Dig around on finance corners of the internet and you find people touting the logic of May-December corporate romances. If Apple bought all or parts of Time Warner or Disney, or Amazon hitched up with Macy’s Inc., or Google owned a traditional automaker, it would be a sweeter combination than chocolate and peanut butter. The experienced hand and the whippersnapper would benefit from each other’s strengths. Or so the logic goes.
The big tech companies undoubtedly consider some of these acquisitions, and one day a tech takeover in an old-guard industry will actually happen. But I have a message for anyone waiting for Tim Cook or Larry Page to ride in on a white horse with saddlebags full of money: Don’t hold your breath. A tech giant is not coming to rescue your failing industry.
Healthy tech companies don’t need the baggage of owning an old and sad company. Amazon.com Inc. on its own became one of the biggest sellers of clothing and accessories in the world. It didn’t need to tap merchandising expertise from Macy’s or the company’s relationships with apparel brands to get there. Amazon is opening its own bookstores and a tech twist on the convenience store, again from scratch. It didn’t need to buy American Apparel’s stores or Sears to do it.
In entertainment, the success of Netflix Inc. shows you don’t need to buy a media company to become a media company. Netflix went around to the same producers, writers and directors already creating TV shows and movies for Time Warner and Sony and paid them to make TV shows or movies for Netflix. Poof. Netflix built an entertainment empire. (Mind you, this wasn’t cheap for Netflix.)
Apple’s $246 billion stockpile of cash and securities is nearly equivalent to the combined stock market values of Time Warner and Disney. But like Netflix before it, Apple Inc. is assembling pieces for a music and digital video empire on its own. It doesn’t have to buy a media company to do it.
Look at the companies Apple, Alphabet Inc.’s Google, Amazon and Microsoft Corp. have bought in their histories. Apple tends to buy companies you’ve never heard of — PrimeSense for motion detection, fingerprint-sensor firm AuthenTec and the company behind Siri, for example — to add promising young technology or expertise to its ranks.
Amazon’s largest corporate takeovers were to acquire a video streaming company, industrial robot manufacturer Kiva, and two niche e-commerce websites in Zappos and the parent company of Diapers.com. There is nothing close to a traditional retailer in Amazon’s acquisition history. Google likewise tends to buy emerging technologies such as YouTube, Waze, Nest and DoubleClick to branch into new areas.
The one area where tech companies do seem to splurge on an older industry is mobile phones. Google in 2011 announced its biggest-ever acquisition for Motorola Mobility, and Microsoft in 2014 struck a $9.4 billion deal for the mobile business at 150-year-old Nokia, which made rubber boots and paper pulp in its early life. Those forays into older industries did not end well for either company. Google dumped Motorola within a couple of years, and Microsoft admitted it overpaid by $7.5 billion for Nokia.
Maybe self-driving cars will be one of the few areas where the expertise of an old industry can help the young pups in tech, and an acquisition will help. Or maybe Google, Apple and Uber can continue to hire every automotive engineer they can find and spend billions of dollars each year on research and development to build their own car businesses in house without splurging on an automaker. We’ll see. The beginning of the year is always a season of hope for mergers and acquisitions. This reminder is timely, then, that tech companies don’t need to buy your falling-down companies. Sorry.