4 Reasons Google Bought Looker
On June 6, Alphabet (Google’s parent) announced that it plans to pay $2.6 billion in cash for data analytics tool maker Looker.
I’ve interviewed Looker CEO Frank Bien three times in the last couple of years and I see four reasons why Google is making this move.
1. Data analytics is a large, fast-growing market
The market for business intelligence software is large. Indeed in August 2018, IDC said that “Worldwide revenue for big data and business analytics (BDA) solutions was $166 billion, up 11.7% over 2017 and [would] reach $260 billion in 2022, with a compound annual growth rate (CAGR) of 11.9%.”
2. Looker has been growing faster than the market
Looker is growing much faster than 11.9%. As Bien told me last December, “Looker is doing really well. We raised $103 million in a Series E bringing our total capital raised to $280 million. We have 1,600 customers, our revenue run rate is over $100 million and we are enjoying 70% year over year growth.”
Looker was growing so fast because it offered IT departments a better solution to their data analytics problems. “People are tackling the problem of data. Technology is a mess. There are tools for visualization, cataloging, and data preparation. We reconstitute these functions in a single platform. We bring business information such as revenues, bookings, and the lifetime value of the customer into the hands of users and companies,” said Bien.
3. Bien is a former punk rocker who may not relish the idea of running a public company
One problem with Looker was that last December, it was burning through cash. To be sure, Looker was trying to become cash flow positive — and its revenues were growing faster than its headcount. “We have visibility to cash flow break even over the next couple of years. We plateaued in spending. We now have 600 employees and expect to add 200 in 2019. We are seeing our cash burn rate decline,” he explained.
And given his background, it would not surprise me if the prospect of running a public company — or being a little fish in Google’s big pond — would not appeal to him.
Bien told me in 2017 that he was “a punk rock kid in LA in the 80s and never had a master plan for running a company.” But he was an executive at three that grew and were acquired — Vignette bought Instraspect Software for $20M in 2003; KEYW bought SenSage in 2008 for about $35 million; EMC acquired Greenplum in 2011; and VMWare bought Virsto in 2013.
When I interviewed him in May 2018, Bien said he was proud of Looker’s culture. “Marc Randolph, who was a cofounder and CEO of Netflix is on our board. Our culture is very different than Netflix’s but it’s the only thing that scales — and he has helped us develop ours. We love that customers love us — we like it that they send us gifts showing their appreciation. We have kitchen table conversations where we listen to customers’ questions and answer them. And we hire people who check their egos at the door,” he said.
In October 2017, after Looker had raised $180 million, Bien told me that the company was trying to fix operations before it exited. “We decided not to go for a giant valuation. Once we are able to generate predictable revenue and manage our operations internally and hire the people we need in key positions, we will give our investors a return. We are not optimizing for valuation,” said Bien.
And at that time, he said that Looker was headed towards a 2019 IPO. I don’t know why Bien opted for being bought — but perhaps he thought that a Google buy would be a better option for shareholders.
Bien told journalists on June 6 that the deal would enable Looker to grow much bigger than it could on its own. TechCrunch reported that he said, “What we’re really leveraging here, and I think the synergy with Google Cloud, is that this data infrastructure revolution and what really emerged out of the Big Data trend was very fast, scalable — and now in the cloud — easy to deploy data infrastructure.”
4. New cloud chief Thomas Kurian wants to make his mark
Former Oracle president of product development Thomas Kurian became Google Cloud CEO in November 2018 and I am guessing this deal — which is the largest for Alphabet since 2014 when it paid $3.2 billion for Nest — is intended to boost Google’s cloud growth.
After all, according to CNBC, at a February 2019 conference, he said that he wanted to invest to expand the business, saying, “You will see us accelerate the growth even faster than we have to date.”
Google is far behind the cloud leaders. According to Canalys, Amazon with 32% of the Cloud market and Microsoft (13.7%) were way ahead of Google’s 7.6% of at the end of 2018. CNBC reported that Google “does not break out revenue for its cloud business but has said it brings in more than $1 billion per quarter between its public cloud and cloud apps.”
Google — whose venture capital arm invested in Looker — said in its press release that it already shared over 350 customers — BuzzFeed, Yahoo and Hearst — through an existing partnership.
It appears that Kurian does not intend to force Looker to stop working with its non-Google-cloud clients. As CNBC reported, he told journalists on a conference call that “Looker will continue to work with other products, like Amazon Web Services’ Redshift and Microsoft’s Azure SQL Server. Looker competitors include Domo and Tableau, along with Microsoft’s Power BI and AWS’ QuickSight.”
If Google can keep Looker’s talent and sustain its growth, this deal may help Google gain market share in the Cloud. Meanwhile, I wonder whether Looker rivals like Arcadia Data — about which I wrote last December — could be in the crosshairs of Google’s cloud rivals.