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Google’s Acquisition Binge: Why It Bought Picnik

4 minute read
Jeremy Caplan

Google CEO Eric Schmidt backs his words with his wallet. In September, Schmidt announced that Google would buy one small company per month. In a bit less than seven months since, Google has bought — um — seven small companies.

Google’s latest acquisitions are all about doing things faster online and on your phone. In addition to buying Aardvark, a service that helps people get quick answers from their network of contacts online, Google last month bought reMail, which simplifies searching e-mail messages on a phone.

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This week, Picnik became the latest high-flying start-up to join the Google team. The popular photo-editing site has 17 million unique monthly visitors and traffic growth of 10% a month. Picnik simplifies the process of cropping, editing and adding special effects to photos stored on your computer or on sites such as Flickr, Picasa or Facebook.

Apple’s much anticipated iPad release later this month will overshadow Google’s recent stealthy acquisitions. But as social networking, cloud computing and phone applications loom ever larger, Google’s purchases may add up to equally significant impact.

Here are six reasons why Google is betting on Picnik.

1. Filling a Critical Gap
Google fills software gaps as much through acquisitions as it does with engineering. After buying plain-Jane photo-management service Picasa in 2004, Google bought Neven Vision in 2006 to spice Picasa up with facial recognition. But after Yahoo! snatched up Flickr in 2005, Picasa never caught on as broadly as its competitors. Even as digital photography has exploded, Picasa has continued to lack sophisticated editing capabilities, making Picnik a crucial acquisition.

2. Cloud Power
Over the past few years, Google has been snapping up leading Web-based software start-ups that make it easy to edit documents, spreadsheets and presentations online. Now Schmidt and Co. have added the best available photo-editing tool. Strategically speaking, you might think of it as a carefully orchestrated effort to gradually sideline Microsoft’s lumbering desktop software suite. To that end, Picnik will bolster Google’s launch of its new Web-oriented Chrome operating system later this year. “The consumer market is evolving into a model where every useful or interesting application starts with a login to the cloud,” says Nat Burgess, president of the Corum Group, an M&A advisory firm, and a member of Picnik’s advisory board.

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3. Apps
As more consumers use their phones for snapping and sharing photos, Google’s new, no-stress editing tool could soon give it a key competitive advantage in phone photography. In an interview with TIME a month before the acquisition, Picnik CEO Jonathan Sposato said developing a great, easy-to-use phone app was an important project for Picnik. By launching a feature-rich, easy-to-use app version of Picnik, Google can speed ahead in the race for phone-software supremacy.

4. Defense
Google couldn’t afford to repeat the mistake it made in letting Flickr go to Yahoo! in 2005. When asked about potential acquirers before selling Picnik to Google, Sposato said potential matches ranged from tech giants Apple, Yahoo! and Microsoft to photo companies such as Snapfish, Shutterfly and Kodak. Google had to act decisively to avoid a Flickr-like missed opportunity.

5. Data
With a billion uploads in its database, Picnik has a mountain of information about how people edit their photos. Because Picnik now enables people to edit photos they have stored through Yahoo! Mail, Flickr, Facebook and other services, Picnik also has info on photo usage all across the Web. Google craves data of that sort, particularly as it prepares to launch its cloud-based Chrome operating system.

6. Talent
Google puts deals in one of two baskets — small talent buys and big strategic buys. In Picnik they got two for the price of one. Among Picnik’s 22-person staff are three former Microsoft employees — “three of the best guys ever to step off the Redmond campus on one team,” boasts Picnik adviser Burgess — along with other respected Web talents. Marcelo Calbucci, an entrepreneur who founded Seattle 2.0, a service for Seattle start-ups, estimates on his blog that Google paid at least $46 million for Picnik, possibly twice that much. Picnik and Google have both refused to disclose purchase terms.

“It is the best example that I have seen to date of the extraordinary power of Google’s culture,” says Burgess. “There were many reasons why this acquisition could have stalled — the political issue of paying a premium to buy the company of an employee who left Google, the fact that Google already has a photo-editing suite and Picnik’s reliance on the Flash platform. Google as a company was able to navigate past these hurdles and close the deal. Other bidders were stalled by their own political inertia.”

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