Deals and dreams

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Sometimes your best investments are the ones you don’t make – Donald Trump

True to the sign of the times a mobile company rang the final bell on a company that once dominated the desktop. Verizon Wireless has closed a deal to buy Yahoo’s internet business for an all cash $4.8 billion bringing an end to an era in tech history. Yahoo, once the poster boy of the tech world, the opening para in the digital history of the world, is now reduced to being a footnote in the same history. What a fall!

Two Stanford engineering students went to Yahoo in 1998 to sell at 41 million their small company which wanted to send the visitors to its site to other sites and earn money. Yahoo again walked away angrily at the price quoted by that same small company which now grow big at $5 billion. That small company was named Google! In February 2008, Microsoft offered to buy Yahoo for $44 billion, a price Yahoo felt it was too small to sell itself at. Eight years is a long time in today’s world.

It is a season of mergers and acquisitions. Yahoo’s deal comes after the great grand acquisition of LinkedIn by Microsoft for $26 billion. Two marquee companies which led the tech revolution have now been gobbled up. The question everyone asking as is always done is, will these mergers and acquisitions work? History of M&A is littered with more disasters than winners. A look at some of the M&A’s will help set the right perspective before we examine few win and most fail.

Worldwide some of the most successful M&A’s are: Disney & Pixar, Sirius and XM Radio, Exxon and Mobile. Bad ones that top the list are Benz and Chrysler, Mattel and The Learning Company and Sears & Kmart. Really, really bad one’s are Quacker & Snapple, Sprint and Nextel, AOL & Time Warner. You can read more details about these M&A’s here http://www.cnbc.com/2009/12/29/Top-10-Best-(and-Worst)-Mergers-of-All-Time.html?slide=15.

Closer home we have had our share of good, bad and ugly mergers providing rich fodder for management theory and strategy. Cases like Hindalco-Novelis, Tata-Jaguar, Mahindra & Mahindra- SCHONEWEISS were a source of pride as Indian companies bought over western companies. Back to the question why M&A’s fail?

On the face of it one company buying another to become big seems easy but isn’t. According to Harvard Business Review, between 70 to 90% of all M&A’s fail. Here are few reasons culled out from various studies:

Hubris: Quaker bought Gatorade and made it a success. Buoyed by the success, Quaker went and bought Snapple without complete study. Result a financial disaster and body blow to Quaker. Each M&A is different.

Culture: Daimler was a German company which was “conservative, efficient and safer”and Chrysler was “daring, diverse and creating”. If there is an example of culture effecting coming together of two companies this is it. The culture gap between these companies was wider, deeper and tumultuous than the Atlantic. It is something no P&L or analytic chart can map or worse predict.

Paid too much: Microsoft walked out of the proposed deal with Yahoo in 2008 when asked to pay beyond $46 billion it offered. Yahoo once walked out of deal to buy Google at $5 billion . One company on different sides of the table and both turned out to be ruinous for Yahoo. What is the right price? Your guess is as good as anyone else.

Due diligence: Hewlett-Packard acquired British software maker Autonomy for $11 billion in 2011 and ended up taking a charge of $8 billion on its balance sheet a year later. Reason, HP discovered false accounting details, fudged numbers and much more financial malfeasance on part of Autonomy ‘after’ the acquisition. Simply put, bad due diligence by HP. Closer home Diageo and United Spirits (Vijay Mallya’s company) and Global Trust Bank and UTI Bank (now Axis) merger are examples of failed due diligence.

Customers: Many pharmaceutical companies committed the mistake of making the acquisitions work rather than focusing on acquiring customers. Dissatisfied customers are easy prey for competitors.

Mergers and acquisitions are not bad and many companies have grown inorganically thanks to buying out talent and ideas. Facebook today is an amalgamation of Instagram, Whatsapp and many more small entities which added value to its core offering. Google’s big channel is YouTube which is an acquisition.

What makes an M&A a success? The search for the right formula is on and may never be found. Deal making is much a science as it is an art.

Regards,

Kamesh

+919594016268

 

 

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Games we play

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You can discover more about a person in an hour of play than in a year of conversation- Plato

Pokemon Go, the new augmented reality game that has captured the imagination of millions across the countries where it was launched. It is a game that has added billions to the value of Ninetendo, the makers of the game. Created by John Hanke of Ninatic Labs an ex-Googler who had earlier created Google Earth, it asks the players to step out of their homes to catch Pokemons’s using Google maps functionalities.

It is a craze like no other. Reports of people trespassing into neighbours’ homes to catch pokemons to people crashing into each other walking on the streets with their heads bent down to track the location of their pokemons on their maps to a man who crashed his car driving while playing the game are abound. Mind you these are adults!

In half a decade mobile games have grown to be a big, very big industry. An overview of mobile gaming industry drawn from various research reports gives the right perspective. There are approximately 1 billion mobile gamers in the world. The industry is worth $12billion dollars. True facts: Clash of Clans earns $1.2 million every day, Candy Crush $1million a day and Kim Kardashian (yes!) about $750,000 a day! What is it that drives us to get addicted to mobile games?

As people we have a very important need – happiness. For many happiness is equal to success and social recognition. Mobile games fulfil both the needs. You win in a game, you are happy which makes the brain release the happiness hormone dopamine. Brain remembers the equation; happiness =playing. After sometime dopamine release reduces and to increase the same you play more. And then you are addicted with attendant consequences of not playing – withdrawal, nausea, mood swings and much more! There is a lot more than technology in the design of mobile games.

How does the mobile game industry work? A company creates the game puts on Apple store or Google PlayStore or even a direct link though the first two options are preferred. To generate traction after launch, mobile companies use mercenary companies who will artificially inflate downloads of the game for a price.  The game (!) is to get into the top ranks of Apple App Store and Google Playstore. According mobile analytics consultancy Distimo, if an app is in the top 100 and gets featured, it will jump 42 places on Android market and 15 places on the iPhone App Store.  Top 25% of apps in iPhone store generated 15% of all revenue. This translates into big numbers in business terms.

Once up there the challenge is to build stickiness and virality. Almost all games are free to download and play. The challenge of the game sellers is to migrate the free players to paying ones. The paying gamers form just 0.15% of the total players. There are some who pay thousands to get ahead in the game! Industry has a name for them – whales! For example, you are stuck in CandyCrush and need to move to the next level, you can buy on the store steps to make it easier to clear the level. The other challenge is to keep the free players continued to be interested in game hoping that he/she will upgrade to a paying member. It is done by social proofing the player. You can update your level in social media, say Facebook and hope to get wowed but will get booed if you are at a lower level than your friends. How to be on par or even ahead of your friends circle? Buy those extra moves to help you get ahead and boast to your friends! Psychology marries commerce perfectly on the mobile!

Now to the social effects of mobile gaming. A big and devastating one. Mobile gamers, both children and adults, are suffering from attention deficit issues, carpal tunnel syndrome (your wrists that ache from using mobile too much), Texting Thumb and many other digital diseases which we didn’t know even a decade ago. Our anatomy, nor our brain has been gamed to play these games!

Playing in the sand, running to catch insects and butterflies, cricket match fights…can digital world ever replace this world of ours? If it does, it is our mistake. Keep the mobile phone away to play real games which helps you make friends and also makes you better humans.

Regards,

Kamesh

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