This is an AI Transcription. It’s pretty good, but please forgive any errors.
[00:00:00] Jonathan: Welcome to the difference engine, the show for founders, investors, and tech innovators.
We have a great show coming up today. We'll tell you how to set up the ultimate category design team. We'll also break down the category aftermath from when Dell and EMC collided. But first we finish our countdown of the greatest tech acquisitions of all time. Who will be number one?
[00:00:32] Paul: Okay. So now it's time for part two of our greatest tech acquisitions of all time. This is where we look at the top 10 acquisitions as decided by acquired. com. And we put the category lens on them. We figure out if people were buying category leaders. Or we're buying category leaders in waiting that they could build into category leaders.
So, where are we, Mr. Simnett?
[00:00:55] Jonathan: Well, we're at number five now, and number five is the acquisition of Android by Google. Now, Google paid fifty million dollars for it, and Bargain. Bargain. A bargain. When you think that the estimated return, um, recently is one hundred and twelve billion.
[00:01:14] Paul: Don't do the maths, but it's a lot that's good business.
[00:01:17] Jonathan: So, uh, casting our mind back, Google bought Android for around 50 million, as we said, and some incentives at the time. Um, and by the middle of 2005, um, as the whole tech industry was starting to recover from the big bust and mobile was starting to pull the industry through the whole, Eight person, eight person, Android team, 50 million for an eight person team.
[00:01:43] Paul: That math I can do that 6 million each that math I can do.
[00:01:46] Jonathan: So the Android team was relocated just a short hop down route 82, not 101, 82. That one's a little bit further behind, just behind the mountains there. Um, from Palo Alto to Google's HQ at mountain view. What I find. Screamingly funny about this is that just two weeks before the android team Um were bought by google.
They'd been left out of the samsung Boardroom, you know big mistakes old brothers So it's the open sourcing of android allowed google's operating system to live on a variety of mobile devices Um, you know for mobile carriers right around the world and that quickly started To account for the lion's share of the smartphone market and along the way many android resellers Also picked up related Google mobile services like search, Gmail, and the mobile advertising revenue that goes with them.
Nice. But was this a category creating move? Well, only if you consider open source smartphone operating systems, a category in reality, Android is part of a duopoly still with Apple iOS, but as they have more units of Android installed on phones worldwide. Then Apple, that really makes Google the mobile OS category king.
[00:03:08] Paul: It does. And most of the world has Android, a small proportion of us in the West have these, uh, Apple iOS devices. And
[00:03:16] Jonathan: as we'll see later, market share reducing, but more of that later. So I just wanted to move on to number four. It's the acquisition of Next. By Apple, you're not talking
[00:03:26] Paul: about the retailer.
[00:03:27] Jonathan: I'm not talking about, uh, cheap brand shoes and nasty jumpers. I'm talking about Unix operating systems based out of the West coast with Steve jobs at the helm. So Apple paid a princely 50 million for next. And it's thought that return was somewhere in the region of 126. So
[00:03:47] Paul: let's go back to five, 50 million for, for Android return, 112 billion, equally 50.
Million for next return bigger. Yes,
[00:03:57] Jonathan: absolutely bigger because it became a core part of a bigger single company. But you know, if we go back in history, Apple purchased next and included at 1. 5 million shares of Apple stock. And the reason they wanted to do it was to gain access to the Unix based operating system, Next Step, which ultimately then served as the foundation of Mac OS X.
But that wasn't the really interesting thing about this deal. And I also don't believe it's where the value really came from because the deal actually appointed Steve Jobs into an advisory role. At Apple. This was all politics quite clearly. That's just get the prodigal son category leadership in this case, wasn't about the technology.
It was the acquisition that allowed Apple to recover jobs. He would go on to be one of the all time category Kings, you know, ably assisted by Sir Johnny Ive. So in this case, did they acquire a category leader? Did they build a category leader in technology terms? No, they didn't. But yes they did. It was category leadership, not by tech or market share acquisition, but eventual multiple category leadership by Acquihire, because Steve Jobs was category.
[00:05:13] Paul: Right, which takes us on to, we're getting right up there now to the top three. Number three. And I think everybody knows that YouTube was purchased by Google. If you don't, why not?
