Targets for Google's Merger Machine

When entrepreneur Mike Cassidy wanted a meeting with Google's top brass recently, he knew who to call. Cassidy was advising a startup that was in talks to be sold to Google (GOOG) and he turned to David Lawee, Google's head of corporate development. Within three hours, Lawee had convened a sit-down that included one of Google's three highest-ranking executives.

Google's dealmakers are moving fast. Flush with $22 billion in cash and emboldened by signs of recovery in the core Web-search market, Google plans to snap up companies at a pace of about one a month, CEO Eric Schmidt told analysts on an Oct. 15 earnings call. That may represent a steep acceleration for a company that's made 32 reported acquisitions since it went public—only five of them in the past two years, according to Thomson Reuters (TRI) data.

Shopper-in-chief at Google's Mountain View (Calif.) headquarters is Lawee, a four-year Google veteran who was tapped to lead mergers and acquisitions in 2007 after a stint as head of marketing. A seasoned entrepreneur who helped start Toronto venture capital firm Mosaic Venture Partners, Lawee is well regarded by many of the startups he courts. "They can relate to him because he's been in the trenches," says Cassidy, who with Lawee co-founded online gaming site Xfire, now owned by Viacom (VIA). As Google's chief dealmaker, Lawee has also earned a reputation for his fast pace. "He makes decisions quickly, analyzes quickly, and moves on it," says a former Google executive who asked not to be identified because of ongoing ties to the company. "He works in hours, not in weeks."

Watch for Acquisitions in Search Speed is essential as companies scramble to jump-start growth and buy innovation through acquisitions. The value of all mergers and acquisitions in the U.S. tech industry surged to $9.8 billion in the third quarter, from $3.1 billion in the first quarter, and may balloon to $20 billion in the current quarter, says Rob Fisher, a partner in the PricewaterhouseCoopers transaction-services group.

Lawee says his "top priorities" are search, advertising, and mobile services, although he's casting a wide net. "We are basically looking across the entire spectrum of the Internet," says Lawee, 43. He declines to identify specific targets. But analysts and people close to Google say the company is likely focused most intently on search. "Because of increasing pressure from Microsoft (MSFT) and the fact that search is becoming a much larger category, we expect Google to become more acquisitive in the core search areas," says Sandeep Aggarwal, analyst at Collins Stewart (CLST.L).

Real-time search engines such as OneRiot scour the Web for data and messages posted in the recent past and could help make Google's search results fresher. Google recently demonstrated its interest in weaving social media more closely into search results when it said it will include Twitter updates and other social search tools in search., a service that provides shortened URLs to Web users and collects data about which news stories and sites are most popular, may also be a prospect for improving Google's PageRank algorithm. OneRiot and each declined to comment on the prospect of selling to Google.

As talks to incorporate Twitter data in search results got under way earlier this year, Lawee initially pushed for Google to buy an equity stake in Twitter, according to a person familiar with the matter. The eventual deal did not include an equity stake. Representatives of Google and Twitter declined to comment on the negotiations.

Social Network Data Helps Target Ads Google's advertising division may also look to Lawee for help in bulking up in display ads. Most of Google's sales come from ads that are shown next to search results, but analysts see greater growth opportunity in the banner ads that go alongside other online content. Google has been rumored to be in talks with Teracent, a company that helps advertisers improve the effectiveness of banner ads. A competitor, Tumri, is also viewed as an acquisition candidate. Teracent and Tumri declined to comment.

Ads targeted toward Web-user behavior are of growing interest for Google. Media6Degrees, Lotame, and 33Across all use data obtained from the social relationships of Web users to serve them more relevant ads. For example, Google could use Lotame's technology to help advertisers deliver ads based on interests shared on social network MySpace, owned by News Corp. (NWS). "There's a lot of interest in this ad optimization world," says Linda Gridley, CEO of New York investment bank Gridley & Co. "Advertisers are demanding better targeting capabilities." Media6Degrees, Lotame, and 33Across all declined to comment on the possibility of a sale.

Google has already staked a claim in the wireless space, most visibly by backing Android, a mobile-phone operating system. Google may also try to expand in the mobile arena through acquisitions. Google runs its own mobile ad network, but upstart AdMob has signed up thousands of mobile app developers Google would probably love to have in its camp. "Google's current mobile display [advertising] efforts are relatively weak," says Greg Sterling, an analyst at Sterling Market Intelligence. JumpTap is a further contender, with its ties to major phone carriers. "We understand why big companies like Google would start to become interested in mobile advertising, given the explosive growth of the market," says AdMob spokeswoman Nicole Leverich. She declined to comment on the prospect of a sale, as did JumpTap.

A Flop in Location-Based Services Lawee says about half the targets come from his team, which proactively explores opportunities. Still, much of his job is pursuing companies identified by other executives, including CEO Schmidt and founders Larry Page and Sergey Brin. "It was either the board or the founders and Eric [Schmidt] that decided yay or nay," says Salman Ullah, who ran Google M&A before leaving in 2007 to start venture capital firm Merus Capital. "That was a competitive advantage. At other companies, my understanding is [that deals] go through a series of hurdles and subcommittees.".

Not all Google acquisitions turn into thriving businesses. Blogger, founded by Evan Williams, who later founded Twitter, is widely considered a success story. By contrast, Dodgeball, the location-based social service acquired in 2005, was shut down in January. If Google ever tries to get back into location-based services, it may opt for a company that helps developers build their own location services. Case in point: SimpleGeo, a service that feeds geographical information to mobile apps.

Google's dealmaking machine may also have bigger ambitions. In 2005, Google paid $1.65 billion for video sharing site YouTube. In 2008, it purchased display ad network DoubleClick for $3.1 billion. "Those are areas where we understood the challenges and opportunities early," Lawee says. Might Google make a play for a large social network such as Facebook, a mobile carrier like Research In Motion (RIMM), or an online software provider such as (CRM)? "The only thing predictable is that they're unpredictable," says Google watcher and Search Engine Land editor Danny Sullivan.

Whatever the size of a deal, Lawee says he's looking for great people, not just great technology. Consider Jens and Lars Rasmussen. Their company Where 2 Tech was bought by Google and became a key component of Google Maps. The brothers Rasmussen went on to build one of the most ambitious products at the company to date: Google Wave. Says Lawee: "The spirit of the acquisition is to get people that can continue to innovate at Google."

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