When I came back to Wired.com halfway through the summer, I really did think for a moment that the biggest news for a while would be Marshall McLuhan’s 100th birthday. Instead, we had a flood of corporate catastrophes, near-catastrophes and responses to catastrophe that overtopped the levees until the tormented metaphors themselves cried out for it all to stop.
It would be a shame, though, if we went through all of this for nothing. So let’s try to synthesize a few of the lessons companies can learn from what went right and what went very, very wrong this summer.
There’s tremendous pressure on companies, particularly publicly traded companies, to grow and grow. You see, for the most part shareholders don’t profit from steadily profitable business, but unexpected growth. Microsoft grew profit by 30% year over year, and the stock market said meh. For a company as successful as Microsoft’s been, even that kind of growth is priced in.
The best way to grow is to open up new markets or create and deliver popular new products. Here, Apple’s success in the last few years is the model; not only do Americans love iPhones and iPads, but the company’s devices are exploding globally, especially in Asia, in a way that they never have before. The latter is a much bigger deal in sheer numbers than, say, iPhones running on Verizon or Sprint. But even that kind of modest domestic expansion is a route to growth. So Apple sits on its giant cash hoard, refraining from making high-profile acquisitions, because it doesn’t need to grow that way.
In themselves, acquisitions aren’t a bad way to grow — Apple buying NeXT or Google buying Android look like pretty sharp moves right now — but sometimes, in order to meet this felt need to grow, companies get foolish. They buy other companies to create new conglomerates that seem like great ideas on paper. Maybe there’s even a vision in place about how to blend the two organizations in a way that increases the value for everybody.
But then the market moves, or the leadership changes, and the people in charge of these now-giant corporations realize that the culture of their primary business is completely different from that of the business they’ve now acquired. Only because they’ve made such a high-profile bet on this other company, it’s impossible for them to unwind without admitting failure and creating a giant mess.
Someone will have to be the hero, and someone the villain.
This, in short, is what’s happening between Hewlett-Packard and Palm after HP CEO Léo Apotheker took over for Mark Hurd. It’s also what’s happening between AOL and TechCrunch after CEO Tim Armstrong realized betting on one rebellious tech site wasn’t enough and brought on Arianna Huffington to begin running the media side of his organization. Both sets of companies are now in messy public divorces, because the parent companies had to change their trajectories.
Let’s hope Google and Motorola have better luck.