[00:05:23] Jonathan: There's some lovely maths here. Purchase price was 1. 65 billion and It's reckoned now to be worth 165 billion, just a little bit of a decimal point movement.
So if you remember when Google acquired YouTube in 2006, it only been around for a couple of years. But had invented the video sharing category and was leading it now because of that acquisition YouTube provides about a tenth of alphabet that's google's parent so they're not familiar with its structured revenues now The number of videos available had already passed 25 million By March, 2006, that's some phenomenal growth because the site only went, went alive in December, 2005.
And now people believe that there's tens of billions of videos available on the platform. You know, that is some growth.
[00:06:16] Paul: So it's like an instant hit that just kept going.
[00:06:19] Jonathan: They just bought into the right thing at the right time. And we're able to leverage it with some other Google services. Now, you know, that is some growth and it's interesting now that they're starting to move the brand out.
And the YouTube music service has recently passed 50 million paying subscribers. That's a nice little bonus, although they won't really be worrying that the people that category leader Spotify, did they acquire a category leader? Oh, yes. I mean, this was one of the ultimate bets on category growth and yet another category capture.
So, shall we go on to the penultimate value creator? Why not? What do we think this might be? Is it going to be Big Tech again? Oh, yes it is. It's acquisition of Instagram by Meta Platforms, or Facebook as they're more commonly known. Or Instagram, or WhatsApp,
[00:07:07] Paul: or whatever you want to call it. Who
[00:07:08] Jonathan: threw a billion at this purchase, and it is thought it has already returned around 175 billion.
Now, again, this was about moving in on a very early stage company. For those of you who believe that that's what companies do all the time, move into early stage companies and grow them. This is really unusual. And you'll notice most of these companies acquired companies that were new neighbors. And if you look at the history of them, there's usually connected.
People. So this is about the Silicon Valley ecosystem, but nonetheless, this is the story of how you create amazing value. So in 2012, at the time of the acquisition, Instagram was a 13. That's one three person startup. With already 30 million users by 2020, the photo sharing app, which is what essentially is, and that's his category, boasted over 2 billion active users every month.
[00:08:04] Paul: We should remember that at the time of this acquisition, there was a lot of flack that Zuckerberg took for this. Why on earth are you buying something so prosumery, something cute, like, is this a business decision or some sort of You know, deal with his mates or just crazy overpricing. I'd
[00:08:21] Jonathan: like to think what he'd done was spotted that Instagram had created a category of one, a photo sharing app of which there were many at the time that behaved like social media.
So photo blogging at the time would be driven by ever more pervasive and sophisticated smartphones and their cameras.
[00:08:39] Paul: There were so many like people very keen to show you, talking about his virality, to show you what they were doing on this new thing. Called Instagram. Yeah, you know, he spotted the potential very early
[00:08:51] Jonathan: It eclipsed, you know, tumblr's photo set dropbox's photo app flickr was bought by yahoo in 2005 But yeah, exactly, but they didn't have the social media dynamic So they were already stuck in the technology cul de sac and you know, it's a very interesting market now Um, that, that whole micro blogging area, Twitter's got about 75 percent of the market.
Facebook about 14 percent HubSpot marketing hubs at 1. 3 and Instagram has the rest, but it is raw photo blogging and they're still the category leader. Meta ensured that it remained category leader, even as its closest competitor, I think Twitter stroke X started to allow more pictorial content on its feed.
Um, and it was a very useful addition to Meta's portfolio as it started to feel the heat from Twitter. So bought a category leader back to category leader got a very, very nice return. So who do we think is coming in? Well,
[00:09:53] Paul: will it be Microsoft? Will it be Meta? No, no. Okay, who is it? It's
[00:09:58] Jonathan: the acquisition of DoubleClick by Google.
And I bet if you asked most of our listeners what would be at number one, they wouldn't say this acquisition because it's quite under the radar for most. So, they paid, this is Google, paid 3. 1 billion. For double click. And it is thought they're returning nearly 185 billion from it. It was a pivotal deal because it laid the groundwork for Google's outsize influence in digital advertising.
