It is not always possible to develop an innovation from scratch. But fortunately, good new ideas can also be bought.
For most companies—from those offering high-tech services to telecoms and pharma—innovation is a key concept. However, extensive corporate structures do not always offer optimal conditions for encouraging the creation of groundbreaking ideas. The solution, as suggested by the latest edition of Ernst & Young’s Capital Insights, may be to buy a start-up with a unique concept. The market provides numerous examples. During the last three years alone, Google has bought over 140 companies. To capture the significance of these acquisitions, it is enough to recall that in 2005 Google acquired a small company in California that was developing the Android operating system. Two years later Android served as the platform for Google to enter the mobile market and become the main competitor to Apple.
The race for the swift
The competition is not only for technology, licensing or a vision for product development. It is equally important that customers have not had a chance to become attached to a small new brand. Acquiring start-ups is also a recruitment strategy and a way to find the most talented and creative people on the market. In English there is already a word for this approach of hiring by acquisition: “acqui-hire.”
A powerful triangle
According to a mergermarket report, the most spectacular acquisitions of start-ups in 2012 were the purchase of Taleo by Oracle, Yammer by Microsoft, and Instagram by Facebook. In the first case, Oracle acquired Taleo’s HR support solutions for almost USD 2 billion. In the second, Microsoft spent USD 1.2 billion to buy a social networking site enabling internal communications among a company’s staff. In the third case, for USD 735 million, Facebook became the owner of a service that allows anyone to become an expert photographer, because the filters included in Instagram can give any picture a professional look.
But an acquisition is not always required. In 2011, several American corporations, including AOL, Dell, Microsoft and American Express Open, joined with entrepreneurs, foundations and universities to establish the Startup America Partnership. Its purpose is not to establish new companies, but to invest in energetic existing companies with high growth potential. Companies generating annual revenue of USD 10 million which have been on the market for 10 years and employ at least 25 people—referred to as “speed-ups” (as compared to “start-ups,” which have existed for 5 years or less and employ as few as two people)—are the companies that major corporations look most closely at. In exchange for access to capital and infrastructure, they offer an opportunity to grow innovations developed by people whose passion and capacity for thinking outside the box have not been stifled by corporate routine.
Aleksandra Włodarczyk, Wardyński & Partners