Bartering With Billions: How Silicon Valley Makes It Rain

Carlos Watson, co-founder of the online magazine Ozy.com, talks with NPR's Arun Rath about the offense and defense of making billion-dollar deals in Silicon Valley.

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ARUN RATH, HOST:

From NPR West it's ALL THINGS CONSIDERED. I'm Arun Rath. It's time now for The New and The Next. Carlos Watson is the cofounder of the online magazine Ozy. Each week, he joins us talk what's new and what's next. Welcome back, Carlos.

CARLOS WATSON: Arun, good to be with you.

RATH: So, Carlos, earlier this year Facebook paid out $19 billion - just seems insane - to buy the messaging service What's App. And you're saying there could be a boom in billion-dollar purchases coming in Silicon Valley. But have you heard?

WATSON: So over the last year, you've seen big companies like Facebook and Apple and Yahoo and Google spend close to $50 billion buying companies like What's App and even Beats by Dr. Dre - the very cool southern California headset company. But the reality is that may just be a down payment. We may see another 10, 15, even 20 significant billion-dollar purchases over the next two years as these companies, whose pockets are bulging, look to buy more innovative companies. While most of this activity has happened in the U.S., I think over the next year or two, you'll start to see some of this activity go beyond American borders to show up in Europe and South America and other places.

RATH: So beyond the prominent companies that we know about, like Facebook, who else is shelling out billions of dollars - multiple billions of dollars in these deals?

WATSON: Well, once upon a time, the most active acquirer in the tech's base was Cisco. So if we go back to last boom, they were kind of the big player. And a lot of it came through acquisitions. Well, the new Cisco is Google. Google has already done 20 acquisitions this year, some of them small, some of them bigger. So they're used to successfully buying companies like YouTube and turning them into big successes within Google. And so that would be the company, if any one, that I watch - I would watch them very carefully.

RATH: With all these billion dollar deals - I know you are probably ready for the question about is this an app bubble 'cause it seems like the same sort of thing, that billions of dollars are being spent. These aren't steel companies that are being bought. They're more ideas than things. Is there an app bubble that we're approaching?

WATSON: Well, in some cases, people are buying more than an idea. They're buying a significant number of users. That was the case with InstaGram and What's App where they literally had hundreds of millions of users. And so the larger companies could look at them and say, even though these guys haven't figured out how to make significant money off of this platform yet, I will be able to figure it out.

There's another set, Arun, there are companies like Nest - a kind of smart thermostat company or Beats by Dr. Dre, that actually are kind of hardware companies that actually were generating some meaningful revenue. And so those weren't just ideas, and they offered a little bit more.

RATH: So is there an arms race on now among the tech giants in Silicone Valley that want to buy up these innovators?

WATSON: There definitely is. They're looking to buy companies that will help them grow in most instances. But in a handful of instances, Arun, they're buying them for defensive purposes. They're worried that if you're a Facebook, that InstaGram, if you don't buy it, could one day surpass you in the same way that you once surpassed AOL. So both offensive and defensive reasons for these companies spending a lot of money.

RATH: You know, it's no secret here that both sides of the deal making and the deal taking table are dominated by men and mostly white men. We know from Google laying bare it's own diversity problems on it's site last month. Does Google's disclosure make it easier to take on this issue of this diversity in Silicon Valley?

WATSON: You know, I hope so. Silicon Valley - I will say we, because I've lived there off and on for 20 years - we've held ourself up as, kind of, a meritocracy. But as the Google numbers show, that hasn't quite been the case. I am certainly hopeful that more people will take that step. If you don't really admit the problem, you're far less likely to come up with a robust solution.

RATH: Carlos Watson is the cofounder of the online magazine Ozy. Carlos, always great talking with you. Thank you.

WATSON: Arun, always good to be with you.

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