[00:10:26] Paul: But I think that's the reason that people don't know about this. And you know, the name double click is only known by those in the advertising industry is for years, it kept quiet how it was making money. It was in its interest. To play down the influence of this acquisition.
[00:10:42] Jonathan: But what I find really amusing about it is DoubleClick's actually only the third largest acquisition.
They spent 12. 5 billion on Motorola Mobility in 2011. Did they? And yes, 3. 2 billion on Nest Labs. Compared to them, this is massively more successful. This acquisition was part of a formula that meant that That Google currently controls key parts of the digital ad supply chain, which gives it an incredible advantage.
I mean, it's got two tools used by advertisers to buy ads. That's Google ads and DV 360, an ad server, which is used by publishers to distribute the online ads. That's double click for publishers and an ad exchange where advertisers and publishers buy and sell ads through auctions. That's the magic right there,
[00:11:27] Paul: right?
Yeah. Linking it all together, truly thinking about the ecosystem of online ads. That's category leadership.
[00:11:34] Jonathan: That's cracking. But interestingly enough, a bit of a diversion here, knowing what we know now, would, would the double click acquisition have cleared regulatory hurdles? Definitely not. If it happened today.
I think, yeah, you're right. I think probably not. Definitely not. Given that the relentless antitrust actions have been pointed at Google. Um, anyway, back then it realized that the thing it didn't have was the direct relationship with advertisers, you know, without those relationships, um, it's growth and display would have been, and to say the least limited, I think, short of acquiring technology and capability, that's not an easy capability to, to enable overnight.
And so it really, really needed to acquire DoubleClick.
[00:12:14] Paul: Just a beautiful piece of synergy, right? I own all the search, I can sell the results to the advertisers and I have a mechanism, an ad exchange to do that at the back. It's really clever, visionary stuff. And
[00:12:27] Jonathan: it looked quite expensive at the time, but you know, Google knew this was so important.
It wasn't going to lose a competitive auction for what was already. A category leader and it didn't, but I think there's another part to this story. I think that maybe if we look at this in history, the biggest value add actually wasn't the tech. It was the somewhat ironic realization that one of ad tech's most pivotal acquisitions also solidified Google as a strategic ad tech requirer.
And they went on to acquire lots and other pieces of the pie. Okay. Also, the experience of integrating such a big, and don't forget, DoubleClick had gone public by this time, managed to get them into Google's culture and create a substantial footprint in New York where it hadn't really been before, and it set them up very, very well.
Well, the subsequent acquisition activity, I mean, not to mention that the mountains of cash that's been able to so reliably Generate since so I think when we consider all this it's probably not surprising that Google Occupies four out of the ten slots at the top end of this list. So I think, you know, what can we learn overall from all of this?
It's
[00:13:42] Paul: been quite a journey. 10 acquisitions, billions created, uh, some category leaders, some aqua hires, some that we just don't see as category leaders, but they do, there does seem to be a strong thread that picking out a category leader is smart business.
[00:13:57] Jonathan: It's no surprise that the big investments can can leave a Big multiples.
And now we've talked about this before, uh, the companies sometimes appear to be paying over the odds for an acquisition at the time, but the investment pays off handsomely in the future, given that Google occupies 40 percent of the space of this table, you might ask yourself, is Google doing a lot of great acquisitions or our company's adding a lot of value because they've been bought by Google.
Now, in our measure, It's both. Google acquired two category leaders. They
[00:14:29] Paul: were?
[00:14:29] Jonathan: DoubleClick and YouTube. It built two more. Android and Google Maps. But it was the two existing category leaders, that's DoubleClick and YouTube, that have delivered the highest value. So if this table proves anything, it's the acquisition of existing category leaders that delivers the biggest increase in value.
And in that timing is all important.
[00:14:54] Paul: So if we figure out that we've got a category leader, the acquisition is really the smart thing to build all the value, right?
[00:15:01] Jonathan: If you have built a category leader, then you're absolutely right to ask for the highest valuation possible, because the evidence says. that an acquired category leader goes on to create the biggest value for the
[00:15:16] Paul: acquirer.
Thus ended the lesson. Thank you.
You've got to learn to earn. Okay. It's that time when we learn to earn. Professor Simnett, what's today's lesson?
