The 5 Marketing Benefits of Acquisitions

Recently, the idea of “acquisitions for marketing” has fascinated me. What does this mean? It refers to situations where companies acquire other businesses or assets as a way to grow their primary product(s) or improve their marketing.

Huge companies use acquisitions for marketing all of the time. Examples of this practice in large corporations include:

• Walmart’s $3B acquisition of Jet.com, which helps it make significant inroads in ecommerce.
• Amazon’s acquisitions of Zappos, Quidsi, and Whole Foods, which allowed it to add product categories like shoes, baby care, home goods, and food to its portfolio. Or, Amazon’s acquisitions of IMDb, Box Office Mojo, Goodreads, and Twitch.tv, which receive significant traffic in key product categories.
• Google’s purchase of Android, Inc., which formed the basis of its Android operating system. Android now powers more than two billion devices and is a perfect way for Google to pre-install its most essential products on smartphones.
• Facebook’s acquisitions of Instagram and WhatsApp. Even as Facebook.com’s growth has slowed, these two properties have allowed the company to maintain a phenomenal growth rate due to their rapidly expanding user bases.

As these examples hopefully illustrate, big companies like to buy other businesses as a way to market their existing products and grow their overall value.

I see so many large businesses grow via M&A, but I often wonder why more startups don’t use the same strategy.

In response, a practical person might bring up the fact that startups don’t have the resources to practice M&A in a way that creates meaningful results. After all, Google, Facebook, Apple, and other titans can pay millions or billions of dollars to buy other companies without even breaking a sweat.

But, the benefits that businesses experience from acquisitions can translate to smaller startups. They just apply at a smaller scale.

In fact, the startup ecosystem is filled with companies that used acquisitions to accelerate their growth.

For that reason, in this article, I will share the specific growth and marketing benefits startups often receive after acquiring other companies.

Benefits Startups Can Experience When Acquiring Other Companies

Some of the positives of acquisitions for marketing for startups include:

1. Increased traffic at the top of the funnel.

Amazon provides an excellent case study of how acquisitions can increase top-of-funnel traffic. Tens of millions of people visit sites like IMDb, Box Office Mojo, Goodreads, and Twitch.tv (all acquired by Amazon over the past 20+ years) every month.

Source: https://www.investopedia.com/articles/markets/102115/top-10-companies-owned-amazon.asp

Many, if not most, of the people who visit these properties are looking to learn more about movies, books, or video games. Amazon, which is the world’s largest seller of movies, books, and video games, can efficiently use these properties to link to products on its website.

These content-heavy businesses may not account for most of Amazon’s traffic, but they definitely send lots of targeted visitors to Amazon.com.

There are plenty of other acquisitions that lead to more traffic for a company’s primary product or service.

For example, the company behind Fomo acquired a content-focused site called Built With Shopify.

Source: https://www.builtwithshopify.com/

Built With Shopify interviews Shopify entrepreneurs who publish the revenues generated by their stores. We can assume that the site’s viral, SEO-friendly, ecommerce-focused content likely creates substantial amounts of inbound traffic. Thanks to strategically placed ads throughout the site, this acquisition should have lead to a nice bump in visitors to Fomo.

As one final case study, consider the mattress review industry. With the rise of direct-to-consumer mattress brands like Casper and Tuft & Needle, several enterprising entrepreneurs started review sites focused on these new products.

By including affiliate links with the mattresses they reviewed, bloggers began to earn serious money. As this story indicates, the most-visited mattress review websites became a vital referral source for players in the industry.

In fact, in a controversial move, Casper ended up suing and then acquiring Sleepopolis, one of the sector’s prominent review sites. With the acquisition, Casper gained control of a website it could use to direct additional visitors to Casper.com.

Are there blogs, review websites, or content-focused assets (such as Instagram or Youtube accounts) with relevance to your product that you can acquire?

If so, you can consider purchasing one or more of these properties and using them to increase traffic to your primary product.

2. Significant PR and content marketing.

It’s no secret that the press loves to cover mergers and acquisitions. While acquisitions worth billions or hundreds of millions of dollars tend to get the most attention from journalists, smaller sales can get plenty of love as well.

Just search “Mergers and Acquisitions” in Google News or “acquisition” in Techcrunch, and you’ll see tens of thousands of articles about how this company bought that startup.

Source: https://techcrunch.com/search/acquisition

Whether it’s a $5M deal or a $16B deal, reporters like to write about acquisitions because they fascinate people. Why?

Although I can’t claim to understand the psychology behind why people love acquisitions, two potential reasons come to mind:

1. Acquisitions are very rare. Everyone knows plenty of entrepreneurs, but how many people do you know whose companies got acquired? Probably not too many. Even though entrepreneurship is pretty popular, it’s still somewhat rare. But, acquisitions are incredibly uncommon, which means people love to read about them when they happen. After all, we love to learn about what doesn’t often occur.
2. People like to picture themselves as a part of an acquired company. Starting a successful company and selling it for millions of dollars is difficult. However, imagining that you’ve started a big company and sold it for millions of dollars is easy. Rather than put in the work required to achieve the former, most people are happy with the latter. This idea may explain why acquisition stories are so popular; they give people a chance to think about what it would be like to earn fabulous wealth.

Acquisitions of small products or websites in the range of $10,000 — $3/5M might not get much attention from the press. But, because of the reasons mentioned above, if you write about a small acquisition made by your company on its blog or Medium, many people will likely read about it.

