You might have noticed recently that big tech companies like Google, Microsoft, Facebook etc. are paying enormous sums to buy new companies that are outside of their core competence areas. Facebook’s acquisition of a virtual reality helmet maker is the latest story in quite a long line of stories.
What is going on? I think it is a sign of weakness. If the tech giants had core competences to develop the next growth market, they would do it internally. This is what Jobs did at Apple. But they apparently either don’t know what the next big thing will be (and so they are playing roulette with other people’s ideas) or they can’t make what others are making. And this is a point made today by Mr. Madrigal re-posed at BI.
Either way, history tells us that a significant percentage of this buys will flop. As Lafley & Martin tell us, it is very hard to make mergers like this “fit”. So what to make of this? Well, you are in a great position if you actually have a new idea and are capable of getting it started.