or Connect
AppleInsider › Forums › General › General Discussion › Account sheds light on how Apple conducts buyouts, Steve Jobs's negotiating strategy
New Posts  All Forums:Forum Nav:

Account sheds light on how Apple conducts buyouts, Steve Jobs's negotiating strategy

post #1 of 27
Thread Starter 
A new report reveals how Apple proceeds when buying a company, as well as how late company co-founder Steve Jobs liked to close out deals.

Aubrey Johnson, previously a lead designer at Color and Twilio and currently Designer in Residence at Science, published her account of the dealings surrounding Apple's 2009 purchase of music startup Lala. The designer painted Lala as a struggling but middlingly successful company ? one that had managed to get its song listings into the top spot for Google song search results.

That achievement, in combination with Lala's partnership with Google's Music Beta, sparked a bidding war among Google, digital music industry leading Apple, as well as Nokia, which hoped to use Lala to breathe new life into its struggling mobile OS.

iTunes Match
Apple purchased streaming music service Lala in 2009, paving the way for iTunes Match.


Nokia and Google reportedly lowballed Lala founder Bill Nguyen in bidding for the company, and Johnson characterized Nguyen as "absolutely disgusted" by Nokia's $11 million offer. Nguyen then contacted Apple's leadership, securing a dinner with Steve Jobs, Tim Cook, and Eddie Cue.

Jobs is said to have led the acquisition discussions while eating a beet salad, eventually passing Nguyen a slip of paper with a figure written on it, saying "if you like it, let's do it and just be done with this whole thing. Okay?"

The figure was around $80 million, with another $80 million in retention bonuses for Lala's remaining employees. Nguyen agreed to the deal.

A number of notable Lala employees left the company with Nguyen following the purchase, leaving millions of dollars in options on the table. Johnson points out that some of those same engineers returned to Apple when the company bought much of Color's talent for $7 million last year. Johnson sums up the Apple-Lala-Color transaction thusly:

"Apple obtained the same employees for pennies on the dollar. This time with even more experience and startup life under their belt. Paying twice was genius."
post #2 of 27

So basically, Steve said: 

 

"Bill, I just met you, and this is crazy.  But here's a number, call me maybe?"

post #3 of 27

I wonder if he also had a $60m and a $100m piece of paper in his pocket, depending on how the discussion went :)

post #4 of 27
I always imagine Jobs would takeover a company like Bill Gates does to Homer's 'company' on The Simpsons.
post #5 of 27
Steve Jobs was so powerful that his offer were irresistable to anyone. Hell, who will say no when Apple is giving you 8 times more than the competition.
post #6 of 27
I particularly like the "let's do it, be done with it," and move on approach to doing business. Nothing much more complicated than that is often needed.

I truly hope Apple stays the course with that simple, direct approach in its dealings with all its stakeholders.
post #7 of 27

Wasn't his name Steve P. Jobs Corleone? He makes offers that lesser people cannot refuse.

post #8 of 27
As some level, once SJ knew what it's value was to Apple and what he thought was a good price from the sellers viewpoint, he made his offer.

This is sometimes called Boulwarism (mistakenly often referred to as "take-it-or-leave-it" bargaining", which is not bargaining at all). However, according a to review article of the book The Truth About Boulwarism: Trying To Do Right Voluntarily, by Lemuel R Boulware, from back in the '60's, such a position was supposedly the best offer subject to new facts and information -- that is, it was supposedly an honest best offer given facts known at the time of the offer, and not tactic to demand concessions from the other side(s).

According to Boulware, page 89 of his book, "while our offer represented the best information we had at the moment as to what the offer should be, we would not only be willing but eager to change it instantly on getting any old or new information proving that the change would be in the balanced-best-interest of all. We emphasized that no false pride in the offer and no silly face-saving about changing it would deter us in the slightest from embracing any improvements that would make the offer still more workable for all the cooperating contributor-claimants."

Of course, it wouldn't be surprising if Boulware's comments were slanted to make GE and him look good, but nonetheless, SJ's approach might have been this "reasonable" type of Boulwarism.
Edited by waldobushman - 1/18/13 at 4:02pm
post #9 of 27

Why would those employees exit Apple and leave millions of $ on the table? Doesn't sound like a smart bunch.

Please update the AppleInsider app to function in landscape mode.

Reply

Please update the AppleInsider app to function in landscape mode.

Reply
post #10 of 27
Quote:
Originally Posted by jd_in_sb View Post

Why would those employees exit Apple and leave millions of $ on the table? Doesn't sound like a smart bunch.

