Apple (AAPL) has traditionally been a very conservative player in the often very cowboy world of Silicon Valley acquisitions. Perhaps it was the lack of dominance in the market or a business philosophy but up until very recently Apple was cautious and calculated. The past 12 months has marked a drastic change of pace. Apple has purchased mobile marketing company Quattro Wireless after being stymied by Google (GOOG) in an attempt to buy AdMob, music streaming service LaLa, microprocessor design company Intrinsity, and mobile search company Siri. The torrid pace with which Apple has been buying companies has almost outpaced traditional start-up buyer Google.
But what does this all mean? Why, as Apple news site AppleInsider reports, has Apple engaged a Goldman Sachs investment banker to help in its mergers and acquisitions work? The types and rate of acquisitions point to three areas.
AppleInsider notes one of the main reasons Apple has gone on such a purchasing spree is to engage in a type of arms race with Google. Apple understands its main competition is not Microsoft any more, it’s Google. With Google aggressively moving into the mobile space with Android, the Nexus One, and a rumored upcoming tablet; Apple understands they are quickly coming into direct conflict with a company that has the money and will to compete with it on any field of battle. Apple also understands that passing on a company they might only be mildly interested in would leave them open to purchase by Google. Better to buy a company, acquire its human resources and intellectual property, and let it go fallow then leave it open to development by Google. It’s conventional wisdom that Apple bought LaLa to develop an “iTunes in the cloud” type of product. It’s equally as probably they just bought to deny Google the property.
The second reason for the recent acquisition spree centers around money and Apple’s ability to spend it. It’s widely regarded the two companies in Silicon Valley with the largest war chests are Google and Apple. The twin factors of Apple’s previously cautious nature and the wild success of their iTunes-iPhone ecosystem has left them with a large pile of cash to play with. It has been reported Apple has a portfolio of liquid investments worth approximately $41 billion USD. At no other point in its corporate history has Apple had the raw ability to buy companies that enhance its product lines. No longer relegated to picking and choosing who it acquires, Apple now has the cash to quickly expand and capitalize on its success. Apple finds itself in the enviable position of having cash and a popular product line that is ripe for expansion and market dominance.
And that leads to the last point. Apple has never had the need to quickly acquire companies before now. All of the internal moves Apple has made since the 2007 introduction of the iPhone have led to this moment. Now that Apple has built their move into mobile into the twin pronged success of the iPhone and iPad, they’re moving quickly to cement that move into long term success. That means taking over the means of hardware design and production (Intrinsity), developing in-house applications that replace the competitors on your platform (Placebase), and further extending your current ecosystem into new spaces without drastically changing its profit model (LaLa). It will be interesting to see what further acquisitions Apple has up its sleeve. While they may not indicate immediate changes to what Apple is doing, they certainly indicate a future direction.
What do you think of Apple’s recent acquisition spree? Are they buying companies to expand and increase their reach or simply to deny Google? Let us know what you think in the comments section.