Wednesday, May 31, 2006


Google sees more partnerships, not major mergers


By Eric Auchard May 31, 2006

SAN FRANCISCO (Reuters) - Google Inc. believes that big-name partnerships instead of major merger deals remain the best way to expand its customer base, executives of the Web search leader reiterated on Wednesday.

"M&A (mergers and acquisitions) as a method to acquire traffic has not historically worked," Chief Executive Eric Schmidt told Wall Street analysts on a conference call but added: "Again, we would never rule something like that out."

"It (M&A) is a bad business strategy ... and it is not consistent with Google's values and culture anyway," Schmidt said of Google's preference to build markets itself rather than buy its way into them. He was responding to an analyst's question.

His comments follow recent speculation on Wall Street that the Internet industry is poised for consolidation among some of the biggest players in response to slowing growth rates and the in-roads Google's success in Web advertising have made.

Google had $8.43 billion in cash at the end of March, which could be used to fund acquisitions. However, to date, it has been reserving most of its cash for investments in computers and datacenters to handle a growing number of services.

Partnerships with AOL LLC on advertising, Japanese mobile phone company KDDI Corp. in mobile phones and Dell Inc. on computers remain the preferred method for expansion beyond its own internal efforts, Schmidt said.

"The answer is partnerships," he declared.

Executives of the Mountain View, California-based company declined to comment when grilled by analysts on whether partnership deals would always add to Google's cash holdings within one year of an agreement.

In particular, Google officials had no comment on the pricing structure of the partnership announced last week with computer maker, Dell, which analysts have speculated involves Google making big-upfront payments to Dell to win prominent placement for its Web search and other services on Dell PCs.

"It's better if we don't comment on any of the rumors about pricing," Schmidt said. He repeatedly said that Google's agreement was covered by confidentiality agreement.
The deal could mark a milestone for Google, which historically has incurred little upfront cost to attract customers to its services. Instead, it has shared a portion of advertising revenue with partners who drive traffic its way.

Google Chief Financial Officer George Reyes promised the Dell deal would prove cash-positive over the course of the multiyear transaction, but declined to answer a point-blank question about its first-year impact on Google finances.

"Clearly the terms of Dell deal span out over several years," Reyes said. "It will certainly be cash-positive over the course of the transaction," he said.

The conference call with analysts is part of a new push by Google to improve relations with Wall Street, which has been irritated by Google's steadfast refusal to comment on its financial outlook, in contrast to many high-growth companies.

Exactly.. Mergers and Acquisitions make sense under predictable conditions... I am not surprised at all. Mapping their overall portfolio of alliances will be an interesting and insightful exercise..
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