2020 was a record year for mergers and acquisitions in the data center sector. In the rest of the business world, mergers remained high though the pandemic dampened activity, resulting in roughly nine percent fewer deals than in 2019. Still, some of the world’s largest tech companies made major purchases in Q4 2020 – with Google, Salesforce, Facebook and Amazon all negotiating significant acquisitions.
The reasons for each deal were different, but all four companies will eventually face pressure from shareholders to show tangible results. The challenges they face will be as varied as their reasons for making the acquisitions in the first place, and they provide insight into opportunities and challenges for other M&A deals in a post-pandemic world. Those companies operating on modern, cloud native, API-driven infrastructures will have an easier path to integration and revenue growth.
Following are some takeaways from each of the recent acquisitions by Big Tech – and what they mean for the market in 2021.
Big Tech purchases
Google’s acquisition of Actifio is a straightforward addition to its portfolio of data services. Actifio’s automated cloning and backup technology complements Google’s cloud strategy in two ways. It streamlines business continuity solutions for disaster recovery and high availability requirements, and it already works well with most existing databases. So, we can expect that the Google Cloud business will readily benefit from the Actifio functionality, both in terms of how many customers take advantage of it and in how this contributes to new sales.
Salesforce’s purchase of Slack raises some broader questions. Salesforce is in a challenging position in the market, since its core technology base is about 20 years old. So, it essentially has to innovate through acquisition to defend its customer base against newer, more agile competitors, such as HubSpot, RightNow (which Oracle acquired) and Kustomer, which Facebook just acquired. Slack should be able to maintain its current revenues as an independent product, but the challenge for Salesforce will be integrating Slack with its flagship CRM and other products – many of which are also recent acquisitions, such as Tableau and MuleSoft – to provide seamless user experiences.
Facebook’s acquisition of Kustomer is an attempt to move into an adjacent market and cater explicitly to business users who are already setting up their own pages. This will be a play for establishing an additional revenue stream beyond advertising and will be evaluated on that basis. However, Facebook will also face a challenge, like that of Salesforce, in integrating this new capability into its existing ecosystem, including Instagram, Messenger and WhatsApp.
Amazon’s play with Wondery appears to be a consolidation move, or perhaps a defensive move to eliminate a podcast competitor. Most likely – given Amazon’s history of building out its business through acquisitions, such as Audible and Zappos – Wondery will be integrated into Amazon’s existing offerings and extend its share of the podcast market (Wondery is currently number three). Success here will depend on the overall market for podcasts and whether it will continue to grow. With Amazon behind it, the answer is likely that it will.
In any case, the benefits delivered by the four acquisitions will provide insight into how other M&A activity will play out in 2021. These industry players are looked to for guidance and strategy on the growing market and for a playbook on how to guide successful company integrations. As such, the combination of existing systems, networks, and core business applications with those from newly acquired firms will need a solid plan.
As the mechanisms that allow software to communicate with other software, APIs are key to maintaining business continuity and unlocking immediate value once the deal is made. Tech companies that take an API-led approach to sharing data will be able to do just that – and reap additional value long after the deal is made.