Experience told them they could make another startup and sell it for tens of millions?

post #11 of 27
What was it they did with Lala after buying it? I forget.
A.k.a. AppleHead on other forums.
Reply
A.k.a. AppleHead on other forums.
Reply
post #12 of 27
Quote:
Originally Posted by Robin Huber View Post

What was it they did with Lala after buying it? I forget.

iTunes Match:

http://www.technologyreview.com/view/424221/itunes-match-is-the-ghost-of-lala/

The staff apparently worked at Apple for a while and then a lot left with Nguyen:

http://www.fastcompany.com/1784823/bill-nguyen-boy-bubble

"Nguyen sold Lala, a cloud-based music service, to Apple for a reported $80 million. Depending on how you're counting or who's doing the telling, it was his third or seventh startup. After 10 months of working for Steve Jobs in Cupertino, Nguyen decided it was time to move on and launch another."

He left to build a social network called Color all about sharing photos to everyone nearby. Supposedly Google tried to buy it for $200m:

http://techcrunch.com/2011/07/21/google-tried-to-buy-color-for-200-million-color-said-no/

Not very good ideas to either offer that amount or turn down the offer. Maybe Google was trying to copy Apple's buyout style, except it's not buying, it's failing with style.
post #13 of 27
Quote:
Originally Posted by jd_in_sb View Post

Why would those employees exit Apple and leave millions of $ on the table? Doesn't sound like a smart bunch.

 

Not unusual at all. Happens a lot.

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
Reply

"Apple should pull the plug on the iPhone."

John C. Dvorak, 2007
Reply
post #14 of 27
They took Lala's top search rankings off the table, removing a key threat to iTunes.
post #15 of 27
Quote:
Originally Posted by ascii View Post

Experience told them they could make another startup and sell it for tens of millions?

 

Most of that money went to the VC guys, not them.

post #16 of 27
Quote:
Originally Posted by jd_in_sb View Post

Why would those employees exit Apple and leave millions of $ on the table? Doesn't sound like a smart bunch.

 

Quote:
Originally Posted by ascii View Post

Experience told them they could make another startup and sell it for tens of millions?

 

And they were right.

No matter what type of media...movies, music, books, photos and web pages

look better and sound better on the Kindle Fire HD and HDX than any iPad

Reply

No matter what type of media...movies, music, books, photos and web pages

look better and sound better on the Kindle Fire HD and HDX than any iPad

Reply
post #17 of 27
Quote:
Originally Posted by jd_in_sb View Post

Why would those employees exit Apple and leave millions of $ on the table? Doesn't sound like a smart bunch.

It was in stocks - they probably wouldn't have expected it to go up so much in value and who knows how long they'd have had to wait for it to vest. If they had an option to take 25% or so after a year, that would explain the departure timing and they'd still have made a good profit:

"Apple's stock price at the time of the Lala deal was $196.48.
But not all of Lala's employees stuck around to vest all of their stock. In March 2011, Apple traded at around $350, which would spell a nice profit. Who would have expected Apple, already hugely valuable, to double from there?
By their actions, it seems that some ex-Lala employees were willing to bet that Nguyen could do even better for them than Steve Jobs.
Any stock awards issued in December 2009 would have more than tripled in value when Apple hit a peak above $700 last summer. That $80 million, in aggregate, swelled to a notional $300 million. Even today, it's around $200 million.
The winners in this deal seem to be the Lala employees who stayed at Apple: They continued to vest millions of dollars in Apple stock, they skipped Color's startup drama, and they retained steady jobs at the world's most successful company."

http://www.sfgate.com/technology/businessinsider/article/The-Price-Of-Loyalty-Color-Employees-Missed-Out-4206546.php
post #18 of 27
Quote:
Originally Posted by SailorPaul View Post

They took Lala's top search rankings off the table, removing a key threat to iTunes.

 

But, remember, they only had top search rankings because Google was manipulating the search results to promote them (because of their partnership) -- i.e., the rankings were not organic.

post #19 of 27
Some people would criticize SJ for paying far more than other companies offered, but if you consider the extensive resources that senior execs dedicate to negotiating acquisitions and performing due diligence and all the focus it requires, it was actually a brilliant move to spend the extra money and get it done quickly, especially since $80 million is almost pocket change for Apple.

Apple is currently projected to have about $156 billion in cash. Let's say it was $125 billion at the time of this negotiation. At 3% per year return, that's $10.2 million a day in return. So for eight days of interest on cash, they get this whole company.

I'd actually like to see Apple doing more deals like this (but only if they can probably integrate the technology and not ignore the company once they buy it).
post #20 of 27
Quote:
Originally Posted by zoetmb View Post

Some people would criticize SJ for paying far more than other companies offered, but if you consider the extensive resources that senior execs dedicate to negotiating acquisitions and performing due diligence and all the focus it requires, it was actually a brilliant move to spend the extra money and get it done quickly, especially since $80 million is almost pocket change for Apple.

...

