Google-Android Merger 1

[Cover Page]

I will do this
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Table of Contents
1. INTRODUCTION [HIGHLIGHT KEYPOINTS]......................................................................................3

1.1 OBJECTIVES AND STRUCTURE OF THE REPORT................................................................................................5

2. ACQUISITION OF GOOGLE AND ANDROID.....................................................................................6

2.1 GOOGLE ................................................................................................................................................6

2.2 ANDROID......................................................................................................................................... 7

2.3 ACQUISITION OF ANDROID BY GOOGLE........................................................................................................8

3. CONSEQUENCES OF GOOGLE’S ACQUISITION OF ANDROID..........................................................11

4. RECOMMENDATION/CONCLUSION ............................................................................................ 15
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Acquisition of Android by Google in the United States

1. Introduction

1.1 Development / growth MA in US

Mergers and Acquisitions (M&As) is a corporate strategy utilized by companies for the

expansion and growth of their business in terms of geographic coverage, the scale of operations,

and services/products. Over the past few decades, the corporate world has evolved rapidly in a

bid to overcome the challenges posed by globalization. The United States, being the world’s

largest and most advanced economy, is a classic example of how corporates have adopted and

the practice of merging with and acquiring other companies.

Graph

Analysis of graph

Between 1985 and 2014, the share of mergers among publicly listed companies increased from

just 0.06% to 0.24% per year (Hamiltonproject.org, 2018). Since 1985, there have been more

than 325,000 mergers and acquisitions in the United States, with the total value of the

transactions being about 34 trillion USD. In 2017, the United States set a new record of an

annual total of 15,000 M&A deals, a 12.2% increase from the previous year (IMAA, n.d.). The

record size of M&A deals in the United States took place in 2015, where the total value

transactions were in excess of $24 billion (imaa-institute.org). Taking the history of mergers and

acquisitions in the U.S. into account, the compound annual growth rate (CAGR) for the total
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number of deals between 1985 and 2018, there was a growth in both value and number of deals,

5.32% and 5.86% respectively (IMAA, n.d.). This shows that while the number of firms per

given year is relatively few, the share has increased significantly. The significance of mergers

and acquisitions in the United States cannot be overstated, which is shown in figure 1 below.

Figure 1. Merger and Acquisitions. In the United States as a Share of Firms,

1985-2014

(Source: Hamiltonproject.org)

In the United States, the primary driving forces towards mergers and acquisitions are; entrance to

global markets and financial sustainability (Ekundayo, 2019). In the current digital age, tech is

one of the most competitive yet profitable businesses. In the wake of this development, tech

companies are finding it necessary to merge and or acquire other firms that provide opportunities

to remain competitive and grow. Other factors that highlight the importance of M&As in the
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United States include the need to minimize competition, expand the portfolio of a company,

boost profitability, entrance into the global market (Ekundayo, 2019).

1.1 Objectives and Structure of the Report

Profit and economic sustainability are the primary drivers toward mergers and acquisitions in the

United States. Here, the acquisition of firms that offer profitable prospects remains a major

driving force in the United States corporate environment. In the case of Google’s acquisition of

Android, the Android mobile operating system was an emerging platform that was gaining local

popularity. The global smartphone wave in the digital era was a venture that promised future

success. Thus, in its acquisition of Android, Google sought to not only capitalize on the rising

popularity of the smartphone but also to control a major technology in the future. This report

seeks to identify and present the background of the acquisition, analysis of the organizational

strategies involved, and the consequences of the merger. Through the analysis presented herein,

the author seeks hopes to demonstrate the various lessons that can be learned from the merger

and present conclusions and suggestions with regard to the future of mergers and acquisitions in

the United States.

2. Acquisition of Google and Android

2.1 Google

Google was founded by Sergey Brin and Larry Page while studying for their PhDs at

Stanford University. The two started and incorporated the company as a private firm in 1998 and

remained private until 2004 when it was made public. The company was fully established by

2006 and moved its headquarters to Mountain View. Currently, Google enjoys a large majority

of the search engine market, more than all other search engines. As a leading technology
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company, Google’s key activities are primarily online advertising and search engine services.

Google also owns a number of subsidiaries that offer online video entertainment, operating

systems, besides dealing with hardware and software products and services.

