Are the recent acquisitions of Monster Worldwide Inc. by Randstad Holding NV and of Jet.com by Wal-Mart the last roar of the old economy? The two deals coming within days of each other continue a trend of acquisitions by large old economy companies of start-ups from the digital world. Thus, last month Verizon Inc. bought Yahoo! Inc., a year after it acquired the former America Online for $4.4 billion. Last January, Capital One acquired San Francisco-based money management app, Level Money, and in January 2013, Avis Budget Group Inc. bought Zipcar which changed the car rental business with its hourly rentals plans. In December 2011, health insurance giant Aetna acquired mobile health startup, Healthagen, the developer of the popular health app iTriage.
Much like Verizon and Aetna, the 56-year old Randstad Holding NV, a Dutch multinational, has been a global leader in its business. While Monster’s bread and butter and mainstay is its website, Randstad focuses on recruitment centres. It has some 4,500 branches. Wal-Mart is, of course, a global behemoth, the largest company in the world by sales. By contrast, the companies they have acquired are products of the digital age, whose promise often exceeded their performance. Both Monster and Jet.com had reached the end of the road. A day before the announcement of the acquisition, Monster reported a net loss in the second quarter of $124.2 million. One of the pioneers of the new economy, the company has seen its fortunes plummet over the years. Its stock peaked at more than $86 a share at the height of the Internet bubble in March 2000, valuing the company at almost $8.4 billion. From there to a valuation of $429 million, the price which Randstad paid, is the story of many digital start-ups that left it too late.
These acquisitions mark the coming together of two intersecting currents. Start-ups who have lost their way and are either running out of cash or simply out of momentum and see no future are putting themselves up for adoption. And old economy giants petrified by the changes around them and fearful of being left behind in the new digital world are using their last weapons—their vast cash hoards—to buy them up, often to the bafflement of outsiders.
Thus, even as Wal-Mart, whose online sales made up just 3% of total revenue in fiscal 2016, coughed up $3.3 billion to buy Jet.com, analysts seemed more concerned about the impact of anti-trust moves in Japan on Amazon’s operations, than the challenge to its business from the Wal Mart-Jet combine. Wal-Mart’s move also comes at a time when Amazon is pushing the boundaries of technology in retailing by developing artificial intelligence (AI)-assisted shopping. Jet’s acquisition still doesn’t get Wal-Mart anything resembling Amazon’s Alexa AI which is its equivalent of a digital shopping assistant. In fact, all the major computing platforms from Microsoft, Google and Apple have some form of voice-activated AI assistant with search capability.
There is thus a touch of desperation in the Bentonville-based giant’s purchase of Jet.com. Its revenues are stagnating—down at -0.7% for its year ending March 2016, while operating income declined by 11% in the same period. By contrast, Amazon’s Q2 revenue was up 31% y-o-y while operating income was up 180% to $1.3 billion.
Bit players like Jet.com have increasingly got left behind in the winner-takes-all world of digital services. Wall Street Journal reported that Procter & Gamble Co., the world’s biggest advertising spender, in a rejig of its digital advertising strategy, is scaling back spends on smaller websites that lack the reach of sites such as Facebook, Google and YouTube. That has meant a rash of new-economy start-ups available for a song. And large, old economy companies are past masters at beating down such acquisition targets. But whether buying a start-up when its descent down the cliff has already started, is such a great idea, no matter the cost, is open to debate.