Here's The 'Toothbrush Test' Google's CEO Uses To Make Acquisition Decisions (GOOG)
Google isn't afraid to shell out a boatload of cash for the right acquisition. Just ask the smart thermostat company Nest, which it bought earlier this year for $3.2 billion.
In 2014 alone, Google has already made upward of 20 acquisitions.
According The New York Times' Liz Grauman, CEO Larry Page uses the "toothbrush test" to determine whether a company is worth buying. He'll ask, "Is this something you will use once or twice a day, and does it make your life better?"
Instead of diving into the nitty-gritty of cash flow and earnings, Page cares about usefulness and long-term investment and benefits. Nest might not be reeling in a ton of money right now, but Google sees it as an entry point to a potentially gigantic new market. Nest's smart thermostats and smoke detectors use complex tech to solve simple problems that people have on an everyday basis. Toothbrush test: Passed.
Like many other tech companies, Grauman points out, Google doesn't depend as frequently on big banks to decide whether a major merger or acquisition is worth it.
"Larry will look at potential deals at a very early stage,” Google’s VP of corporate development, Donald Harrison, told Grauman. "Bankers can be helpful, but they’re not necessarily core to the discussions."
Once Google does acquire a company, it works hard to integrate it into the "Googley" culture while still leaving room for autonomy. Nest, for example, still has an independent management team and doesn't share its data with its parent company.
Read the full New York Times piece here.
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