Silicon Valley's big acquisition mantra: Buy it, leave it alone

Perhaps nothing illustrates the way Google currently thinks about acquisitions better than 63-year-old Moti Bardugo.

He works for Waze, a popular social-navigation app founded in 2008. Bardugo began working as a janitor at the company's office in Israel. Then, unasked, he started preparing simple meals for the team -- fresh fruit, eggs, or tuna fish salad -- and CEO Noam Bardin hired him to work full-time.

When Google bought Waze for nearly $1 billion in 2013, Bardugo came on board as well.

"For us, it was very important," said Bardin. "Keeping these things is really what makes one workplace different from another."

For Google, it was a hallmark of the tech giant's evolving management style. The message: If you join us, you can keep things the way they are.

It's an approach many big Silicon Valley companies have embraced. Instead of buying small firms and blending them namelessly into the fabric of their plans, these companies are increasingly opting to set up distinct brands that operate largely on their own. At Google, that includes Waze, smart-thermostat maker Nest and satellite company Skybox.

Facebook, Apple and Yahoo have recently done this with their blockbuster purchases as well.

The moves illustrate the sense of experimentation among Silicon Valley companies as they try to find the best way to grow their business without encountering the typical problems that have doomed large acquisitions in the past. One example is Hewlett-Packard's buyout of Palm in 2010 -- a year later, HP announced that it was discontinuing the products Palm's team was responsible for.

"It's in both sides' interest to not tamper with something that's working," said Charles Lee, a professor at the Stanford Graduate School of Business.

It sounds like a commonsense approach, so why is it happening more now? Lee said one reason is that young companies are growing more quickly these days, so there are more firms with established brands available for acquisitions.

A shifting strategy

It's unclear what the genesis of this approach was at Google, but it's become an institution now. In October, CEO Larry Page took a step back from day-to-day management duties, ceding much of his control over the company's most important products -- like maps and search -- to Sundar Pichai, a longtime trusted lieutenant. The reason? Page said he wanted to focus on Google's future, and how the company operates.

To Page, Google needs to espouse the practices of Warren Buffet, the famed investor and leader of Berkshire Hathaway. The investment-holdings firm's modus operandi is to acquire strong companies and leave them to run mostly undisturbed.

Aside from Waze, one of Google's best-known acquisitions lately has been Nest, maker of smart-home devices including a Net-connected thermostat and smoke detector. As it did with Waze, Google kept Nest intact after its purchase. The Nest team, led by former Apple hardware guru Tony Fadell, still resides in its multibuilding headquarters in Palo Alto, Calif., a few miles from Google's campus.

Skybox, a satellite company Google bought in May, has also kept its name and office. Then there's Calico, short for California Life Company. It's not an acquisition, but a subsidiary set up by Page and former Genentech boss Arthur Levinson, who runs Calico as its CEO. The ambitious research and development company's ultimate aim is to increase the length of the average human life span.

Elsewhere, other companies have taken the same approach. Facebook, the world's largest social network, has made a number of high-profile acquisitions and has let those brands stand on their own. The photo-sharing site Instagram, chat service WhatsApp and virtual reality goggle maker Oculus all fall under Facebook's portfolio. Even Yahoo, which has become well-known recently for buying companies then killing their products, bought the blogging site Tumblr in 2013 and vowed to let it run independently.

While more companies have recently embraced the leave-it-alone approach, it's still the exception and not the rule. For example, Google would not say how many acquisitions it made in 2014, but by CNET's count, the company notched at least 35 buyouts. Only a handful of them have kept their former brands.

The strategy also doesn't always work. Consider Motorola. Google bought the company in 2012 and maintained its smartphone handset brand. But it sold off the money-losing unit to Lenovo in 2014. And the disastrous merger of AOL and Time Warner is one of the most cited examples of a big buyout gone wrong.

Not a new idea

This trend may be popular now, but it's certainly not new. General Motors has kept the Pontiac brand of cars running as a separate subsidiary since purchasing the company a century ago. More recently, examples include soft-drink maker Pepsi, which bought Taco Bell, KFC and Pizza Hut in the 1970s and 1980s. They continue to run as separate brands under an umbrella company called Yum.

In technology, eBay has kept PayPal running as a separate payments company since buying it 2002. The marriage ended last year when the companies said PayPal would be spun into a separate entity.

The strategy isn't even new to Google. The company bought YouTube in 2006 for $1.65 billion and nurtured its brand instead of killing it. That's been a comforting signal to future entrepreneurs. "That was the model," Waze's Bardin said. "YouTube is what we had in mind."

Part of the reason tech giants offer independence to companies they're courting is because they know strong founders value it so much, said Steve Tadelis, a professor at the Haas School of Business at the University of California, Berkeley. It's in the big company's interest to hold up its end of the bargain, because it wants to keep a good reputation in the startup community.

Promise and reality

There are many reasons acquisitions go sour. In the case of Yahoo's $25 million purchase of Flickr a decade ago, the photo site has languished because it hasn't received enough funding. Today, co-founder Stewart Butterfield said he's no longer sure a sale was the right decision for the service. "For the sake of the product, it would have been more interesting if it stayed independent," he said.

In Google's case, just because it isn't killing off some acquired companies' brands, doesn't mean it isn't thinking about how those companies fit into its broader plans. Waze has integrated "incident reports," a key feature that lets people report changes in road conditions, into Google Maps. Privacy advocates also worry about Google getting its hands on customer data that companies like Waze and Nest collect.

It's also likely that as its interest in outer space deepens Google will tap into the satellite company Skybox. Google is said to be exploring how satellites can help beam Internet connectivity to underserved regions. Just days ago, the company announced a joint $1 billion investment with Fidelity in billionaire Elon Musk's SpaceX, which has its own satellite efforts. Before Google bought Skybox, the startup had plans to launch a fleet of 24 satellites into low orbit. Skybox is now trying to figure out if it will remain on its previous schedule for the project, said co-founder Dan Berkenstock.

Earlier this month, Google said Nest's Fadell would be taking over the beleaguered Google Glass project -- a power move as the company tries to bring the oft-ridiculed Web-connected headset to market. "That shows he's not just off in a corner somewhere," said Jan Dawson, founder of JackDaw research. "The reality is there is already integration there."

While companies like Nest and Skybox have kept their offices, Waze moved its US office from Palo Alto to Google headquarters in Mountain View as part of the deal. But Bardin insists Waze has stayed the same in every way that matters. He said trusting that Google would keep its word about Waze's independence played a major role in the company's decision to join.

When it came to autonomy, "it was important for Larry [Page] to come and talk to us before the acquisition," said Bardin. "Specifically to clarify that this was coming from him."