Markets moving too fast for Google, so they buy rather than build

The New York Times today reports on an interview with Susan Wojcicki, a Senior Vice President for new products at Google in which she was asked why it wouldn’t be easier for Google to build out a similar service than pay several billion dollars for Groupon?

Not really, said Susan:

“It’s hard to assemble a team and organize as quickly as you want in these situations,” she said in an interview. “Finding the right people, interviewing them and hiring them takes time. Companies are willing to pay a premium to be in the market right now.”

There are two reasons why Google and others are willing to pay a premium to be in the market ‘right now’:

  • the leading company in most segments of the web is worth much more than the second player – these are winner takes all markets, and once the leader is established it is hard for anyone else to catch them
  • these markets are developing so quickly that large companies are often unable to start playing early enough to take a meaningful position without acquisition

The group-buying market is a case in point.  Groupon and its clones are in the local advertising market, a market that Google has been targeting for some time, but the group buying model emerged and got to scale so quickly that by the time Google was aware of it and convinced that it was it was viable Groupon had grown to be worth billions of dollars.

It is also worth remembering that there are many many innovative companies attacking large markets like local, or gaming, or video in exciting ways with new business models.  It would be impossible for Google (or Microsoft, or Yahoo etc) to build an organic presence in all of them and it is also hard for them to work out which of these innovative models are going to work.  It is a fair bet that someone inside Google wanted to launch a Groupon clone pretty early, but they were unable to persuade the company to come up with the budget, and in her interview Susan made the point that it is still ‘hard to know what will work’ in local.

Speed and the ability to target unproven markets with innovative business models are two of the greatest advantages that startups have.  As the pace of change increases these advantages become more telling.

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