 

Better to play the game of paying more (or "far more") within the range of tens of millions $, for something you will originate profit, than within the billions $ range, which will ultimately result in total loss of money ....

post #21 of 27
Originally Posted by zoetmb View Post
Apple is currently projected to have about $156 billion in cash. Let's say it was $125 billion at the time of this negotiation.

 

30 billion. The rest was invested, I'm told.

post #22 of 27
Quote:
Originally Posted by anonymouse View Post

 

.... -- i.e., the rankings were not organic.

 

 

Interesting formulation. But how could they be, since the whole business plan is to make money out of their manipulation ?


Edited by umrk_lab - 1/19/13 at 9:03am
post #23 of 27
robin, read the last few lines of the story. They did, but only got pennies on the dollar for the second go round. In a word, no it did not work out. When someone offers you stupid money to do the best you can possibly do, then take it and give it your all. The results win or lose will be that will know whether you can do it and you will already have enough money to do it yourself. This is why people are paid salaries. Salaries don't give you enough money to start to compete with the company on your own.
post #24 of 27
Quote:
Originally Posted by maclancer View Post

Steve Jobs was so powerful that his offer were irresistable to anyone. Hell, who will say no when Apple is giving you 8 times more than the competition.

Well, Dropbox was able to resist him. More recently, Waze turned down Apple. And if Jobs was so powerful, why did he have to outbid the competition by so much?

 

I have no doubt that Jobs's charisma and business acumen had few equals. But stories such as these fortify the legend while skimming on details and facts.

 

The focus of this story (and the folks herein) is all wrong. The important moral here is not the little piece of paper passed from Jobs to Nguyen (so Hollywood-esque), or the fact that the transaction was seemingly effortless. Furthermore, this story, accurate or not, is not representative of how Jobs and Apple conducted other acquisitions. Instead, I think this shows how, at watershed moments, Nokia and its ilk reacted much more slowly than Apple.


Edited by stelligent - 1/19/13 at 3:31pm
post #25 of 27
Originally Posted by stelligent View Post
…why did he have to outbid…

 

Did he have to?

post #26 of 27
Quote:
Originally Posted by Marvin View Post


It was in stocks - they probably wouldn't have expected it to go up so much in value and who knows how long they'd have had to wait for it to vest. If they had an option to take 25% or so after a year, that would explain the departure timing and they'd still have made a good profit:

"Apple's stock price at the time of the Lala deal was $196.48.
But not all of Lala's employees stuck around to vest all of their stock. In March 2011, Apple traded at around $350, which would spell a nice profit. Who would have expected Apple, already hugely valuable, to double from there?
By their actions, it seems that some ex-Lala employees were willing to bet that Nguyen could do even better for them than Steve Jobs.
Any stock awards issued in December 2009 would have more than tripled in value when Apple hit a peak above $700 last summer. That $80 million, in aggregate, swelled to a notional $300 million. Even today, it's around $200 million.
The winners in this deal seem to be the Lala employees who stayed at Apple: They continued to vest millions of dollars in Apple stock, they skipped Color's startup drama, and they retained steady jobs at the world's most successful company."

http://www.sfgate.com/technology/businessinsider/article/The-Price-Of-Loyalty-Color-Employees-Missed-Out-4206546.php

Well you definitely can't assume they would have predicted a peak of $700 with all of their shares being sold at the perfect time. I think it went up considerably last year around February and March. I don't invest in it, so I don't follow it that closely. Call it amusement.

Quote:
Originally Posted by zoetmb View Post

Some people would criticize SJ for paying far more than other companies offered, but if you consider the extensive resources that senior execs dedicate to negotiating acquisitions and performing due diligence and all the focus it requires, it was actually a brilliant move to spend the extra money and get it done quickly, especially since $80 million is almost pocket change for Apple.

Apple is currently projected to have about $156 billion in cash. Let's say it was $125 billion at the time of this negotiation. At 3% per year return, that's $10.2 million a day in return. So for eight days of interest on cash, they get this whole company.

I'd actually like to see Apple doing more deals like this (but only if they can probably integrate the technology and not ignore the company once they buy it).

I think you have it wrong here. He would have needed board approval to make such a large purchase, and you shouldn't compare it to rejected offers. If he knew the value it represented to Apple and made a board approved offer within that scope,  there's nothing inherently wrong with that. This alleviates any problems with others bidding on it and any real uncertainty. I think these recollections are presented in a way that leaves too room for imagination.

post #27 of 27
Quote:
Originally Posted by Tallest Skil View Post

 

Did he have to?

 

Arguing semantics?

 

Well, if he didn't have to outbid but did so anyway, then he should be remembered differently.

New Posts  All Forums:Forum Nav:
  Return Home
  Back to Forum: General Discussion
AppleInsider › Forums › General › General Discussion › Account sheds light on how Apple conducts buyouts, Steve Jobs's negotiating strategy