10 Tech Deals that defined the decade — Part 1

A decade ago, the eupho­ria of the dot­com era was in full force as we entered a new cen­tury. With this first decade of the 21st cen­tury com­ing close to an end, it is help­ful to look back and assess what were the deals made this decade that defined the tech­nol­ogy land­scape we now live in. So, in the inter­est of fos­ter­ing dis­cus­sion and get­ting every­one to reflect on what deal got us to where we are, I would like to present, in reverse order, my take on the 10 deals that defined this decade.

10. IBM acquires PwC Consulting

In 2002, IBM acquired the con­sult­ing arm of Price-Waterhouse for US$3.5 bil­lion. The move helped solid­ify IBM’s posi­tion in the con­sult­ing busi­ness and helped it move away from being a hard­ware and soft­ware man­u­fac­turer and more into the higher-margins con­sult­ing arena. The deal was very favor­able to IBM in that it was able to acquire the com­pany for less than 1 time revenue.

10.b Pay­Pal acquired by Ebay

When Ebay acquired Pay­pal for US$1.5 bil­lion, the move seemed to be a very risky one. Why would an auc­tion house want to get an emerg­ing pay­ment sys­tem that really didn’t seem to fit much with its busi­ness model.

Ulti­mately, the deal has turned out to be quite a good bet as Pay­pal is now the engine of Ebay’s growth. In fact, most of the value of Ebay now resides in a pay­ment sys­tem that has left many finan­cial insti­tu­tion envi­ous of its reach.

9. Lenovo acquires IBM’s com­puter division

In 2005, the com­pany that had launched the per­sonal com­puter rev­o­lu­tion into the office changed hand as Lenovo, pre­vi­ously a local chi­nese com­puter man­u­fac­turer with no real global foot­print, acquired IBM’s per­sonal com­puter divi­sion for US$1.3 bil­lion. The deal estab­lished Lenovo as a global player in the PC mar­ket and her­alded the arrival of Chi­nese com­pa­nies on the global scene.

8. Ver­i­zon acquires MCI

In the 1990s, MCI became one of the largest play­ers in the telecom­mu­ni­ca­tion busi­ness, acquir­ing and rolling up small regional tele­phone com­pa­nies and inter­net back­bone oper­a­tors. The prob­lem, how­ever, was that most of the growth it demon­strated on paper was based on fraud­u­lent state­ments and account­ing tricks that ended up with the com­pany fil­ing the largest bank­ruptcy on record at the time (this has since been superceded by other bank­rupt­cies).  Ver­i­zon acquired the com­pany in 2005 for $US 6.7 bil­lion, pick­ing up one of the largest inter­net back­bone oper­a­tor in the process.

The deal, which had come on the heel of SBC’s acqui­si­tion of AT&T, was the last one in the land­line tele­com con­sol­i­da­tion that left most of the country’s tele­phone and inter­net infra­struc­ture under the con­trol of either AT&T or Verizon.

7. Microsoft / Yahoo part­ner on Search

Some­times, the impor­tance of a deal has move to do with the dis­rup­tive effect it has on the par­ties involved than the suc­cess­ful out­come it may rep­re­sent. Such is the case of the Microsoft/Yahoo part­ner­ship which came after years of dis­cus­sions between the two com­pa­nies. From 2005 to 2007, Microsoft attempted to qui­etly acquire Yahoo but the reluc­tance of Yahoo’s lead­er­ship at the time left those calls unan­swered. In Feb­ru­ary 2008, Microsoft decided to take the dis­cus­sion to a whole new level by mak­ing an unso­licited takeover bid of $US44.6 bil­lion in cash and stock in early 2008. The goal was to com­bine the two com­pa­nies into a com­bined one that could com­pete with Google. Over the next quar­ter, the two com­pany would bat­tle pub­licly, with Microsoft even­tu­ally giv­ing up on its attempt.

For the next year and a half, Yahoo went through major upheavals due to its refusal to take Microsoft’s offer and the neg­a­tive impact it ended up hav­ing on its mar­ket cap­i­tal­iza­tion. With a new CEO installed, Yahoo then went on to agree to out­source its search busi­ness to Microsoft, tak­ing it away from the busi­ness that had ini­tially served as the foun­da­tion of the com­pany. While the link-up has not been com­pleted as of this writ­ing, the dis­rup­tion that all those nego­ti­a­tions cre­ated for the two com­pa­nies allowed their chief rival, Google, to con­sol­i­date its hold on the mar­kets that were at stake. As of this writ­ing, the mar­ket share of search held by a com­bined Yahoo/Microsoft part­ner­ship has dropped sub­stan­tially from where it was when the Microsoft bid was ini­tially made.

6. Weblogs Inc. acquired by AOL

Weblogs Inc. was founded by Jason Cala­ca­nis (and Brian Alvey) as a net­work of blogs, includ­ing the pop­u­lar engad­get, which was run by Pete Rojas (also the founder of Giz­modo). When AOL bought the com­pany, in 2005, the price was rumored to be around US$25 to US$30 mil­lion. At the time, some felt AOL had over­paid. Today, some feel Weblogs Inc. sold for too cheap.

The rea­son I would con­sider this deal sig­nif­i­cant is that it was the first major deal involv­ing blogs (some would argue that Google’s acqui­si­tion of blog­ger fit the bill but my counter to that was that blog­ger was a blog tool com­pany while weblogs inc. was a blog con­tent com­pany). Because AOL, an arm of Time-Warner at the time, was a large cor­po­rate entity, this acqui­si­tion legit­imized blog­ging within the cor­po­rate world and made it eas­ier for any sub­se­quent blog-related deal to happen.

In the next entry, we will look at the top 5 on the list. Some of them may sur­prise you.

Update: Part 2 is up.

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