[00:15:35] Jonathan: Well, I'd like to go into, into much more depth on something we've touched on before, which is, is really who is the best person to lead a category design project, or who are the best people? All right, listen up.
You might think that entering a category design project is a, is a big commitment. Yes. And you'd be right. After all, it's fundamentally About affecting the company strategies for years going forward. You know, we've talked in previous episodes about the need for the founder or CEO to lead as they should possess a blend of strategic vision, market understanding, and leadership skills.
But there is a caveat in smaller companies or startups, the CEO or founder. Takes the lead on transformative projects and the best CEOs or founders encapsulate the company. They are the company on legs. They, they hold its vision and they have the ability to direct change across all departments because the company is quite small and they can walk around the departments, which might be one or two people and they've got a big stick.
They have got a very big stick. And you know, that ability is actually crucial for the success of the project. So board alignment and engagement matters too. And the reality in the larger companies where category design is actually part of a pivot strategy rather than the first categorization, things can be different.
Given the demands that are placed on your average, for instance, public sector company CEO, it's really difficult. For them to actually manage that process on a day to day basis, they should be the person that is strongly seen to lead the project and to take responsibility for the project, but the actual action will be happening elsewhere.
[00:17:17] Paul: All right, so let's talk about let's go. Let's do that dive then. Where are we talking about when we go down a level? Who are we talking about being in this team to manage the design?
[00:17:26] Jonathan: This full. Key leadership roles and one special position, which we should never ever forget, there are essential to mutually engage during the category journey.
You know, each could lead, but they all need to work together in every case. So the first one of the C suite I would point to is the CMO, Chief Marketing Officer.
[00:17:46] Paul: Even though this is strategy, not marketing.
[00:17:49] Jonathan: Absolutely. Well, I was going to put that caveat in, but I'm glad you did. Because they have some skills which are very applicable to the category design process.
So they should have a deep understanding of market dynamics, of the customer needs, and therefore, they How to reframe them brand positioning and the value that's placed on the company and its products. So They can lead that project through the optic of the company's overall marketing and branding strategy but of course As you pointed out category strategy, so the impact is much more wide than that So that's why a head of strategy or chief strategy officer could
[00:18:29] Paul: lead.
So this is our second important
[00:18:32] Jonathan: Absolutely. Now they Absolutely need to be engaged Because, as you said, it's strategy, so the CSO needs to be engaged. That person, if they're properly used in the company, should already be responsible for long term planning and strategic initiatives. Obviously, which category design is one that they should have analytical skills and the foresight needed to identify new market opportunities.
And they should shape the direction of a category design project as it reframes the customer needs.
[00:19:05] Paul: So just one, one thing on this. So you and I had a conversation this week with a, um, I guess you'd call them a, well, Self described as an ankle biter, but let's just say a challenger in a very large, very large multibillion dollar market
[00:19:18] Jonathan: and a very smart company with a very smart leader in charge of the category.
[00:19:22] Paul: Indeed. Now he was a fractional CMO, but actually sat somewhere between CMO. And chief strategy officer, encompass both of those things. Um, and interestingly, because I'm not sure a fractional CMO is who you want leading your category, given it's going to go for several years. Interestingly, he'd just made the decision to commit and to become the full time.
Chief marketing officer and to go on the journey.
[00:19:46] Jonathan: Yeah, well, I think, you know, from from our conversation with him, there is a tremendous opportunity in the space they're at, and they clearly have a very good grip on how they're going to create that new category. Excellent
[00:19:59] Paul: plan. Yes, but my point was really that's two of those.
Um, two of those functions, chief marketing officer and chief strategy officer in one. Yep. Previously a fractional CMO, but came in with a lot of experience and you can unite those two.
[00:20:11] Jonathan: You know, he was in charge of strategy at other companies, completely in charge of strategy and not in charge of marketing.
So he's the one that you want. To, uh, to quote, yeah, exactly. To quote Grace on that. Um, so some more lubrication then on, on this idea. So my third, my third contender for leader and somebody that has to be involved in the project will be the chief product or service officer. Now, product leaders are closely connected, uh, to both the development and the market aspects of the products.
