0) by Anonymous Coward on Monday August 18 2014, @07:24PM
Ahh, but we're talking about potential here, not implementation. The potential Facebook offers is easy availability of your social network (family, friends, co-workers) in a way that brings you closer to them.
You take issue with it's current implementation (One friends new interest in Candy Crush starts to overwhelm your page, difficulty in segregating disparate parts of your social network, and the steady degradation of privacy)
I don't think it is as hard as you think to estimate the potential usefulness of an app. I DO think where this method breaks down, and they have to turn back to "the old ways" is in estimating it's value, or worth. That seems like an important question in a Billion dollar merger.
(Score: 2) by PizzaRollPlinkett on Monday August 18 2014, @07:24PM
I wish there was some way we could do a longitudinal track of technologies purchased by big companies. How much of it is ever used, where the experts at the company eventually go, etc. Would be really fascinating to have a scorecard of some sort detailing how these purchased technologies were integrated into the bigger company and whether there was any measurable ROI at all.
All I know is that I used to work for a small company that developed a technology that a big company bought for a fairly bloated amount, and as far as I know the big company never did anything with it at all. Maybe it was used internally to revolutionize the company's productivity (the big company limped along until it was bought by another big company; you'd know the names of both quite well), but the public never saw it.
(E-mail me if you want a pizza roll!)
(Score: 2) by cafebabe on Monday August 18 2014, @08:29PM
Perhaps a bunch of people should check what happened to acquisitions mentioned in CrunchBase [crunchbase.com].
Did you work for MySQL? Sun Microsystems purchased it for US$1 billion, didn't do anything obvious with it, then got purchased by Oracle for US$4.7 billion. The second acquisition showed that the first was fairly bloated because it valued SPARC, Solaris, Java, NFS, development projects, patents and everything else being less than four times the value of a freemium database company with no patents.
1702845791×2
(Score: 2) by frojack on Monday August 18 2014, @09:12PM
For some of Google's acquisitions you can look this up. At least as far determining where the technology goes.
See this wiki page: http://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Google [wikipedia.org]
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(Score: 1, Informative) by Anonymous Coward on Monday August 18 2014, @07:28PM
I thought for certain he was making a relationship comparison. This company is great! They're the best company in the world! I want to spend all my time with this company!
Can I keep a toothbrush at your office?
Woah woah woah, maybe we should slow down this merger a bit.
(Score: 2) by VLM on Monday August 18 2014, @09:41PM
Yes I was thinking along the same lines and at first glance thought it was some weird analogy about the two CEOs sharing a company is like sharing a toothbrush or something like that.
Or would you trust the other CEO not to use your toothbrush to scrub his toilet bowl.
Any of our interpretations would have made for a more interesting story.
(Score: 1) by richtopia on Monday August 18 2014, @08:44PM
Probably not a terrible idea.
Also, how does this rule apply to companies producing multiple products? Colgate-Palmolive produces lots of stuff, and while I use toothpaste twice a day laundry detergent is more of a once a week item.
(Score: 3, Insightful) by kaszz on Monday August 18 2014, @09:59PM
I think the bigger trend here is that Wall street banksters has shown that they don't bring long term value and thus are ignored in the acquisition decision process.
The test could also be translated into "will this bring profit continuously or just one-off?". Continuous operation is worthwhile to improve and can use previous base to expand. While one-off is just that.
(Score: 2) by tomtomtom on Monday August 18 2014, @10:24PM
If anything, they're very late to the party with this. Most large conglomerates (Unilever/P&G would be the prime examples who have perhaps been doing it for longest) have been doing this for many, many years - internal M&A teams mostly hired from Investment Banks/accountancy firms doing everything except raising funds from equity/bond markets for which they compete banks down to the lowest possible fee. The difference perhaps is that Google don't need to raise money (as they can use cash and their own newly-minted shares) - so where Unilever/P&G and the like can use that business to get some free work out of the banks, Google can't.
Perhaps an interesting implication of this is that they've made a decision somewhere along the road, conscious or unconsciously that buying other companies like this is better value for their shareholders than returning that cash to their shareholders through dividends or buying back their own shares (which is what they used to do with the excess amount from their huge pile of cash).