Internet October 29, 2009, 11:15PM EST

Targets for Google's Merger Machine

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David Lawee google.com

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As talks to incorporate Twitter data in search results got under way earlier this year, Lawee initially pushed for Google to buy an equity stake in Twitter, according to a person familiar with the matter. The eventual deal did not include an equity stake. Representatives of Google and Twitter declined to comment on the negotiations.

Social Network Data Helps Target Ads

Google's advertising division may also look to Lawee for help in bulking up in display ads. Most of Google's sales come from ads that are shown next to search results, but analysts see greater growth opportunity in the banner ads that go alongside other online content. Google has been rumored to be in talks with Teracent, a company that helps advertisers improve the effectiveness of banner ads. A competitor, Tumri, is also viewed as an acquisition candidate. Teracent and Tumri declined to comment.

Ads targeted toward Web-user behavior are of growing interest for Google. Media6Degrees, Lotame, and 33Across all use data obtained from the social relationships of Web users to serve them more relevant ads. For example, Google could use Lotame's technology to help advertisers deliver ads based on interests shared on social network MySpace, owned by News Corp. (NWS). "There's a lot of interest in this ad optimization world," says Linda Gridley, CEO of New York investment bank Gridley & Co. "Advertisers are demanding better targeting capabilities." Media6Degrees, Lotame, and 33Across all declined to comment on the possibility of a sale.

Google has already staked a claim in the wireless space, most visibly by backing Android, a mobile-phone operating system. Google may also try to expand in the mobile arena through acquisitions. Google runs its own mobile ad network, but upstart AdMob has signed up thousands of mobile app developers Google would probably love to have in its camp. "Google's current mobile display [advertising] efforts are relatively weak," says Greg Sterling, an analyst at Sterling Market Intelligence. JumpTap is a further contender, with its ties to major phone carriers. "We understand why big companies like Google would start to become interested in mobile advertising, given the explosive growth of the market," says AdMob spokeswoman Nicole Leverich. She declined to comment on the prospect of a sale, as did JumpTap.

A Flop in Location-Based Services

Lawee says about half the targets come from his team, which proactively explores opportunities. Still, much of his job is pursuing companies identified by other executives, including CEO Schmidt and founders Larry Page and Sergey Brin. "It was either the board or the founders and Eric [Schmidt] that decided yay or nay," says Salman Ullah, who ran Google M&A before leaving in 2007 to start venture capital firm Merus Capital. "That was a competitive advantage. At other companies, my understanding is [that deals] go through a series of hurdles and subcommittees.".

Not all Google acquisitions turn into thriving businesses. Blogger, founded by Evan Williams, who later founded Twitter, is widely considered a success story. By contrast, Dodgeball, the location-based social service acquired in 2005, was shut down in January. If Google ever tries to get back into location-based services, it may opt for a company that helps developers build their own location services. Case in point: SimpleGeo, a service that feeds geographical information to mobile apps.

Google's dealmaking machine may also have bigger ambitions. In 2005, Google paid $1.65 billion for video sharing site YouTube. In 2008, it purchased display ad network DoubleClick for $3.1 billion. "Those are areas where we understood the challenges and opportunities early," Lawee says. Might Google make a play for a large social network such as Facebook, a mobile carrier like Research In Motion (RIMM), or an online software provider such as Salesforce.com (CRM)? "The only thing predictable is that they're unpredictable," says Google watcher and Search Engine Land editor Danny Sullivan.

Whatever the size of a deal, Lawee says he's looking for great people, not just great technology. Consider Jens and Lars Rasmussen. Their company Where 2 Tech was bought by Google and became a key component of Google Maps. The brothers Rasmussen went on to build one of the most ambitious products at the company to date: Google Wave. Says Lawee: "The spirit of the acquisition is to get people that can continue to innovate at Google."

Douglas MacMillan is a staff writer for BusinessWeek in New York.