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Google's Acquisitions a Prime Example of Why It Will Crush Apple

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When Google (NASDAQ: GOOGL  ) plopped down a reported $1 billion on Waze, much was made of what the social media-driven maps tool would add to Google's bevy of solutions, and rightfully so. Unlike some past acquisitions -- think Motorola Mobility -- the feedback following its recent purchase has been mostly positive. But the acquisitions themselves aren't the story; it's what they say about Google as a company and its culture, and why it's largely viewed as an aggressive innovator willing to try things others haven't even considered. If Google's experiments with self-driving cars don't persuade you, one glance at the bizarre-looking Internet balloons floating over New Zealand should.

By contrast, Apple (NASDAQ: AAPL  ) has made no secret of its strategy over the years for acquisitions: Keep them small and don't say anything unless absolutely necessary. Is it a coincidence that much of Apple's poor stock performance the past several months is due to a perceived lack of innovation? The Waze deal, one in which CEO Tim Cook -- the ex-supply chain guy -- made it clear Apple had no interest in, is a glaring example of what separates Google from Apple. And for iFans, the differences should be alarming.

A few Google acquisitions
Unlike Apple, which seems unwilling or unable to admit "needing" anything from anybody, Google has no qualms going after what it deems future opportunities. The $1.65 billion deal to buy what was then a small online video site called YouTube is a prime example. Google didn't let its ego get in the way of what it wanted; it just went out and got it.

Seven years ago, YouTube was a tiny concern just beginning to make some noise. But even then, Google CEO Larry Page called it "the next step in the evolution of the Internet." So what does Page do? Outbids the likes of Microsoft and Yahoo! (NASDAQ: YHOO  ) because he recognized it was a great opportunity. Though Google doesn't report YouTube results separately from its gross figures, a Morgan Stanley analyst suggests it will generate about $4 billion in revenue this year, and as much as $20 billion by 2020.

I can see Apple in that same YouTube bidding scenario simply walking away, just as it did with Waze, mumbling, "Don't you know who we are?" Apple's acquisition reluctance goes back years to Mr. Apple himself, Steve Jobs. According to a banker colleague, Jobs thought, "acquiring a company was a sign of defeat, an admission of failure to innovate." That, in a nutshell, is why Google will continue to blow the doors off Apple.

Most everyone with a smartphone has heard of Google's Android OS, easily the world's leading operating system. What some may not know is that Google didn't develop Android in-house. Google recognized its potential and went and bought it in 2005. Was that a "sign of defeat"? Safe to say Google couldn't care less.

Google fans are probably familiar with AdSense, the primary source of the company's enormous revenue. When Google acquired little-known Applied Semantics, it was as much for its talent as its technology. Turns out the Applied team developed AdSense, and the rest, as they say, is history.

A prime example of what acquisitions say about a company is Yahoo! There are reasons Yahoo!'s up about 32% for the year, and one of them is its aggressive acquisition strategy and CEO Marissa Mayer's plans for the future. The $1.1 billion spent on Tumblr made the biggest splash, but by no means was it Yahoo!'s only move this year, nor is it the last. Yahoo! is in a fast-moving industry that requires constantly upgraded offerings, and investors recognize that Mayer understands that and is doing something about it.

Apple has certainly had its share of acquisitions over the years, too, but outside of Siri, with its voice recognition capabilities and it's positive impact on iPhone sales, few have been real game changers. Whether Apple's lack of aggressiveness is left over from Jobs' abhorrence of all things M&A, an ego that won't allow it to admit "defeat," or a combination of both, doesn't really matter at this point. What should matter for investors is if Apple can change its tune. If not, Google and others willing to check their egos at the door will leave Apple in the dust.

Dropping $12.5 billion for Motorola Mobility and a reported $1 billion for Waze, along with all the other items on Google's long list of acquisitions, says as much about Google as it does about the companies it's purchased. Google is quickly becoming what Apple once was: a dynamic innovator in an industry that demands it.

As one of the most dominant Internet companies ever, Google has made a habit of driving strong returns for its shareholders. As it continues to explore new technologies and opportunities, it's more important than ever to understand each piece of Google's sprawling empire. In The Motley Fool's new premium research report on Google, we break down the risks and potential rewards for Google investors. Simply click here now to unlock your copy of this invaluable resource.

Read/Post Comments (8) | Recommend This Article (3)

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  • Report this Comment On June 15, 2013, at 3:02 PM, applefan1 wrote:

    Google buying Waze is going to crush Apple? How?

