From the top · 3 January 2018

The biggest business gambles and blunders of all time

Time Warner's Gerald Levin, left, with AOL's Stephen Case announcing the merger
Time Warner’s Gerald Levin, left, with AOL’s Stephen Case announcing the merger of their respective firms

From failed mergers to winning acquisitions, we’ve looked back on some of the most iconic commercial decisions made since the turn of the century to help entrepreneurs decide when business gambles might be worth taking.

Mergers and acquisitions

AOL Time Warner

In 2000, AOL’s Stephen Case and media company Time Warner’s Gerald Levin announced a merger of their respective firms in a deal meant to signal the internet’s victory over traditional media business models.

The deal was valued at $165bn in 2001, making it still the largest merger in US business history. Time Warner expected to digitise its content and tap into AOL’s 27m subscriber base – while AOL wanted access to Time Warner’s vast cable networks in return.

However, two different corporate cultures failed to integrate and the bursting of the “dotcom” bubble exposed AOL’s overvaluation. The merger was quickly seen as a failure and Time Warner registered a loss of $99bn in 2002.

By 2009, AOL was spun-off as its own company, and was sold off for $4.4bn. Acknowledging a misjudgement of the internet’s role in media, Time Warner chief, Jeff Bawkes, described the merger as “the biggest mistake in corporate history”. Television networks were not replaced by media companies, and Bawkes later conceded that brands like Apple and Google should recognise positions as tech companies and not content creators.

Disney Pixar

Mandatory Credit: Photo by Eric Charbonneau/REX/Shutterstock (4377363bt) HOLLYWOOD, CA - JUNE 13: Disney's Bob Iger and Disney/Pixar's John Lasseter at the World Premiere of Disney/Pixar's 'Toy Story 3' on June 13, 2010 at the El Capitan Theatre in Hollywood, California. World Premiere of Disney/Pixar's 'Toy Story 3' Hollywood Los Angeles, America.
Bob Iger and John Lasseter at the World Premiere of Toy Story 3, 2010 | Credit: Eric Charbonneau

Eyebrows were raised throughout the film industry when Disney CEO, Robert Iger, paid $7.4bn for Pixar Animation Studios in 2006. On the surface, Disney’s established animation empire was healthy. However, following the success of Pixar titles Monsters, Inc. and Finding Nemo at the turn of the century, Iger knew Disney needed an injection of ideas.

Iger, the story goes, made the decision to buy Pixar at the opening of Hong Kong Disneyland in 2005. According to John Lasseter, Disney’s chief creative officer, Iger noticed that a parade procession of characters featured no Disney creations from the previous decade, with Pixar’s own stars the new favourites.

Over the next decade, Pixar’s flair for new and exciting characters was leveraged by Disney’s vast global networks to sustain what is considered one of the most successful business acquisitions of all time.

How can you avoid a hostile takeover? Learn about the different kinds of mergers and acquisition

Missed opportunities

Netflix versus Blockbuster

Before online streaming, bricks and mortar chain Blockbuster ruled the rental roost. So, when Netflix co-founder Reed Hastings approached then-Blockbuster CEO John Antioco with a partnership pitch in 2000, his DVD rental service-by post was written off as a small, niche business that would struggle to grow.

According to Netflix’s former CFO, who accompanied its co-founders in the now infamous meeting, Antioco and his Blockbuster associates “just about laughed us out of their office”.

By the end of 2013 Blockbuster had announced the closure of all UK branches
By the end of 2013 Blockbuster had announced the closure of all UK branches

Blockbuster eventually filed for bankruptcy in 2010, having lost $1.1bn. At the same time, Netflix’s value rose to around $13bn. When Blockbuster ceased operations in 2013, Netflix was beginning its expansion into film and television production.

Now valued at $80bn and boasting almost 110m subscribers worldwide, Netflix has led the rise of streaming and changed how television media operates.

Dropbox – Turning down $800m for your startup

Dropbox co-founders Arash Ferdowsi and Drew Houston
Dropbox co-founders Arash Ferdowsi and Drew Houston

He redefined our relationship with portable technology as Apple CEO, but letting Dropbox slip through his fingers troubled Steve Jobs.

In 2009, Jobs offered Drew Houston and Arash Ferdowsi $800m for their company, cloud storage service Dropbox – an offer the co-founders turned down. To goad the duo into selling, he told Houston and Ferdowsi that Dropbox was only a feature, not a product itself, and would struggle to survive.

Confident they could build a successful company around cloud storage, the pair cut Jobs off and insisted the business wasn’t for sale at any price.

Having failed to buy the company out, Jobs pledged to “come after” Dropbox and kill it off with Apple’s own iCloud service. However, at its most recent valuation of $3.5bn, and 500m users, Houston and Ferdowsi showed that holding your nerve in front of a nine-digit offer could just pay off.

Yahoo – Letting Google out of its grasp…twice

Perhaps the most costly of business gambles, Yahoo has twice turned down opportunities to acquire Google. In 1998, PhD students Larry Page and Sergei Brin offered their PageRank system, which later formed the basis of Google search results, to Yahoo for as little as $1m with plans to focus on their studies.

Then in 2002, former Yahoo CEO Terry Semel approached Google with a $3bn buyout offer. Semel is said to have refused the $5bn counter offer put forward by Page and Brin.

Google subsequently won the search engine war and its parent company, Alphabet, is now worth almost $500bn. In contrast, Yahoo’s core assets are thought to be valued between $4bn to $6bn.

A gambling masterclass from Steve Jobs

The iPad

When Jobs first introduced the iPad in 2010, Apple was entering a market many had tried and failed to conquer previously. Jobs attempted to position the tablet between mobile phones and desktop computers as something consumers needed to own.

When the reviews landed in Spring 2010, the iPad was panned by both competitors and critics. “(Just) a bigger iPod Touch…no surprises,” said Nintendo president Satoru Iwata, while the Wall Street Journal characterised the iPad as a “big gamble” by Jobs.

Steve Jobs pitched the iPad between the iPod and Macbook
Steve Jobs pitched the iPad between the iPod and Macbook

After the product was written off for misunderstanding the needs and expectations of consumers, Jobs once again proved Apple was ahead of the curve. Although Apple had lost its hold on the entire tablet market by 2017, the iPad is on its sixth edition and has clocked around 300m unit sales.

The Apple Store

Following several failed attempts at store-within-a-store concepts, Jobs upgraded Apple’s retail effort with the brand’s first two high street units in 2001. Not everybody was sold on the idea.

In an article titled “Sorry, Steve: Here’s why Apple Stores Won’t Work”, Bloomberg doubted Apple’s ability to make an impact on the high street. “Jobs thinks he can do a better job than experienced retailers,” Cliff Edwards wrote.

By the time Apple Store made it to the UK, London’s Regent Street branch welcomed 11,000 visitors in its first day. And in 2017, Apple Stores made more money per square foot than any other US retailer.

There are currently 499 Apple Stores open in 22 countries worldwide, leaving no doubt that the brand was a better communicator of its messages than third-party retailers.

To help your business avoid any major upsets, find out what lessons you can take from the careers of these celebrity entrepreneurs:

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Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.

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