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A history of bad decisions
Microsoft’s announcement that they will purchase LinkedIn for $26.2 billion—the single largest acquisition in Microsoft’s history—has raised eyebrows as to the wisdom of this acquisition, and Microsoft’s valuation of LinkedIn. In February, LinkedIn’s shares fell by half after the company issued an underwhelming 2016 forecast, and Microsoft’s purchase price is roughly seven times LinkedIn’s 2016 revenue, leading some analysts to ponder whether Microsoft has overpaid.
Microsoft—and the IT sector as a whole—has a history of staggeringly bad acquisitions that, through poor integration or management, result in substantive markdowns. These acquisitions lead to the dissolution of teams through layoffs, and the premature discontinuation of products.
1. Hewlett-Packard buys Autonomy, for some reason
In Lu00e9o Apotheker’s brief reign as CEO, HP bought data analytics firm Autonomy for $11.7 billion in October 2011 as part of a larger plan to re-focus HP, which would have resulted in a spinoff or abandonment of their consumer PC division. Shortly thereafter, HP wrote down a loss of $8.8 billion due to what the firm called “serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy,” which resulted in a criminal investigation that went nowhere, and volleying of lawsuits related to the disaster.
The New York Times characterized the deal as being worse than the disastrous AOL Time Warner merger, which previously had been considered the most ill-fated merger in history. The Times quotes Bernstein’s technology analyst Toni Sacconaghi as claiming the Autonomy purchase “will arguably go down as the worst, most value-destroying deal in the history of corporate America.”
2. Hewlett-Packard buys Palm, and shuts it down
When HP announced their plans to buy Palm for $1.2 billion in April 2010, the future of webOS as a viable competitor to iOS and Android looked secure, and CEO Mark Hurd had a plan to “double down” on the platform. After Hurd’s tumultuous departure from HP in August, he was replaced by Lu00e9o Apotheker, who ultimately killed the platform.
The HP TouchPad was on the market for 49 days before the plug was abruptly pulled on webOS on August 19, 2011, leading to a fire sale in which HP dumped the hardware below cost, which itself brought down HP’s entire ecommerce platform. Matias Duarte, the chief UI designer, as well as much of the original Enyo team moved to Google to work on Android.
The Verge published a full post-mortem of the webOS era of Palm.
3. Microsoft buys Danger, unable to sell phones
Microsoft has a long and storied history of being incapable of marketing phones. The company bought Sidekick manufacturer Danger in 2008 for $500 million, lost cloud data for existing phones in 2009, spent $1 billion on making the Microsoft Kin, which only sold 8,810 units in 48 days. Microsoft subsequently recalled the product, which was later released with different firmware removing most of the features of the device.
4. Microsoft buys Nokia's mobile phone unit, still not selling phones
The Danger failure is only a small blip compared to Microsoft’s purchase of Nokia’s mobile phone unit. Former Microsoft executive Stephen Elop became the first non-Finn CEO of Nokia in October 2010, and in February 2011, called Nokia a burning platform. Nokia’s legacy Symbian and next-generation MeeGo platforms were abandoned in favor of Windows Phone. Between 2011 and 2012, over 20,000 employees were laid off as part of a restructuring of Nokia. Nokia’s share price fell nearly 85% from Elop’s strategy. The mobile phone unit was then purchased by Microsoft in September 2013 for $7.2 billion.
In July 2015, Microsoft laid off a further 7,800 employees from the Nokia purchase, and took a writedown of $7.6 billion for the Nokia purchase, and a further $750 million writedown for restructuring related to that purchase. Financial analysts considered the deal a disaster, and a Bloomberg report claims the circumstances around that purchase were the “last straw” of Ballmer’s future as CEO.
Windows 10 Mobile itself has gone nowhere slowly, with The Verge declaring the platform dead this January, and ZDNet’s Microsoft watcher Mary Jo Foley switching to a Nexus 6P as her daily driver in April.
5. AOL buys Netscape, does nothing productive with it
Although Netscape had already been struggling when AOL bought it for $10 billion in 2002 in a three-way deal with Sun Microsystems, development of the browser did not improve substantively post-acquisition.
AOL continued to ship the “AOL Desktop” software on untold numbers of CDs, which was effectively a rather poor wrapper around Internet Explorer. Netscape had released their source code prior to the acquisition, which continued development as the Mozilla Suite, and later as Mozilla Firefox.
6. Verizon buys Terremark and CloudSwitch, fails to compete
Verizon bought Terremark in 2011 for $1.4 billion, along with CloudSwitch later that year in a private transaction, in an effort to join the fray in the cloud market. Terremark was the hosting provider during the initial rollout of HealthCare.gov, which faced significant outages, though was replaced by HP Enterprise shortly thereafter. Verizon announced in February the services would be discontinued, and users were given 60 days to get off of Verizon’s cloud.
7. Mattel buys The Learning Company, does not understand software
In 1999, Mattel bought The Learning Company for $4.2 billion. By this point in history, The Learning Company was an amalgamation of major software powerhouses in productivity software, educational games, and computer games, including WordStar, Spinnaker, SoftKey, MECC (best known for The Oregon Trail, pictured), Broderbund, Mindscape, and SSI, among others.
Unfortunately, most of the business of The Learning Company was itself mergers and acquisitions, and had little relevance to Mattel’s core business. The Learning Company was offloaded in 2000 to Gores Technology Group for under $50 million, and a percentage of future profits. Much of the productivity and educational assets were sold to Houghton Mifflin Harcourt, while video game IP was sold to Ubisoft.
8. Telefónica buys Lycos, massively overpaid for it
The Spanish telecom Telefu00f3nica bought Lycos in May 2000 for $12.5 billion. In addition to being a web portal, the primary businesses of Lycos at the time were AngelFire and Tripod, free web hosting services; as well as HotSpot, an Inktomi-powered search engine. It was subsequently sold to Daum Corp. (now Kakao) in 2004 for $95.4 million, which in turn sold it to Ybrant Digital for $36 million in 2010.
In 2013, an AngelFire website reported to be the first website of Facebook founder Mark Zuckerberg was found.
9. Google buys Nest and Dropcam, but seems aimless
In a play for the Internet of Things, Google purchased smart thermostat maker Nest in January 2014 for $3.2 billion, and Dropcam for $555 million in June. So far, the two-year-old Revolv smart home hub sold with a “lifetime subscription” was unceremoniously discontinued in April 2016, with Nest CEO Tony Fadell announcing his exit this month. Dropcam has also struggled, with the “Nest Cam” being a more or less rebadged Dropcam with a 1080p image sensor.
10. Yahoo! overpays for various companies
Yahoo!, which is now trying to spin off their core business and keep only an investment in sales giant Alibaba, has made a variety of acquisitions of questionable utility.
Foremost among these was the purchase of free webhosting service GeoCities in 1999 for $3.6 billion, the operation was closed ten years later. The same year, Yahoo! purchased Mark Cuban’s streaming website Broadcast.com for $5.7 billion. As a large percentage of internet users in 1999 relied on dial-up, the move was based more on potential than current performance. The resultant product, Yahoo! Music Radio was discontinued in 2014. Yahoo! bought Indonesian social networking service Koprol in 2010 for an undisclosed sum, and planned to shut it down in 2012, though instead returned the domain and trademarks to the founders.