    Yeah right. Google can't even get much more than 4% of the total Android using population to actually use their latest version of OS. That's pretty pathetic.

    Apple doesn't like having to advertise their acquisitions because they don't NEED to get attention that way. Google tries to get attention where ever, when ever and how ever they can because they don't really have a compelling story once you start peeling away the layers of BS.

    Selling mostly cheap, low margin, no profit smartphones using the Android OS isn't that big of a deal. These smartphone mfg can't sustain their company if they are relying on cheap products that don't make any profit just to "buy" market share.

    What's more important? Profitability or market share?


  • Report this Comment On June 15, 2013, at 3:04 PM, applefan1 wrote:

    Motorola hasn't done anything innovative. All they've done is lose money. So far, Google buying Motorola did NOTHING.

    Do you have any idea how much actual profits Motorola mobility represents and how long it's going to take in order to recoup that? Has Google done their write down for Motorola? They may have some big write downs in the future for that turkey.

    The problem Google has is they are spending too much money on these acquisitions with no real ability to recoup that money from those investments.

  • Report this Comment On June 15, 2013, at 3:10 PM, jrogowsk wrote:

    Some how acquisitions have been confused with innovation. If this were the case, then we would be reading this on the AOL-Time Warner Internet. Google has made good use of prior acquisitions, but there have been some poor ones as well. Do you recall Jambool Social Payment Platform, or dMarc Automated Radio Ad Placement. The question as a stock holder is where best is the money spent. Google feels Waze provides a means for real time map data. However I believe that if Apple wanted such data, they could offer one billion persons a free song to keep their map app on while they are running errands.

  • Report this Comment On June 15, 2013, at 3:14 PM, Jjkiam wrote:

    Agree with the central premise that Google is making both offensive and possibly with Waze defensive aquisitions to protect the moat around it's businesses. The biggest disappointment of the WWDC was no clear leap forward for Apple's Maps. Marginal improvements and a public admission that it has a ways to go . Well Waze might have helped in a big way to really begin integrating crowd sourcing into their app. But guess what that will now be google.

    Surprised the author didn't make a bigger point about the 2 fundamentally different approaches to innovation -google very transparent and early to offer beta input which can lead to unanticipated improvements from the input vs Apple's completely secretive and opaque R&D. This is why their Maps release was such an unmitigated disaster which easily could have been avoided with more Beta testing. Really a great example of the insular arrogance that apparently has infected the company's culture.

    So in the end are we really watching a great example of the old adage " Pride cometh before a fall "

  • Report this Comment On June 15, 2013, at 3:22 PM, ronrapllc wrote:

    Apple has around 130B vailable in liquid cash reserves and we are to believe because they didn't make a 1B purchase of Maze they will be crushed? You guys are Fools for a reason.

  • Report this Comment On June 15, 2013, at 5:01 PM, cy7878 wrote:

    Funny how quickly people forget history. Cisco bought every company insight in ten years ago and almost went bankrupt. Worldcom did pretty much the same thing then and look where they are now.

    Google has a great business model and I'm not saying it's going to follow Cisco or worldcom. But comparing Apple to Google is like comparing Google to Boeing. Not exactly the same thing.

    Another case in point. Apple and Samsung. Look at what's happening to them now...

  • Report this Comment On June 16, 2013, at 2:37 AM, kevins71 wrote:

    One more thing the author missed, yes Google did not develope Android, this is true. BUT, Android's initial purpose was not to be used in smartphones. Only "after" the CEO of Google and board member of Apple physically see the iPhone did they change Android's original purpose to an mobile OS.

    Also, I'd like to point out the Android is the worst mobile OS in history when it comes to security, Malware, Viruses, and Trojans, it is only rivaled by Windows in security flaws.

    I'd also like to point out that only 22% of Android users are running the latest version of this so called mobile OS. Meanwhile, Apple enjoys a 97% usage of its latest OS.

    A shoddy, swiss cheese OS and fragmentation in the worst way is the Android world. I don't think a "maps" app is going to kill Apple any time soon, they are the second most valuable company in the world remember. Especially since Google maps on the iPhone sucks and is terrible slow and inaccurate.

  • Report this Comment On June 17, 2013, at 7:40 AM, jdmeck wrote:

    A load of garbage. The two companoes really do not compete where it counts. Apple makes products, Google sells services. Apple takes a bite of Google, Google does not take a bite out of Apple.

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