Three Types of Acquisitions
cdixon.org
cdixon.org
IMHO, in the tech industry, I observed many times that if a company acquires another purely from a business perspective, it is either:
(a) Customer/Market - The acquired company has a huge and highly desirable market share,demographics,etc that the bigger company would like to "acquire". Also sometimes, it is simply to get the "pageviews". I.e. Google acquiring Blogger/Blogspot (community) or the myriad of blogging companies that AOL has acquired (market share).
(b) Expanding - The acquirer would like to expand from their core business and the best way to do this to acquire a company that is the best in the field. I.e. Apple acquires Quattro (advertising), Google acquires Android (mobile).
> An important component in this calculation
> is not just the actual cost to build the
> technology but the opportunity cost of the
> time it would take them to do so.
Of course the time to build the technology is part of the actual cost.
The opportunity cost might be the value derived from developing it in-house or acquiring a competitor.
Factoring in the opportunity cost may make buying a more attractive option. Keeping opportunity cost in mind can help the seller get a much better price than they would if they just considered the acquirer's cost to duplicate heir technology.
Now I understand that "time" can also mean time-to-market, and I see how that can turn into an opportunity cost. Thanks!
The former is like "spent time", but the latter is like "lost time".
Of which more than 90% will go to the founders and investors. The engineers being bought for $1M will be lucky to get $100K out of it.
Anybody out there want to justify or at least explain this practice?