This is one of the rare situations where the typically untrue cliche “If you build (or write about) it, they will come” actually rings true.

Just look at the following popular articles about very small acquisitions to get a sense of how well this type of content can do and how compelling it can be:

• What I Learned Buying, Growing, and Selling HitTail
• What I Learned Selling A Software Business
• The Journey of Selling Sifter
• Selling My Bootstrapped SaaS Business

You shouldn’t acquire a product or website just for the PR or content marketing boost it might bring. But, keep in mind that this is a marketing benefit of acquisitions.

3. The opportunity to cross-sell your primary product and the one you’ve acquired.

If you acquire a product that’s relevant to some or all of your customers but has a different value proposition or focus than your core business, you can cross-sell it to them.

Similarly, you can potentially cross-sell your core business’s product to the customers of the company you’ve acquired.

In these situations, the whole becomes greater than the sum of the parts. How?

If you combine two revenue-generating products under one company and leverage those products’ audiences to consistently cross-sell each service, both products will grow faster and be more valuable than before.

When it comes to this type of acquisitions as marketing, Microsoft has made several exciting purchases.

Microsoft’s acquisition of GitHub provides exciting cross-selling opportunities for its enterprise business. The company can now efficiently cross-sell its Azure hosting product to GitHub’s users and at the same time encourage its existing Azure users to become GitHub customers.

In its consumer business, Microsoft’s acquisition of Minecraft was another way to increase the value of two different companies through cross-selling. As the owner of Minecraft, Microsoft can encourage its existing Xbox users to check out the game. And, it can now market Xbox and its associated games to the vast Minecraft user base for free.

Microsoft acquired GitHub and Minecraft for $7.5B and $2.5B, respectively. However, not all successful acquisitions with cross-selling potential have to be billion or multi-million dollar deals.

4. The removal of a competitor from the market and the chance to onboard its customers to your product.

It’s common for companies to buy other products, startups, or IP to bring competitors’ customers to their product. A recent and now somewhat famous example of this is Slack’s acquisition of Hipchat.

Hipchat was one of Slack’s main competitors in the employee chat and communication market. Yet, as Slack’s dominance grew, Hipchat floundered.

With the acquisition of Hipchat, Slack plans to shut down the service and migrate its existing users over to its product.

In the end, this is advantageous for Slack because it now has to deal with one less competitor and it can quickly add a significant number of users to its platform. Also, I can’t forget to mention all of the PR Slack has gotten from the deal (see benefit 1 above).

Another company that has taken this approach is Fomo. In the past year, Fomo acquired a competitor called Refurther. Just like Slack’s acquisition of Hipchat, Fomo’s acquisition of Refurther helps with its marketing by removing a competitor and bringing that former competitor’s customers onto the platform.

When it comes to acquisitions as marketing, if your industry has many small competitors, it may make sense to acquire some of them as your company grows. The examples of Slack and Fomo show how effective strategy this can be.

5. A fresh infusion of new talent and processes.

Companies, especially large corporations, frequently acquire other businesses as a way to bring smart talent into their organizations. These acquisitions, typically referred to as acquihires, can help with marketing by bringing in the new skills, knowledge, or processes companies need to launch fresh products or grow existing ones.

There are hundreds, if not thousands, of acquihire examples. A few include:

• Facebook’s acquisition of FriendFeed in 2009 (Bret Taylor, one of the co-founders of FriendFeed, became Facebook’s CTO as a part of the deal).
• Twitter’s acquisition of AdGrok, which added two talented engineers to its advertising team.
• Google acquired Kevin Rose’s company Milk to add him to its team.

Large corporations recognize that even if they don’t see value in a startup’s product or underlying tech, teams at certain companies can add real value to their organizations.

While acquihires by Facebook, Twitter, and Google often range from $1M — $50+M, small startups can participate as well.

In his excellent book Lost and Founder, when describing the different acquihires Moz has made, Rand Fishkin writes:

Moz has completed six transactions to accomplish precisely this. One of those was a young man who’d just graduated college but had built a useful product in his spare time at school that proved to me, and to our team, that he could be incredibly valuable. We paid a small acquisition price ($18,000) and brought him on board at Moz at a salary, with stock options, and with influence greater than what we’d have offered a candidate who simply applied to a job posting. Another was a pair of SEO professionals who’d built a successful consulting practice and whose skills we wanted internally for our product and engineering teams. We paid $330,000 (plus stock options and retention bonuses) to get them here, a nice multiple on their business in addition to strong salaries and benefits.

As this example hopefully illustrates, small-scale acquihires, in the range of $X0,000 — $X00,000 can help nascent startups add the talent they need to grow.

If your startup requires talent with unique skills to hit new product or growth milestones, acquihires may help you get there. In these cases, acquisitions can help with marketing, just not in the most direct way.

Bringing It Together

Acquiring any company or asset involves some risk, and you should always do extensive due diligence before purchasing another business. After all, history is riddled with botched acquisitions like:

• The infamous $164B AOL Time Warner merger.
• Zynga’s acquisition of OMGPOP for $210M.
• And Google’s purchase of Motorola for $12.5B.

However, I hope this article has shown you that when done right, acquisitions can be a useful marketing tool. To learn more about M&A, we recommend checking out the following resources:

• CB Insights Research
• The FE International Blog
• And the Empire Flippers Blog