Part 2: Suppose that you are the CEO of a large internet hosting company. Your m

Question

Part 2: Suppose that you are the CEO of a large internet hosting company. Your major revenue comes from website hosting and data storage. Your strategy so far has been to minimize your investment in hardware, so you lease data storage space. You currently operate as a mid-sized company with revenue of approximately $3 billion annually. However, your goal is to grow. You have three companies that you are looking to acquire: the first has similar customers and services, the second company manages data storage and has the physical hardware for hosting, the third company is an up and coming e-commerce company that focuses on selling music downloads directly to customers at a reduced price.

1. Tell me which of the three companies that you would buy and why you would buy them. Please include a discussion about diversification type (related/unrelated) and the factors (economies of scope, core competencies, market power, vertical integration, parenting advantage, etc.) that you are hoping to take advantage of with your acquisition.

Explanation / Answer

If the goal is to grow and considering the options of three companies that one is looking to acquire then I would choose the second company which manages data storage and has the physical hardware for hosting. The reason for doing this is the increasing focus and need that has grown among the customers for having a data storage and physical hardware company for hosting. As the goal is to grow it will be useful pick a company which has scope to grow and expand drastically. The company which has similar customers and services might not be able to differentiate itself from the rest or start apart. Even the music download company might not work as people prefer listening to music online instead of storing songs and downloading music. It is only useful to invest in a company like data storage. There is effectively possible for expansion and increasing need amongst people. Google drive, dropbox has limitations for download of data and sending it. However this data hosting company can focus on providing attractive storage capacity.

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