Google: We Won't Buy Traffic, We'll Partner For It (GOOG)

| About: Alphabet, Inc. (GOOG)
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In Google's (NASDAQ:GOOG) investor update conference call yesterday, CEO Eric Schmidt responded to an analyst question on traffic acquisition in the wake of Google's Dell and AOL deals:

Marianne Wolk - Susquehanna

We have seen you recently step up strategic partnerships with Dell, AOL, KDDI. Is that your preferred method of traffic acquisition on a go-forward basis? Should we expect you to sign a lot more of those types of deals, or might you also include M&A as a method to acquire traffic?

Eric Schmidt

M&A as a method to acquire traffic has not historically worked. Again, we would never rule something like that out. But it’s unlikely that, in and of itself, we could just buy customers. It typically doesn’t work. Usually, those customers are evanescent; they can move from one place to another pretty quickly, not like other businesses, where the customers are kind of stuck. It’s a bad business strategy, and it’s not consistent with Google’s values and business strategy or culture, anyway.

So we much prefer the partnership approach. You listed a number; we have a lot more coming. We like it. There’s a lot of reasons to like it. It creates another partner whose incentives are with ours. We work together. They improve their product, we get the benefit. The customer sees a more integrated solution. KDDI is a good example of a mobile phone deal. We have more of those coming.

So there’s a lot of reasons to think that the structure of the industry going forward will have a lot of these kinds of deals. We are trying to do the best deals, we think we have the strongest product in the space. So now is a great time to sign those deals.

Of course, the partners always have the opportunity to switch partners if they become dissatisfied with us, and vice versa. So it keeps everybody on their toes as well. So the answer is partnerships.

Dealbook's Andrew Ross Sorkin notes the impetus for the question:

As of March, Google had $8.43 billion in cash burning a hole in its pocket, prompting speculation that it could kick-off consolidation among the big players in an industry that is facing slowing growth prospects.

Seeking Alpha contributor Michael Eisenberg raised related questions about Google's traffic acquisition strategy in a recent post.