You know, they understand, or they should understand the realities of current products and how it could or could not create and evolve into a new category.
[00:20:50] Paul: Yeah. I mean, I think I take that the issue you find with a lot of startups, especially founders, uh, startups where there's an engineer involved who perhaps owns products.
Um, and this is where succession planning becomes a problem because often they Um, replaced by a proper C. Well, the
[00:21:06] Jonathan: other problem with them is, is that they, they can often have a build it and they will come approach. They love their technology and they don't understand why everybody should not want to adopt it because it's so technologically great, they think.
[00:21:18] Paul: So, yeah, so there are, there are dangers, uh, you see that they obviously need some involvement, but leadership role for a category, maybe not.
[00:21:25] Jonathan: But consider them or even consider that they may think. They could be the category leader and you need to have some good arguments as to why they shouldn't be So I guess sort of closely aligned from that conversation is the chief innovation or r& d officer These people exist but in very big companies and Their job is to develop new ideas and technologies so they can play a crucial role as a leader in leveraging their understanding of the realities of innovation.
Um, and in that should be able to guard the creation of a distinct and compelling category.
[00:22:05] Paul: Crucially, to differentiate the CTO from the head of product, CTO is all about horizon scanning, R& D, as you say, uh, and so, so the, the, the, one of the challenges you get is if you're pivoting, to a new category, it's important to understand that at some point you may need to kill your babies, you may need to cannibalize a revenue stream that could be owned by a chief product officer.
And then this role, this R& D role, the CTO role has got to be able to do the innovators dilemma and figure out when to switch it up. Yeah,
[00:22:34] Jonathan: that's a really important point because, you know, you certainly don't want to put in to a leadership position, somebody who has, um, skin in the current game. So those are our runners and riders on the board before, and then we have this other appointment, which as we, as we know, from all the projects we've done, It's probably even more important than who's actually leading it.
But you might not think so at first. No, you wouldn't, but things need to get done. And this category creation is a project. So you need a project coordinator. Now, this is an essential role, it's clearly not one of the big four, but it's the perfect opportunity for an individual with outstanding project management skills that can keep what will be a very complex project on the road, and most importantly, tracking against timescales.
Because just because you're doing a category creation project, you know, it doesn't mean that you're not subservient to delivering those numbers every quarter.
[00:23:36] Paul: Difficult juggling act.
[00:23:37] Jonathan: Yeah. So. Anybody who spends their time in tech companies at a senior level you will notice that in the fab four we've just gone through There's some key players missing
[00:23:47] Paul: um
[00:23:47] Jonathan: So I guess we have to say who are they and why haven't we included them, right?
Okay, so there are three I think which we don't really include one is the chief revenue officer chief sales officer One is the chief people officer chief hr officer and the chief financial officer now One of the reasons we don't recommend that these individuals are involved in the early stage of a process is because we think they are essential in the function, which would describe as business as usual.
Keep the lights on, they need to maintain the financial structure, keep the revenue generation going. and ensure staff stability in the early stages of the project. But I think particularly in the case of the Chief Revenue Officer, they should be briefed at the inception of the project, and they should have a consulting role throughout its development, because ultimately it's them and their teams that will have to deliver the new project.
Category to customers. Now, this is comes back to your point about people with skin in the game. Now, how the CRO is engaged is critical. They have to deliver the revenues because if you don't get those revenues, you don't have a company. But in tech and other areas of the economy, salespeople are driven by the targets on which their compensation is based and instinctively fear the Potentially disruptive change because of its imagined.
And I use the phrase imagined because I've seen it over and over again, the ability of, uh, salespeople to imagine problems when they actually don't exist is incredible. So there's an imagined impact on their really jealously guarded accounts and their ability to keep selling. earning, or even frankly, being employed.
[00:25:32] Paul: I think this is a very timely discussion of the CRO's role, because previously, when, you know, money was no object, just hit the VCs up for another round, we don't need to make a profit. It was sort of interesting what the CRO did, but slightly irrelevant to the category. Now, if they're providing the fuel, i.
e. the funds, for you to go on your category design journey, They have, as you say, more skin in the game, but interestingly enough, they, enlightened CROs are all over this. That conversation we had earlier about the company we were speaking to out of America, that opportunity arose because the CRO was bright enough to go, I can't be selling the same old stuff against multi billion dollar, much bigger rivals.
