On July 22nd, Google acquired PittPatt, a small company that specializes in facial recognition technology. Although the terms of the business deal were kept private, there are lessons that can be learned about business acquisition including deciding when to sell, locating a buyer, and financial preparation.
PittPatt was started in 2004 by Henry Schneiderman of Carnegie Mellon University’s Robotics Institute and was estimated to have annual revenue of $1-2.5 million at the time of sale. It was seen as being a good fit for Google because its facial recognition technology could be used to for photo organization or video and mobile applications.
Google has been using this type of technology in a variety of its products including Image Search, YouTube, Picasa, Goggles, and Google Plus. Picasa uses facial recognition technology for organizing—for example being able to quickly pull up all photos of a certain person in your albums. Another application for the Android phone, Goggles, uses the technology to look up information about famous sites or products using a photo. With the introduction of Google Plus last month, the technology will prove useful in challenging Facebook’s social networking empire, which is predicted to have 750 million users by this summer.
One of the important factors for PittPatt identifying Google as a potential buyer had to do with timing. Facebook introduced facial recognition technology about a year ago to aid users in tagging photos of their friends. It is predicted that the future of internet business lies in social networking, rather than search content which is what Google’s traditional territory. If Google Plus wants to offer the same features as Facebook, it will need access to the best technology in this area, which PittPatt offers. Rob Enderle, an analyst from the Enderle Group said "Facebook is recognizing that Google is its biggest threat.... If anybody could put Facebook out of business at this point, it would be Google.”
Google’s selection of programs, in addition to its increasing competition with Facebook, means that Pittpatt faced an extremely favorable market for its sale. As video chat using cell phones becomes more popular, Google is looking to harness this new technology for object-tracking and facial recognition for the Android. This, in addition to the aforementioned programs, shows that the growth opportunities for the use of this technology in the future are vast.
If you are considering selling your business, know that there are generally two types of buyers: strategic and financial. In this case, Google was a strategic buyer—a large company purchasing a business (or product line) so that it did not have to create its own from scratch. Companies that engage in strategic buying may have the goal of increasing market share or getting ownership over a certain type of technology. The other type of buyer is the financial buyer, a company that is only looking at the purchase as a financial investment.
If your company has the potential of being acquired in the near future, it is important that it has its financial documents in order. This may mean having your financial statements audited to see that all numbers are accurate. As a matter of habit, your business will want to submit its tax forms on time as it is a reflection on the way that the business is run. Lastly, when it comes to valuing your company be fair, taking into account your company’s tangible and intangible assets.
Google’s acquisition of PittPatt demonstrates how identifying the trends in certain markets, such as the shift in focus from the internet business from providing the best search results or content to social networking can lead to incredible opportunities for growth. PittPatt is set to experience rapid growth now that it has Google’s financial and human resources at its disposal. Apart from having a great product, timing was key. Google’s movement into the cell phone and social media markets certainly had much to do with its desire to use facial recognition technology like its competitor Facebook. If you are considering selling your business, be sure to know which type of buyers to court, when to sell, and what to do to be financially ready.
1) ComputerWorld: “Facebook-Google ‘cold war’ suddenly gets hot”
2) Docstoc: “Selling Your Business Right”
3) Docstoc: “Selling Your Business”
4) eWeek.com: “Google Could Boost Google+ With PittPatt Recognition”
5) Docstoc: “How to Sell your Business”