Google’s organizational culture can be categorized as a functional structure, where the

upper management applies value-chain operation measures (Gibbs 2013). Google’s management

team is divided into five departments, which makes management of operations more effective

and efficient. The heads of each of the five departments report to the executive, managerial team,

which reports to the board of directors. According to Towers (2006), the corporate culture at

Google is centered on motivating its employees to take part in the sharing of information with

the aim of supporting and empowering innovation. The culture’s value of innovation has become

a factor that has enabled the company to retain its position as one of the most successful

organizations in the 21st Century. Through its organizational culture, Google has ensured the

performance and competitiveness of its workforce, especially in addressing and meeting its

needs in the business world (Towers, 2006).

2.2 Android

Android Inc. was founded by four developers, Andy Rubin, Rich Miner, Nick Sears, and

Chris White, in October 2003, in Palo Alto, California (Callaham, 2018). During its inception,

Android Inc. intended to develop smart mobile devices that would utilize artificial intelligence to

understand the preferences and identify the location of the user/owner (Callaham, 2018). The

operating system (Android) was meant to be advanced, featuring digital cameras and other media

functionalities. However, the creators realized that the focus on cameras and multimedia

functions was too narrow and would limit the success and applications of the operating system
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(Callaham, 2018). Months later, the founders repurposed the company so that its development

would see the creation of an operating system to compete in the same market with the Windows

Mobile and Symbian systems (Callaham, 2018).

On August 2005, Google acquired Android. At the time, very little was known about the

operating system. However, Google saw the potential of the operating system and its unlimited

applications in smartphone technologies. Upon the acquisition of Android, Google embarked on

the development of a mobile device platform that was powered by the Linux Kernel (Krajci &

Cummings, 2013). Google also started a widespread marketing campaign that promoted the

platform to mobile phone manufacturers and carriers. The promise of an upgradable mobile

operating system became one of the key selling points of the Android operating system. Since

2013, Android has grown to become the bestselling smartphone and tablet O.S. (Holst, 2019).

2.3 Acquisition of Android by Google

Google acquired Android in August 2005, becoming the exclusive owner of Android Inc., a

small startup firm at the time. Upon the acquisition, Google retained all the founders (except

Nick Sears) who would become involved in the development of the earlier versions of the

operating system. When Google acquired Android Inc., there was high speculation that the

company was preparing to enter the mobile phone market. As part of the Google team, Rubin

was given a leading role in the development of the first Android operating system using the

Linux Kernel. The newly developed mobile platform was marketed to mobile phone

manufacturers and carriers who embraced the idea of a customizable and upgradable system. In

Late 2018, Google introduced Android 1.0 to the world, announcing that the platform would be

available to the public moving forward. This acquisition took place during the sixth M&A wave

(2003-2008), which was characterized by shareholder activism, private equity, and globalization
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(Alexandris et al., 2012). The dotcom bubble had seen a technological revolution which spread

to most parts of the world. Google’s acquisition of Android served to cement its status as a

global player that could deliver profits to its shareholders. Google’s risk of investing in a new

startup can also be related to the emergence of private equity, which is one of the key

characteristics of the sixth wave.

Mergers and acquisitions are both practiced by firms in management, strategic management, and

corporate finance. They involve selling, buying, combining, and dividing different firms or

sections of firms (Creighton, 2015). In their strict definition, mergers and acquisition vary in a

number of areas, especially when it comes to the terms involved, and the post-event operation,

and the management of the firms involved (Creighton, 2015). As the name suggests, mergers

involve the combination of two business entities under common ownership, or where two firms

come together to combine and share resources towards the realization of a common goal (Coates,

2014). On the other hand, acquisitions involve the takeover or purchase of a company or

business by another company or enterprise entity. Here, the acquisition may involve the purchase

of either 100% or near 100% of assets owned by the acquired enterprise or firm (Coates, 2014).

In most cases, acquisitions involve a larger and more established company acquiring a smaller

firm or business entity, like in the case of Goggle and Android discussed herein.

Google’s acquisition of Android falls under the “strategic merger” category, which refers to the

strategic holding of the acquired (target) firm because of its long-term prospects. This type of

M&As targets the creation of synergies in the future through an increased share of the market, a

broader customer base, and improved corporate strength of the acquired firm (Kim et al., 2011).

A strategic acquirer may be willing to pay a premium amount when purchasing a startup or less

established firm or business entity, and target to capitalize on its future success, arising from
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accumulated value post-M&A (Porter, 2002). This approach is explicitly exhibited in the case of

Google’s strategic acquisition of Android. In 2005, Google paid around $50 million for the

acquisition of Android, a startup that was valued less than a fifth of the amount paid at the time

(Kumar, 2012). Over the years, Google’s exceptional marketing and innovation have built

Android into a global brand, and one of the most profitable business ventures in recent corporate

history.

