Jan 252006

Buying Back Your Own Left Leg

Buying Back Your Own Left Leg

There has been much written about the spectacular sale of Pixar to Disney for $7.4 billion this week.  The fact that Steve Jobs is now Disney’s largest individual shareholder is amazing news on many levels.  Fred has a great posting on this today from the investor perspective.

Another angle that I find interesting about this transaction is that it reminds me to some extent of Yahoo’s purchase of Overture a couple years back.  Yahoo OWNED the search business.  For years.  Invented it.  Synonymous with it.  Then they let others lap them they became more of a diversified online media company, and voila!  Others focused, innovated, and created a massive business in paid search.  Yahoo lost its own leg and had to pay $1 billion or so to buy it back.

The same could be said of Disney.  There was no other animated film company in America of note for DECADES.  Disney was it.  The mouse ruled the house.  Then others innovated, figured out how to sprinkle their own version of pixie dust on things, while Disney became a global multi-dimensional media and entertainment conglomerate, and poof!  $7.4 billion later, they had to buy their own franchise back to reclaim the animation throne.

Maybe I’m missing something here, but these stories tell me that diversification may be a wonderful thing, but businesses should never forget to innovate at their core and think like insurgents, not like unassailable market leaders.

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