Google Inc. Chief Executive Officer Eric Schmidt has doubled the anticipated pace of acquisitions this year and expects to maintain that rate after some internal projects have failed to spur growth.
“The opportunities are there,” Schmidt said in an interview from the company’s Mountain View, California, headquarters this week. “We can afford it. We’re in a mode of investment for the long term.”
Google, the search engine with almost two-thirds of the U.S. market, is making acquisitions every couple of weeks -- more than the once-a-month pace Schmidt projected when it began buying companies again last year after the recession. Its latest deal was last week’s purchase of Slide Inc., which makes games for social networks.
The company is snapping up startups in social networking, mobile technology and graphical advertising -- areas where its homegrown efforts needed outside help. Google still gets more than 90 percent of revenue from its traditional advertising business, and it’s stopped work on projects such as the Wave collaboration site because they didn’t bring in enough users. The company also has struggled to keep pace with the growth of Facebook Inc.
“They’re trying to keep up with a rapid rate of innovation in the online world,” said Clay Moran, an analyst at Benchmark Co. in Boca Raton, Florida. He recommends buying the stock, which he doesn’t own. “One way is to that is through external sources. You could certainly argue that they haven’t been able to do it internally as well as they would have liked.”
Antitrust Regulators
Increased antitrust scrutiny adds a hurdle to acquiring more companies. That won’t deter Google from seeking out deals, Schmidt said. The company’s purchase of AdMob Inc., which made it the largest U.S. seller of mobile advertising, won clearance from the Federal Trade Commission in May after months of review.
Last month, Schmidt said he expects a “significant review” for Google’s planned purchase of search-data provider ITA Software Inc.
“We will do the right thing for end users, and we will fight the other issues second,” he said. “We will go after it. We will try to convince everybody that we’re right.”
Google has announced or completed at least 18 acquisitions this year, following the purchase of about five companies last year, according to Bloomberg data. In most cases, Google didn’t disclose terms.
Cash Hoard
Using cash to buy startups is better than letting it sit on the balance sheet, earning a low interest rate, said Andy Miedler, an analyst with Edward Jones in St. Louis. Google had more than $30 billion in cash and marketable securities at the end of the last quarter.
“For quite a while, growth is mainly going to be driven by search,” said Miedler, who advises buying the stock and doesn’t own it. “We need to see the next leg of growth.”
Google’s internal research, which cost $2.84 billion last year, has a mixed record of creating growth opportunities. The Wave service, introduced last year in a bid to change the way Internet users share documents and photos, was discontinued this month because of slow adoption.
In social networking, Facebook has eclipsed Google’s efforts. Google’s Orkut network had 54.6 million users worldwide in June, up 5 percent from a year earlier, according to ComScore Inc. in Reston, Virginia. Facebook had about 10 times that amount and grew more than 60 percent during the same period. Google’s Buzz, a social service tied to Gmail that debuted in February, hasn’t threatened Facebook’s dominance either.
Stock Drop
Google’s shares have slid 19 percent this year, compared with little change for the S&P 500 Index. The stock fell $1.64 to $503.71 yesterday on the Nasdaq Stock Market.
The purchase of Slide will boost the company’s social- networking technical knowledge, Schmidt said. The deal follows the acquisition of Aardvark early this year, a search company that includes social features. Even so, Google isn’t trying to create “another Facebook,” he said.
Schmidt declined to give specifics on what Slide will do for Google. The company already includes social elements in many services, such as Gmail, Google Docs and its photo site Picasa. Google paid about $200 million for Slide, according to people familiar with the matter.
“The answer is not knowable by me today -- that’s why we bought them,” Schmidt said. “We will discover it together.”
Taking Risks
Schmidt’s ability to manage multiple products in various stages of development will serve him well as the company looks for new areas of growth, said Tim Armstrong, a former Google executive who now runs AOL Inc.
“It takes an ability to keep taking risks,” Armstrong said. “Eric has done a good job of continuing to take bets. If you look at most major companies over long periods of time, the only way to make a company successful at Google’s size is to innovate within, acquire and have the combination of innovation from within on top of an acquisition.”
Strong mobile growth markets will be in those territories that have a rising financially strong middle class, so called BRIC countries -- Brazil, Russia, India and China.
