Google's $3.2 billion acquisition of Nest on Monday was a reminder of the company's penchant for taking bold risks, but also illustrates the opposite point about Apple, a company that has grown increasingly risk-averse.
Apple's biggest purchase last year was Topsy, a purveyor of Twitter-based analytics that cost the company $200 million. Google's largest acquisition of 2013 was Waze, the Israel-based producer of real-time traffic data, which cost 5X that amount. To obtain that prize, Google had to outbid other
potential suitors including — reportedly — Apple.
Since Nest was created by two former Apple execs and the company's products exhibit an elegant design aesthetic, Nest would appear to be a natural fit for Apple. However, Tony Fadell, Nest's founder and CEO,apparently doesn't get along with Apple design guru Jony Ive. More significantly, Apple's attitude about acquisitions has been to keep them small and unflashy. This reflects the belief of Steve Jobs, who, as the story goes, thought buying companies was a sign of defeat and an admission of failure.
It's hard to see how that applies to, for instance, Google's $1.6 billion acquisition of YouTube in 2006. Perhaps Google was admitting at the time that it had failed to foresee the growth of web-based video, but eight years on, who cares? If Google hadn't bought YouTube, the company would likely be a formidable competitor, perhaps on the pantheon of Apple, Google, Facebook and Amazon. (That is, if the lawyers didn't drown YouTube in its crib; you could also argue that YouTube might not have continued to exist without Google's legal team.)
Among Google's other top acquisitions since that time:
- Motorola ($11.5 billion)
- DoubleClick ($3.1 billion)
- AdMob ($750 million)
- ITA Travel ($700 million>
- Postini ($624 million)
And here are Apple's:
- Anobit ($390 million)
- AuthenTec ($356 million)
- PrimeSense ($345 million)
- P.A Semi ($278 million)
- C3 Technologies ($267 million)
The first thing to note is that the acquisitions are much smaller than Google's. But while Motorola and ITA Travel helped Google enter new segments (hardware and travel, respectively), Apple's are designed to help the company to fill in gaps in its existing products and services. Topsy is a notable exception. That said, Apple has stepped up its pace of acquisitions — there were 15 in fiscal 2013. That's now around the same number as Google, which bought 18 companies in calendar 2013.
Apple's limited acquisition strategy also makes little sense when it's sitting on a mountain of cash that's roughly three times the size of Google's. (See chart.) The amount so huge that it has no choice but give some money back to investors. That's the strategy of a mature company, not one that's trying to optimize growth.
This cautious, arrogant approach has prompted Apple to cede an early lead in wearable computing to Google with Glass. Now, Apple has also given its rival an advanced beachhead in the burgeoning Internet of Things segment. This comes as Google is thoroughly dominating Apple in smartphones, has effectively countered Apple TV with Chromecast and is even outselling Apple in desktop hardware. Google's free hand with acquisitions doesn't please everyone — Motorola is still a sore point with investors — but it's hard to argue that the strategy has hurt Google's growth.
Apple's response to Google's ambition has been to perfect its existing products — faster iPhones, Macs and iPads. This has yielded a state-of-the-art product line, one that is deliberately limited. That's fine if Apple wants to once again become a high-end niche brand but Apple rather incredibly became a mass market provider of smartphones and tablets in the last few years.
Perhaps that was a quirk of history. One thing is for sure: Google has a wildly different strategy. In an age in which consumers buy into ecosystems as much as they buy products, Apple's cautious perfectionism may be sidelining the company.
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