3. Consequences of Google’s Acquisition of Android

Profit is the primary target of every business activity. Companies must, therefore, consider the

financial prospect of taking part in mergers and acquisitions. According to Fiorentino and

Garzella (2015), M&As must be evaluated and weighed so that the cost of acquisition is

compensated with an increase in the value of acquired assets. In the long-run, the returns of

acquisition must have a considerable profit margin in order to be deemed profitable. That said, it

is important to note the risk-taking aspect of strategic M&As. Unlike horizontal and vertical

M&As, where returns are immediate, strategic acquisitions take time before a significant profit

can be realized (DePamphilis, 2019). In the case of Google and Android M&A, the former risked

$50 million because of the prospects of the latter, given the prevailing circumstances. In this

regard, Google went on to acquire Android Inc., while being aware that the success of the

Android O.S. was not guaranteed. However, considering the shifts in mobile phone technology,

consumer trends, and the possibilities presented by the Android O.S., the potential for success

was a major factor that shaped Google’s decision-making. Besides, Google had launched its first

IPO a year earlier, which gave the company financial freedom going into the Android venture.

All factors considered, the acquisition of Android was a risky investment, which explains why
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many investors turned down the founders. Thus, it is important to acknowledge Google’s

decision making leading to the acquisition, which leads to the managerial aspect of the M&A.

(Mobile O.S. Market share as of 2017)

(Source: Asim et al., 2018)

Managers are tasked with various roles, all of which converge to a single goal of promoting and

achieving organizational success. Mergers and acquisitions are handled by top management,

which comprises the top leaders of an organization (Junni &Sarala, 2014). While managers at

various levels are involved in varying degrees, the executive managers are the ones who make

the final decision. Depending on the financial significance of the venture, M&As can range from

a formality to a career-defining moment for managers (Junni &Sarala, 2014). In the case

discussed herein, the decision to acquire Android was a defining moment for Google’s

management. In retrospect, the decision has been applauded and praised because of the resulting

success. However, if the acquisition was not successful, the company would have experienced

adverse consequences.
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3.2 Managerial perspective

The effectiveness of Google’s managerial strategy can be seen in two actions during the M&A.

First, the company retained the founders and gave them incentives to ensure the target of creating

a game-changing Android O.S. was realized. Second, the marketing strategy of Google saw a

successful entrance into the market. Skaff (2020), notes that Google’s unconventional

approaches to every managerial aspect are the reason behind their success. For instance,

Google’s direct listing of targeting potential investors led to a successful IPO in 2004 (Skaff,

2020). To overcome the hurdles of investor uncertainty and increase consumer interest, Google

employed another risky approach. Here, the promise of an upgradable operating system became

a selling point in marketing, albeit the Android O.S. being a flagship product whose capacity for

consumer appeal was unpredictable. From a managerial perspective, the acquisition of Android

Inc. highlights the effectiveness of Google’s management, which is also reflected in its corporate

culture (Tran, 2017).

The economic benefits of strategic acquisitions are dependent upon the eventual outcome

in terms of profitability and sustainability of the acquisition. Here, the increased value of an

acquisition or lack thereof determines the impact of the activity on the local and regional

economies (Bardi &Garibaldo, 2001) In the case of Google and Android the success of the

operating system has had a significant impact on both the United States and global economies.

To understand the extent of the economic impact, several developments must be acknowledged.

First, the efficiency and functionality of the Android O.S. have improved the economic

productivity of billions of people across the world. Second, Android has created employment for

developers across the world. Lastly, the success of the Android acquisition has influenced the

corporate environment in the United States. For instance, since Android’s entrance into the
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market in 2008, Google has acquired at least ten major firms, including AdMob, YouTube,

Motorola Mobility, Looker, and Fitbit (C.B. Insights Research, 2019). These acquisitions by

Google suggest that the company was emboldened to take more risks in the aftermath of

Android’s success.

(Source: Statista.com)
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4. Recommendation/Conclusion

Google’s acquisition of Android Inc. is one of the most monumental managerial

decisions of the 21st Century. The strategic acquisition of the startup, coupled with effective

management, a healthy organizational culture, and marketing, led to one of the most inspiring

corporate success stories. Android’s success highlights the importance of effective management,

an employee-centered corporate culture, and a futuristic approach when making investments.

Another lesson that can be derived from the M&A is that greater risk has greater rewards.

Google’s strategic risk-taking guided the company to invest in a program that many investors

had turned down. That said, investors and managers should first understand the prevailing

corporate conditions such as consumer trends and market potential before making acquisitions.

Through this understanding, they can be able to make informed decisions that avoid losses and

maximize profit potential.

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