29 May 2011

Mark Haines and Individual Contribution

I like to write about companies that bring disruptive innovation, societal value creation, and a new approach to the market in which it operates.  This week's sudden death of veteran CNBC anchor Mark Haines reminded me that this can also true of individuals.  Through his powerful on-air persona and singular fact-finding focus,  Haines brought the closed doors of wall street to main street and helped create the money-minting machine that is CNBC.

Certainly great timing helped Haines leave his important legacy.  When CNBC started 20 or so years ago, cable television was at its infancy and had yet to experience its explosive growth.  The stock market was at the start of the longest bull run in its history.  Thanks to technology and electronic exchanges such as NASDAQ, the barriers to entry for individual investors dissipated.  Game changing phenomenons always need a bit of luck and the success of the first 24 hour financial news channel was no exception.

Before CNBC and Haines, the business of investing was limited to the elite and wall-street insiders much like the hedge fund industry is today.  Mom and Dad in Kansas relied on their low-paid financial broker for information and advice as there were far fewer information outlets.   Not only did CNBC bring boardrooms and stock analysts into millions of US households, it also made it easy for main street to understand markets, business, and global economics.  Despite criticism that the network was an "extension of wall street" throughout the years, Haines was always the spokesman for the average investor.  He grilled CEOs and political figures to no end, repeated questions until a direct answer came out, and explained somewhat complex concepts in plain English.  And he was fun on the air - something very important to CNBC's growth.  Haines was also very well respected by the markets, somehow building a bridge between Wall Street and Main Street.  Upon news of his death, the NYSE held an impromptu moment of silence - something unheard of during the bustle of normal trading day.

Haines, among the other early anchors, built a cultural phenomenon that made financial information ubiquitous, entertaining, and accessible.  NBC has been handsomely rewarded for itt.  When acquired by Comcast last year, NBC had a ~$30B valuation.  It's hard to get detailed figures on what CNBC represented individually, but it has the second largest cable audience of the network.  Some reports pegged CNBC's value alone to be $6B-$7B.  Much like ESPN did with sports, CNBC has built a strong cable presence and unique market position that will be virtually impossible to match (just ask Fox). 

As companies build innovative concepts to market, its important to remind ourselves of the contributions of the individuals leading to that success.  Certainly there would be no Microsoft without Gates or Apple without Jobs.  In many instances, it is single individuals that create a disproportionate amount of value for companies.  It sometimes takes a tragic event, such as Haines' death, for us to step back and acknowledge this fact. 

19 May 2011

Google Deals - A case for and against M&A

The Microsoft-Skype announcement reminded of one of my first posts  in which I wrote about the perils of large scale M&A.  While big deals are value destroyers, there are some instances where transactions make sense. When can an acquisition create meaningful gains to both companies as well as consumers in general ?  Let's look at Google, a case study for everything these days, including the merits of dealmaking.

In 2005, Google made its first foray into mobile with the acquisition of a small startup called Android.  Fast forward six years later, Android has now become the top smartphone OS with a 30% market share.  There is no question Android could not have done this on its own.  The pie grew and we as consumers finally had a viable alternative to the closed- system Iphone.  Wins all around, right?

That same year, Google also invested in Dodgeball, a location-based social network.  Similar to Android, the founders were brought onboard to integrate the company into the Google ecosystem.  This time, the Google experiment flopped.  The company ultimately killed the service altogether; and in early 2009, the founders of Dodgeball left to create an exact replica company.  FourSquare, one of the hottest tech properties, now boasts a 7.5M userbase (and growing) and is frequently sited as a potential IPO candidate.  

How could the same company buy two different startups the same year, employ the same execution strategy, and have such divergent results?  One blossomed into a transformative software platform while the other quelched a new idea that ultimately thrived on its own.

With Android, there was a defined, specific goal in mind.  Google wanted to give away a mobile OS to layer in its search, so it bought Android.  There was no need to create some new product or capability that didn't exist.  There was very little execution risk- Google simply needed to throw more money at the nascent company, leave it alone, and take it to market.  As we all know, large companies don't accelerate innovation or product development  (not even Google), but they provide the thing that startups need the most -- money and distribution.  How else could Android have forged partnerships with all the major handset makers and carriers in such a short amount of time?  Given the size and savvy of its competitors (Microsoft, Blackbery, Apple), they might have missed the window of opportunity had it chose to go alone.

What was Google going to do with Dodgeball? They knew social networks were a threat but didn't know how to combat it (and still don't for that matter).  Buying Dodgeball got them "in the game", but there was no clear cut strategy for what to do with the company.  Dodgeball didn't need distribution the way Android did, they simply needed time to grow.  Android thrived not because of what Google did with it, rather what Google brought to the table.  The Dodgeball deal was an attempt to mask a larger company weakness with no real rationale for the deal itself.

Successful deals happen when there is a simple well defined strategy and a predetermined endgame.  It needs to be easy to execute and the expected value of the good needs to outweigh the negatives of big company inertia with little risk.  Distribution plays are the most common.   Kashi cereal is widely available  thanks to Kellogg.  I bought a Goose Island draft on my last trip to New York because of the deep pockets of Anheuser Busch.  Selling a new beer to a bar that is already a customer is not rocket science. 

If company executives can't explain why they are doing a deal and how they will execute it in 20 words or less, it's probably not one worth having.  Ballmer probably needs 12 Powerpoint slides to outline the Skype rationale, whereas its far more clear what Nestle plans to do with the Austin-based Sweet Leaf deal it announced last week (say it ain't so Leaf).