Mergers are a force for good

Some months back, when the Hewlett-Packard deal with Compaq first ran into flak, I defended it. Not because I relished the redundancies and cost-savings that would follow, but because critics were disparaging companies that had brought us the modern laser printer and the iPaq handheld.

I note that the new HP’s share of the PC market in the US is down one or two percent while Dell’s share has grown. Critics are already chortling. Mergers and acquisitions were once viewed as a good thing, but not anymore. In the current post-Enron and WorldCom, anti-big business atmosphere, the whole idea of joining forces to aim higher is viewed as a risible enterprise. Indeed, consultancy Deloitte & Touche has just issued a report pronouncing demergers the way to go for European industry and services.

There is an almost obscene grave-dancing now attending the turmoil at AOL Time Warner. It really is astonishing to watch. In every report, the firm’s chief operating officer, Robert Pittman, is pilloried for trying to centralise management and introduce a more dynamic culture. Pittman is ridiculed for thinking that empires and turf wars – particularly in the old Time Warner apparatus – could and should be ended. In the more extreme accounts, AOL Time Warner is hailed as the Enron of IT. The Washington Post, no less, published an extensive report showing how AOL had counted tomorrow’s advertising revenues into today’s accounts for shareholders.

But the over-reliance on advertising revenues of AOL and other Internet firms was just as obvious before the millennial £105bn merger as the clunky nature of AOL’s interface is today. So were the forces of internal competition, not just within Time Warner, but within every major modern firm. Most strikingly of all, Time Warner’s early 1990s trials in Florida of its famous “full service network” of home-based interactive TVs – these were forgotten about.

Working at Philips Consumer Electronics in the mid-1990s, I found out how difficult it is, on the supply side, to achieve the convergence of different media technologies inside even a single multinational. Warring business units and rival plans for product development made sure of this. It was also clear that, in terms of the demand side, consumers confronted a plurality of incompatible devices – and in particular, the PC and the TV. There was no convergence there, either. No wonder that, in a little-noticed report just after the AOL Time Warner deal, The Wall Street Journal had words to the effect that even, er, converging the consumer’s AOL bill to line up under their Home Box Office bill would take at least two years to achieve.

We now know that Internet protocols do provide some basis for convergence. But our stock market scribes don’t know much about that.

Myself, I now uphold convergence, and look forward in particular to the mobile Internet. But after AOL, you can bet Vodafone, and its efforts in 3G, will be next for a public burning.