[00:26:14] Jonathan: That was it. That comment just encapsulated what they needed to do. If you don't have that Level of enlightenment, but you have a great team, you know, the comps plan needs to be adjusted to reflect the transition to a new reality. If you don't do that, then as a category leader, you risk creating a group of what we've referred to before as zeds who can oppose change in all sorts of ways and really put a spanner in the works.
So
[00:26:43] Paul: let's dig down a tad on that. So on the comp plan, you know, working with. Companies like exactly in the past got a good idea of what a comp plan looks like. And the, the, the, the, the diligence you need to put in to really, uh, make people, uh, respond the way you want them. Because obviously incentives often equal behavior.
Um, are we saying that a portion of a CROs compensation would be to help, for instance, with new wins or customer references, where category was mentioned, that sort of stuff?
[00:27:13] Jonathan: I mean, they have to be evangelists for the category. Um, but you know, anybody who's been in sales for about two nanoseconds would realize that if you're transitioning to a new category, the sales cycles are likely to get longer for sure.
And they'll have to be more meetings to explain what's going on. Um, a lot of the sales people have to jump up a number of strategic levels to be able to explain the new world to their customers and they have to hold those customers in place. Meanwhile, those customers will be. Engaging with the salespeople in business as usual.
There is a limit to how long you can continue doing that. Otherwise, your whole category design project is at risk. You have to move it forward.
[00:27:56] Paul: So the opposite is also true. If there's no skin in the game for the CRO to promote the new category, if it's solely revenue, meaning old category, Yep. you know, products they're used to selling, then they're not going to promote it.
[00:28:08] Jonathan: Absolutely not. They're going to, they're going to stick. To what they know, and they're going to stick to that because it will bring them their personal compensation. Now, this is a particular reason why you need to keep your chief people officer close. Um, the other reason that you need to keep the CPO close is that a new category may require new people and new skills to be brought into the organizations.
And sadly, and while we're talking about killing babies, some existing employees let go, and there will be a few people deciding that the journey is not for them. So, we're going to have to wait and see. Once the category is chosen and leading up to the burning of the boats moment, this needs a plan.
[00:28:53] Paul: So yeah, people officer very important and you're right, see it all the time.
Not for me. Tried it in another company. We didn't succeed. So I'm out or the other way around, which is like, Oh, where are all my friends gone? Who are these new guys with this? With this new idea of a category, it's touchy
[00:29:07] Jonathan: stuff. Yeah, a new tribe has just come in. Um, and we know how human beings behave when they drop into tribes.
But of course, lastly, um, we've got to tip our hat to the CFO. We, we love CFOs. They're, they're great people. They have to sit there patiently and plan to navigate. A new reality of numbers that support and are the result of that change of category design.
[00:29:29] Paul: A very simplistic thing. We're having a strike to announce the category.
We're going to be spending, uh, large amounts of money on one off launch things that we need to do. That's probably not in the plan until the CFO puts it in the plan.
[00:29:42] Jonathan: What do we think the, uh, the real
[00:29:44] Paul: lessons are? Categories. Touch a lot of people in the organization,
[00:29:48] Jonathan: but I think ultimately the best person to lead a category design project has to be a strategic thinker with a deep understanding of the market, strong leadership abilities, and most of all, I think the authority to hold sway in the company.
Let's face it. Most of us are motivated. By personal reasons, as well as more community oriented responsibilities. But this person, because a category design project is a big deal. They have to embrace it as a key career moment and a really powerful addition to their skill set. But, but this is really important too.
It's not all about them. Uh, as should be obvious, this individual should also be capable of fostering collaboration across different departments to ensure the project is successful.
[00:30:38] Paul: If you want to know any more about that and get some of the battle scars from some of the projects we've seen, please just look into the show notes.
Uh, we'd be happy to help. Just hit us up.
[00:30:54] Jonathan: Look, there's Captain Hindsight.
[00:30:59] Paul: All right. Captain Hindsight time. Take us back to a different time and place.
