Blog Post

The new guard: Look at who is buying technology companies now

A few days ago, I pointed out the inevitability of the Internet and how it was going to play an increasing role in the companies that have traditionally not been classified as technology companies. Those companies — big and small — are going to find it difficult to find a future without utilizing technology. And that means embracing mobile, cloud, data and the state of connectedness.

For me that is one of the more exciting developments over the last few years and it should excite everyone in the technology ecosystem, especially startups. Traditionally, the buyers for startups have been the big tech companies themselves — Facebook (s fb), Google (s goog), Yahoo (s yhoo), Microsoft (s msft) and sometimes Amazon (s amzn) and Apple (s aapl). Sure Cisco (s csco) would pony up some big dollars or HP (s hpq) would get drunk and blow its cash on something, but the big buyers for the web-and-oriented startups have usually been big web & mobile giants.

Now we are seeing the emergence of a group of companies who seem to be hungry buyers for technology. Just take a look: we are not even ten days into 2013 and we have already seen had two big acquisitions by what we in the Valley don’t see as technology companies. Avis bought ZipCar for about $500 million and today Athena Health announced that it was spending about $293 million on a doctor-focused app/service called Epocrates.

I wouldn’t be surprised if we see more of this in coming months. Why? The reasons are not that complex actually. Typically the tech giants buy startups (loosely speaking) in order to acquire talent and in very rare cases, technology (like Apple buying Siri). But for the most part, the motive behind Internet giants’ buying frenzy is mostly about finding the right people to keep competing with their rivals.

The big non-technology companies have similar needs but they are in much more desperate need of this makeover. Not only do they need the talent, these traditional corporations need a new technology-centric way of thinking if they need to evolve their business models for the post iPhone world.

Today a retailer like Macy’s or Walmart can get by on the strength of their scale and might. However, if in the future they need to combat Amazon, they need to adopt internet business practices and use data intelligently. My colleague Derrick Harris recently wrote that big data technologies, at least for now, are like manufacturing robots — helping people do things they do, faster, at a larger scale and cheaper than alternatives.

A physical retailer of tomorrow would somehow have to create a compelling app experience and use that data, geo-location information and buying habits to offer in-store discount (or a shopping experience) that is highly customized to an individual. If they don’t — well, Amazon or someone like Amazon is going to get my dollars.

Today it might not seem obvious, but a year or two from now, companies big and small are going to realize that emergence of mobile and other newer technologies are going to redefine the a business experience. As Ed Aten in a guest post pointed out this weekend, all businesses are now 24-hour operations. “The offline world is filled with friction, inefficiency, incomplete information, tedium and excess capacity,” he wrote. And that also means inefficient businesses and other edifices of a different era.

Think of this way: Today, a problem with your local Starbucks isn’t localized. Thanks to Twitter and Facebook, the internet is the new weapon of mass complaining. Price checks conducted via mobile apps are going to become a default behavior, especially as a whole generation of internet users (natives) grows up to become the next big consumer group.

To be clear, I am not saying that the traditional companies will stop doing what they do. It is just that they need to do it much more smartly, using technology and understanding that the internet is as much a business reality as say outsourcing or scale. A friend explained it best when he said that the U.S. auto industry in the 1970s and 1980s suffered because of process innovation at their Japanese counterparts. The state of connectedness is a similar kind of reality for businesses — all of them, including those in technology industry.

So startups, the next time someone asks you, “who is a potential buyer?” Just say, “We don’t know. It could be anyone.”

17 Responses to “The new guard: Look at who is buying technology companies now”

  1. Maarlon1

    Really great insight. This is happening quietly, that’s why most ‘old’ companies (and majority of public) don’t realise this fundamental change.

    At today accelerated pace of change of everything around us, who knows who will own whom, how soon and how will old industry or niche look after change. Exciting times definitely.

  2. Om excellent article and great example “A physical retailer of tomorrow … that is highly customized to an individual”.
    Intuition Intelligence, Inc’s iCube Super Relevancy engine can already do it for retailers in their Smartphones and other digital channels.
    Wipro Technologies recently launched “SmartOffers” in partnership with us for Financial Services.
    – Yusuf Ansari
    Founder, Intuition Intelligence, Inc.

  3. “Tech Company” is a redundancy for any large enterprise market. Avis didn’t buy a “Tech Company” by buying Zip Cars, they just bought a company that did a better job of reaching a specific demographic by harnessing a newer utility.

  4. Adam Richards

    Great article and of course many offline publishers will be buying these new digital media orgs…My top 10 list for acquisition targets in 2013 are (alpha order):

    Twitter (or IPO)

  5. realist50

    Question with respect to Amazon, however: does Amazon actually have a sustainable business model, at least with their current pricing?

    I say this as someone who personally likes Amazon as a consumer. Look at any financial metric, however – margins, net income, return on assets, and return on equity are all anemic. I can’t see why the company should have a market cap of anything like $120 billion. The counterargument from Amazon bulls is that the company is investing for growth. My issue with that line of reasoning is that a company with over $50 billion of annual revenue should have sufficient scale that profits from the core business easily fund growth initiatives – particularly when annual revenue growth is in the mid-20% range.

  6. Michael Sinsheimer

    This trend makes sense from both a talent perspective and a complementary channel approach where bricks and mortar approach can be integrated with a more comprehensive online presence. We are providing a new channel for sellers to sell goods with our user driven platform at our newly launched beta site Flash Purchase.

  7. Newcastle Martin

    I dunno. A great many enterprise software deals are still done for user base/licence revenue and for economies of scale. Gettign smart people or tech is secondary in that world of glorified financial arbitrage.

  8. There are more worthwhile conversations to be had here, IMHO. By extension one could call Google a media company, and not tech. All these companies straddle multiple worlds, some just get “social tech”, the 3.0 of Tech.

  9. The AthenaHealth purchase of Epocrates made sense and glad someone picked them up before they went away as finding all those formularies and what tier the drugs are is a huge asset and I have been using it since the Palm days. Mergers and acquisitions in healthcare are brutal and I see people relating that that doesn’t relate to sell “stuffed analytics”..scary and FICO is a big one that uses your credit score and queries it with data mine and won’t review the sources to create this magical report that scores you from 0 to 500 on whether or not you will be a patient who will take their prescriptions. I know it sounds nuts but it’s out there and they are selling this. I don’t care if someone wants to crunch numbers but when you combine credible heatlhcare information with non credible nonsense mined from the web with sources not given, I call it Algo Duping.

    Even Google as this is funnier than all get out suspended my Google Plus account until they fixed it saying my name did not meet their policies.

  10. keninca

    I don’t see why ZipCar is any more of a tech company than Avis. Both rent cars, and both have websites that let you reserve the cars. Both are dependent on computers and the cloud. Both employ armies of programmers and engineers. So why is ZipCar a tech company and not Avis?

    • Elias Carlsson

      Good point, although I wouldn’t consider any one of the two as tech companies. They both fundamentally offer an analog service. One of the reasons for the acquisition was indeed to get a talented network of programmers on-board, but more importantly to cover another promising part of the car rental business.

  11. Ariel Di Stefano

    Om, you should come to see Shopperception Demo at the PrimeSense booth in CES to experiment what you write about retailers data needs :).

    We use 3D sensors to generate analytics and real time events of shoppers interaction in front of the shelf. (

    Our technology level the battlefield between off line retailers and ecommerce.