Alphabet (formerly Google) has made a number of notable acquisitions over the years applying its famous "toothbrush test" and penchant for acquihires. The M&A has allowed Google to expand into new industries.
Few companies are more aggressive than Google when it comes to acquisitions. Though the overwhelming majority of the company’s revenue comes from online advertising, the tech giant — which recently reorganized under the umbrella brand Alphabet — has purchased companies in a number of far-flung industries, ranging from robotics and artificial intelligence to health tech and wind power.
This diversity of acquisitions speaks to Google’s willingness to consider just about any tech company that passes its famous “Toothbrush Test,” an M&A litmus test developed by co-founder Larry Page. Under the test, a target company must produce something that you would use once or twice a day, and that would also make your life better.
Dating back to its first startup acquisition of the blogging software company Pyra Labs in 2003, Google has used acquisitions to take “moonshots” at potentially life-altering new technologies like self-driving cars, and add to its bottom line through more practical methods like integrating new display advertising tech. Though not every acquisition has worked out — its 2014 $3.2B purchase of Nest in early 2014 has been questioned — Google has certainly had more notable hits than misses.
Indeed, as Google VP of corporate development Don Harrison told Time last year, “M&A has obviously been a huge part of Google — and, I think, Google’s success —for a long time.”
With this success in mind, here are Google’s 12 best acquisitions ever, based both on what they have already added to the company and what they seem poised to bring to the table in the years to come.
Android is not only arguably the best acquisition Google has ever made, it’s also one of the best tech acquisitions of all time. Purchased for an estimated $50M in 2005, the Android mobile operating system is today installed on more than 80% of the world’s smartphones. No wonder Google Capital partner David Lawee had already it cited as the best deal in company history back in 2010. Android is pivotal as a “rainmaker” for Google, helping drive activity on search and email that Google can then monetize.
“Google doesn’t make any money on the operating system itself,” Neil Doshi of CRT Capital told CNBC. “But, because it’s tied to Google properties and services, they can really monetize well from Google searches and Gmail and all the other Google applications that come along with that.”
2. Applied Semantics
According to UCLA professor George Geis, the $102M acquisition of Applied Semantics in 2003 set the precedent at Google for the “acquihire,” whereby Google makes a purchase not for the company itself but for talent, which is often used to build out a new product or service. In this case, founder Gil Elbaz (pictured above) and Applied Semantics’ webpage-scanning technology were integrated into Google to create AdSense, a product that allows advertisers to extend their search campaigns by placing text, display, or link ads on websites that prominently feature relevant keywords.
Today, AdSense is a driving force behind the company’s monetization of its Google Network Member sites, a category that accounted for 20% of Google’s revenue in 2015. In 2011, TechCrunch called Applied Semantics the third-greatest US digital media acquisition ever.
Google paid $3.1B to acquire the advertising software company DoubleClick in a 2007 bidding war with Microsoft. Though the hefty pricetag made it Google’s most expensive acquisition at the time, DoubleClick has more than paid for itself.
In the years since, it has been instrumental in giving Google a foothold in the lucrative display advertising industry and allowing the company to facilitate programmatic ad-buying through its very own ad exchange. In 2014 alone, Google’s US display revenue nearly equaled the entirety of its $3.1B acquisition price tag, according to eMarketer. (Pictured above: DoubleClick co-founder Dwight Merriman, left and former CEO Kevin Ryan, right)
Google purchased YouTube for $1.65B in 2006, amid concerns that it wouldn’t be able to monetize effectively due to all the pirated content hosted on the site. A decade later, the company has successfully created well-received intellectual property policies along with underlying technology to enforce them. The video platform is estimated to have generated around $6B in revenue in 2015.
Though YouTube is not yet profitable, the company is extremely valuable to Google because it is growing rapidly as viewing habits continue to shift from television to online video. On top of that, YouTube serves important strategic purposes in bolstering Google’s search offerings.
“[YouTube] makes the core Google search product better by giving Google more data about which videos are most relevant to Google queries,” YouTube product manager Dave King explained on Quora. “It also captures significant search share as its own search portal.”
5, 6, 7. Keyhole, Where2, and Zipdash
Though relatively unheralded at the time, a trio of small 2004 acquisitions would go on to completely change how many of us get from place to place. That’s because the teams from these three mapping startups would go on to create Google Maps.
Today, that product has more than 1 billion users and serves Google in several ways: It generates revenue through the sale of location-based ads, it’s part of the groundwork for Google’s self-driving cars operation, it adds to the ubiquity of Google’s services, and it furthers Google’s mission of making the world’s information widely accessible.
8. Urchin Software
Google acquired Urchin Software in 2005 for an undisclosed sum, and the deal would ultimately help shape the world of online publishing. Urchin would grow into the web-hosted Google Analytics platform, which strengthens Google’s search business by helping websites understand where their traffic is coming from.
Google Capital’s David Lawee called the acquisition “a massive win” in a Quora post, and by 2012, Google Analytics was being used by more than half of the top 10,000 websites.
One of the splashiest acquisitions in company history, the mobile GPS navigation app Waze is already making an impact less than three years after Google shelled out around $1B for it. On top of using Waze’s social traffic data to make Google Maps more accurate in predicting travel time and suggesting navigation routes, the app is also proving itself to be a viable player for mobile ad dollars.
According to an Adweek story published last year, Waze’s geo-targeted ads calling out nearby retail locations have proven to be very effective, and big brands like Dunkin’ Donuts, Phillips 66, and Chick-fil-A have been getting on-board.
As Waze CEO Noah Bardin explained at the WSJD Live conference in 2014, brands have “tremendous hunger” to buy mobile ads that aren’t banners.
In 2006, Google acquired Upstartle for an undisclosed sum in order to procure its collaborative-editing online word processor, Writely. This technology was used to create Google Docs, a product that was being used by 90% of Google employees just one month after the Upstartle acquisition.
Today, Google Docs is a key component of Google Drive, a suite of work-related tools that serves to make Google’s email services more sticky and generates incremental revenue from enterprise-level clients.
Google paid $500M in 2014 to acquire the artificial intelligence company, which specializes in creating machine-learning algorithms for simulations, e-commerce, and games.
While we are probably years off from seeing exactly how Google will apply this technology, DeepMind is already breaking new ground. Just recently, DeepMind’s algorithm defeated legendary player Lee Se-Dol in several games of Go, a board game with a great deal of complexity that has been used as a benchmark for the progress of artificial intelligence.
12. Titan Aerospace
Titan Aerospace became one of Google’s most fascinating moonshots when the solar-powered, high-altitude drone company was acquired in 2014 for an undisclosed sum. One of the possible uses for this technology would be to bring internet service to underdeveloped corners of the globe.
Titan’s drones have recently been put to use in Google’s Project Skybender tests, which are attempting to find out whether the drones can be used to deliver 5G service from the air. Eventually, these drones could be the infrastructure for 5G networks globally.
Image credits, in order of appearance: Wikimedia Commons, Factual, TechCrunch, Imgur, Wikipedia (items 5,6, and 7), Per Pettersson, YouTube, Pietro & Sylvia, Imgur, LinkedInIf you aren’t already a client, sign up for a free trial to learn more about our platform.