- November 6, 2019
- Posted by: Ramkumar
- Category: Mergers And Acquisitions
Effects of Big Tech Acquisitions
Leading tech giants including Google, Amazon and Facebook have used acquisitions as a strategy to eliminate competition and expand their market share.They have acquired companies that could have been potential competitors to them in the future.
It is no wonder that many of these companies are subjects of regulatory scrutiny.There have also been recent clamor that these companies should be broken up in order to reduce their monopolistic power in terms of pricing and market share they have been enjoying.
Google’s recent acquisitions
Google recently acquired Fitbit for $2.1 billion.The acquisition has sparked concerns of US lawmakers as this acquisition gives Google access to customer’s most sensitive information such as their heartbeat and location data.
This proposed transaction could compel the regulatory authorities enforce the antitrust law to halt anti-competitive concentrations of economic power.
The rationale behind Google’s acquisition of Fitbit is to bolster its hardware lineup, hence it is a complementary acquisition. This can also attract antitrust law because complementary acquisitions leverage growth and eliminate competing startups before they become the next Facebook or Google. For instance, Facebook acquisition of Instagram in 2012 for $1 billion is currently under the focus of an FTC probe and this acquisition was also complementary as they offered products that benefit customers.This FTC probe was confirmed by Facebook’s Chief executive Mark Zuckerberg in a conference call with Wall street analysts.
Google has a voracious appetite to acquire startups and had acquired more than 270 startups between 2011 to 2014.Some of these startups were direct competitors of Google like YouTube, DoubleClick – An online advertiser and AdMob – A Mobile advertising company. In this year, Google acquired Looker to strengthen its Google cloud business.None of these acquisitions were challenged by the government with one exception – Travel search firm ITA which was also conditionally approved subsequently.
Currently Google is under the regulatory microscope after it began receiving Civil Investigation demands from the US Department of Justice requesting information and documents pertaining to their prior antitrust investigation in US and other countries.
Facebook recent acquisitions
Since 2007, Facebook has acquired more than 100 companies that included WhatsApp and Instagram. It is baffling that none of those acquisitions were challenged by the Federal government. Among these 100 companies that Facebook acquired, it had shut down around 39 companies that potentially could have represented future competitors.
Recently Facebook acquired CTRL-Labs – A startup that would let people control computers with their brains.
The rampant speed in which Google and Facebook have acquired companies to expand their digital businesses into hardware, artificial intelligence, digital health, mobile advertising and videos are consistent with platform companies acquisition strategy to buy companies to expand their personal data.For instance, Fitbit acquisition will benefit Google advertising with health adjacent data.Though Google had promised that it would not use the Fitbit customers data to target ads, it is an area that would be under the scrutiny of antitrust agencies.
Next step regarding Big tech acquisitions
As far as investors are concerned, what they really are interested is in the healthy stock gains for these tech giants this year.The gains may not last for long as the regulatory uncertainty will further increase and can have an impact on the valuations of the tech giants and on the sector’s performance.