In case you've been living under a rock, the last month or so has basically been all about acquisitions in Technology. It basically started off with Dell purchasing EMC, then Western Digital buying SanDisk and Trend Micro buy HP's TippingPoint team. It's been crazy lately with all this! Big companies are getting bigger. But why is this happening and what are us as consumers and businesses getting out of these deals? I've been thinking about this since news of the Dell and EMC deal went public. At that time, I wasn't sure, but with the others, I think I do now.
What I believe it ultimately comes down to is survival of the fittest and economy of scale. Technology is getting more advanced, smaller and cheaper. With technology getting cheaper and smaller, that puts quite a strain on research and development. The reason being is that it's getting harder to keep up with Moore's Law. Companies have to put more money into R&D to keep making things smaller, all with diminishing returns on those investments.
Then there is the economy of scale. With things getting cheaper, that means there needs to be more of it with services on top of that for companies to make a profit off of it. Microsoft, Amazon and Google all know this lesson and know how to take advantage of it. They make their money by offering free or cheap services and offer those to millions and billions of people. To be able to maintain those services, it requires a huge investment in infrastructure.
How do those two ideas combine to lead to all these acquisitions? It comes down to companies needing to maintain a competitive edge. An idea I've discussed with other's before is that the main reason for acquisition is so the more successful company can move into a new direction faster than if they did it on their own. A good example is Facebook and Oculus Rift. Facebook wanted to get into VR, because they believe the future of social is VR. Why go through the time, hassle and expenditures to R&D their own headset, when they just buy a company that has already gone through all that? After all, it's much easier to turn a tug boat than an ocean liner. Larger companies need to buy smaller ones to adapt quicker; the larger company takes more time and energy to change directions than a smaller one does.
Dell buys EMC so they can offer services that would take time and money, possibly more money than the purchase price, compared to acquiring EMC. Western Digital buys SanDisk so they can combine their storage might to bring better and cheaper hard drives and flash storage for our ever increasing need for more space. Trend Micro buys TippingPoint so they can offer better security products or even new security products for customers who need and want better security for their corporate networks.
Alright, this all makes sense, so why is it happening now? Unfortunately, I don't have a solid answer on why the timing is this way, why so many technology companies are in a buying spree. Thing is, the larger companies buy smaller ones all the time, so it's not really new, the difference here is the scale of the purchases. Another factor that plays into this is that the larger companies need to make larger purchases to compete. They need to bring in established methodologies, technologies, ideals and leadership to keep the larger companies growing. Once companies get to a certain size, it takes a lot more investment to keep the growth there. As the old saying goes, one must either grow or die. And as always, stay safe goblins.
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