[00:31:04] Jonathan: Yes, I think we can transport ourselves through the medium of Dell and EMC. For those who have been around long enough, you will remember that, um, what is now a hardware and services company and was the one time PC category leader.
pushing IBM, uh, out of that particular position, Dell announced the acquisition of EMC corporation back in 2016 for a world record at that time, 67 billion. Now, why would they do that? Well, EMC was a category leader in data management and storage, and it sold both hardware and software solutions to IBM.
To its customers. Now, this was a big move for Dell. It had to take on $50 billion in debt to acquire EMC. Um, and on the other hand, activist investors, Elliot Management, put pressure on EMC to sell its most valuable parts, which was VMware, of which you are very familiar. Very familiar, um, that had been a previously acquired category leader.
In virtual storage and what Elliot management were interested in was that divestiture would actually boost the share price.
[00:32:15] Paul: So a little bit of background. So EMC were the Rolls Royce of storage back in the day, back in the 70s and 80s. Uh, they very scannily bought a category leader in virtualization, a company I used to work for actually called VMware.
And, you know, it all seemed well, and then these nasty activist investor types, the Elliot management guys, um, of which has a lot of history with Dell. Actually said prize off your prize asset.
[00:32:40] Jonathan: The acquisition meant that Dell rebranded as Dell EMC. Snappy. Yeah. Very lovely. And now describes itself as providing technology solutions, services, and support.
[00:32:49] Paul: Well, that sounds really not right.
[00:32:51] Jonathan: Right. Well done, Elliot Management, in particular, because in the interest of financial engineering, Dell EMC has become indistinguishable from the likes of IBM, HP, and that is absolutely about the short termism of its investors.
[00:33:08] Paul: Not very different at all. No, they threw away the category leadership of its component parts.
[00:33:13] Jonathan: And so what can we learn from this Well, I think sometimes you've really got to not confuse size, sheer bulk with category leadership. And the problem is acquisition, if you're not careful, could propel you into another category where you're just an also ran and you'll never be able to take most value from the market.
[00:33:34] Paul: And at the end of a category's life cycle, if you will, there's this, there's this dark world where it becomes less about technology and innovation and more about, as you say. Financial engineering. So just as an epilogue to the Dell EMC story, you'll see that the VMware subsidiary was in fact spun out.
And a lot of people, um, no longer work for the formal category leader called VMware. That has now gone to Broadcom who with people with an even Longer memory will remember a company that I, that reminds me of a lot called computer associates, also known as the vampire squid. And I think CA, uh, may have been bought by Broadcom actually.
So maybe that's where they learn. They were
[00:34:12] Jonathan: as Broadcom blew it's a semiconductor category leadership.
[00:34:16] Paul: We are category designers. We're into innovation and category leadership. There are. People who are equally fine from a business point of view who are all about the long tail and extracting the value from the the ass end technical term of markets like the mainframe market.
That's exactly what CA did and perhaps Broadcom sees that virtualization is also getting into that long tail mode. Of course, that has some pretty bad effects on buyers. If I'm a lifelong, um, VMware, but I love the product, love the vision. Love the virtualization category as so now they are looking at their T's and C's, which are busily being rewritten to extract maximum value from the cash cow.
And that's all a little bit, it's a little bit sad. I think the register literally said that the customers of Broadcom are facing a bumpy ride. And that's because what they're doing is not investing, not category leading, not designing anything new, but coming up with more and more. Clever ways to extract cash from the cash cow,
[00:35:22] Jonathan: but it's only going one way.
You know, this is a declining part of the market. That's ultimately going to disappear. Now, if that makes sense to you in terms of investment, uh, in terms of, you know, driving cash out of your users, that's fine, but it ain't an innovation strategy, and if you are going to. Innovate on the flip side of that coin.
Be very, very careful who you acquire because you may end up leaving the category. You lead and just become another also around, which is self defeating as it makes you pray to other companies.
[00:36:03] Paul: Thank you for listening. If you want to learn more, go check our blog posts on becategorical. com.
[00:36:08] Jonathan: If you have a category issue, then we can help get in touch with us.
[00:36:12] Paul: And remember, don't be better, be different.