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

Posted:
in General Discussion edited January 2014
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."
«1

Comments

  • Reply 1 of 26
    allenbfallenbf Posts: 993member


    So basically, Steve said: 


     


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

  • Reply 2 of 26
    asciiascii Posts: 5,941member


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

  • Reply 3 of 26
    jungmarkjungmark Posts: 6,867member
    I always imagine Jobs would takeover a company like Bill Gates does to Homer's 'company' on The Simpsons.
  • Reply 4 of 26
    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.
  • Reply 5 of 26
    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.
  • Reply 6 of 26


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

  • Reply 7 of 26
    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.
  • Reply 8 of 26
    jd_in_sbjd_in_sb Posts: 1,600member


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

  • Reply 9 of 26
    asciiascii Posts: 5,941member

    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?

  • Reply 10 of 26
    What was it they did with Lala after buying it? I forget.
  • Reply 11 of 26
    MarvinMarvin Posts: 14,548moderator
    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.
  • Reply 12 of 26

    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.

  • Reply 13 of 26
    They took Lala's top search rankings off the table, removing a key threat to iTunes.
  • Reply 14 of 26

    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.

  • Reply 15 of 26

    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.

  • Reply 16 of 26
    MarvinMarvin Posts: 14,548moderator
    jd_in_sb wrote: »
    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
  • Reply 17 of 26
    anonymouseanonymouse Posts: 6,653member

    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.

  • Reply 18 of 26
    zoetmbzoetmb Posts: 2,586member
    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).
  • Reply 19 of 26

    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 ....

  • Reply 20 of 26


    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.

Sign In or Register to comment.