Futile Internet Acquisitions

“Nowadays, anyone who cannot speak English and is incapable of using the Internet is regarded as backward.” Prince Al-Waleed bin Talal

With the global economy taking a nose dive, led primarily by the sub prime crisis in the United States, it is time to review internet acquisitions made by some of the leading global enterprises. While the likes of Bill Gates and Prince Al-Waleed bin Talal tout the internet as becoming the town square for tomorrow’s global village, a little research clearly outlines that the majority of internet acquisitions have not delivered the expected value.

James Nicholson has written on internet acquisitions gone wrong. Nicholson founded three successful start-ups including NetVentures, a pioneering e-commerce software company that was sold to CNET Networks. Along with his entrepreneurial accomplishments Nicholson has worked as an executive at CNET. Nicholson defines a failed internet acquisition as one that contributes little or no long term growth to the acquiring company. A general rule of thumb for any acquisition is that if it does not synergize with a company's long term strategy, then it is likely to be quickly forgotten.

So, before leaders consider acquiring fledgling internet companies, it is worth reviewing some acquisitions that did not work out as anticipated. Some of the ineffective internet acquisitions that got considerable coverage are listed below:

1. Skype- Skype was acquired by eBay in late 2005 for $2.6 Billion. This may be one of few decisions eBay’s exceptionally successful CEO Meg Whitman may regret. eBay has yet to effectively articulate publicly a plan that would justify the acquisition price and how it expects to seamlessly integrate Skype's calling service with the core auction business.

2. Hotmail - Sabeer Bhatia sold Hotmail to Microsoft for $400 million in 1998. While the sale made Bhatia an overnight celebrity before his 30th birthday, the acquisition has done little to improve Microsoft's internet portal efforts.

3. Lycos - Terra Networks acquired Lycos for $4.6 billion in 2000. Specialists expected that the combination of Lycos with Terra's dominance in Latin America would create a powerful company. Things did not quite work out as expected and in 2004 Terra sold Lycos to South Korea’s internet portal company Daum Communications for $105 million.

4. Netscape - In 1998, AOL acquired Netscape for $4.2 billion. This acquisition surprised many because by the time AOL bought Netscape, Microsoft's free Internet Explorer browser had already captured the market. As was the case with a lot of what happened during the height of the dot com mania, it appears that AOL had no clear plans for Netscape.

5. AOL - TimeWarner and AOL merged in 2000 with a lot of publicity and fanfare. In hindsight, the timing could not have been worse since that was when the whole dot com bubble started to burst. As AOL’s business started to unravel, Time Warner had to hold on to its fledgling acquisition. Time Warner finally seems to be turning things around.

6. Broadcast.com – This internet audio and video streaming company was acquired by Yahoo! in 1999 for $5.04 billion. Most analysts in Silicon Valley were surprised with the price Mark Cuban and Todd Wagner managed to get out of Yahoo! in the heyday of the bubble.

7. GeoCities – This story could have been written differently if Yahoo! had managed to leverage the social networking revolution. Acquired by Yahoo! in 1999 for $3.56 billion, GeoCities got lost in the large Yahoo! maze and let the likes of FaceBook, Orkut, Marzar and LinkedIn pass them by.

The list of ineffective internet acquisitions goes on with such notables as Bluemountain.com, MySimon and Excite’s acquisition by @Home. Moreover, the verdict is still out on several recent high profile acquisitions, such as YouTube.com and MySpace.com.

It is accepted the world over that change is absolutely vital for the success of all organizations today. Acquisitions are one way change is manifested. Yet to truly thrive in change, people need to be told the nature of the givens, the constraints and the overall goals. Leaders involved in such intricate internet acquisitions need to review the lessons from the history of past failed alliances in order to ensure they avoid the same pitfalls. Leaders need to ensure that they give their top managers the freedom, responsibility and authority to act. This is feasible only if your people are competent and empowered.