August 2011

A Bull Market in Tech Patents

Google was willing to pay $12.5 billion for Motorola Mobility in no small part because of its stockpile of 17,000 patents. The patent portfolio, some analysts estimate, could represent more than half of the value of the deal, or more than $400,000 a patent. If so, it was a relative bargain.

In June, Apple and Microsoft teamed up with four other companies to pay $4.5 billion for the 6,000 patents held by the bankrupt Canadian telecommunications maker Nortel Networks. That works out to $750,000 a patent or nearly four times the average price for computer, software and telecommunications patents over the last few years, patent experts say. In a stumbling economy, stocks languish in a skittish funk and real estate remains depressed. But technology patents look downright bubbly. This patent gold rush has a darker side. It is diverting money for innovation from industries crucial to the economic future of the United States, analysts say. Patents were created as an incentive for innovation, giving inventors a temporary right to commercialize their ideas, without others copying them. While the recent blockbuster patent deals may make sense for the companies, analysts say, they are fed largely by legal considerations — asserting patent claims or defending against claims — rather than economic ones.

Google-Motorola deal draws questions

The day after Google announced a $12.5 billion cash deal to buy Motorola Mobility, Silicon Valley and Wall Street questioned the value of the move -- as the initial glow surrounding the bold combination dimmed amid concerns about the challenges ahead.

The strongest skepticism came from Standard & Poor's, which on Tuesday downgraded Google stock in part over concerns that the biggest deal in Google's history would take longer than expected to close, and that Motorola's more than 17,000 patents would not adequately protect Google's Android mobile software from a barrage of intellectual property challenges from such rivals as Apple, Microsoft and Oracle. "I'm not disputing (the Motorola patents) will help protect Android, but the way people seem to be looking at the company and its actions yesterday is that Android is now all clear when it comes to IP issues, and that clearly, in our opinion, is not the case," said Scott Kessler, information technology analyst for Standard & Poor's Equity Research, which downgraded Google to "sell" from "buy." Other Wall Street analysts did not follow suit in downgrading Google stock, but some raised questions about the deal's risks and complexity, or lowered their long-range price targets for Google stock. One possibility, analysts said, is that Google will use Motorola to put out a few high-quality phones and tablets to compete with Apple's iPhones and iPads, technology that could be shared with other phone-makers that use Android.

Query on Google's Strategy

Maybe Google's next big purchase will be in Hollywood.

Investors could be forgiven for fearing such an offbeat script after watching the search giant agree to buy Motorola Mobility for $12.5 billion. That deal has strategic logic, in as much as it builds up Google's patent portfolio in the mobile industry. But it raises questions about Google's overall strategy. And the company's willingness to diversify into a lower-margin, highly competitive industry where it has little experience makes a Hollywood film studio purchase seem somewhat less outlandish. Indeed, buying a studio would help Google's YouTube -- which is reportedly expanding its offerings by spending $100 million on original content -- just as buying Mobility is meant to bolster Google's Android mobile operating system.

Most likely, a big content company purchase is the last thing on Google's mind. But after Monday's bombshell, Google needs to clarify its growth strategy for investors. Is its focus still on advertising, with free products like Android designed to gain market share in new areas to support ad sales? Or has Google decided that mobile advertising is growing too slowly and instead it wants to be like Apple, which has become the world's most valuable company by integrating hardware and software. Most likely Google hopes to do both.

Google deal opens consolidation possibilities

Will Google-Motorola trigger further consolidation among smartphone manufacturers? Will the deal force hardware makers such as Samsung, HTC, LG Electronics, Sony Ericsson and the two Chinese smartphone manufacturers, ZTE and Huawei, to reassess their dependence on Google’s Android operating system and consider alternatives such as Microsoft’s Windows Phone 7 or Hewlett-Packard’s Web OS? Could the deal spur further vertical integration between hardware makers and operating system vendors?

Of the six main smartphone operating systems available today – Android, Apple iOS, Research in Motion’s BlackBerry OS, Nokia’s Symbian, Microsoft’s Windows Phone 7 and HP’s Web OS – four now form their own tightly integrated ecosystems. This model, pioneered by RIM and then perfected by Apple, has some key advantages and some disadvantages. Tight integration between hardware and software enabled RIM to build perhaps the most secure and robust wireless messaging and e-mail-centric devices; it has enabled Apple to produce the clean, simple and seamless interface of the iPhone and to attract huge numbers of software developers to the App Store – now a key strategic advantage for Apple in both the smartphone and tablet PC markets. However, as both RIM and later Nokia with Symbian discovered, tight integration is fine until the operating system is no longer able to keep pace with advances in component hardware, including processors and interfaces, especially touch screens.

What the Google/Motorola Deal Means for TV

Google-Motorola is already sending shock waves through the TV and wireless industries, with opinions ranging from suggesting it could revolutionize the TV industry all the way to some rousing memories of AOL-Time Warner.

Neither outcome seems likely but there is little doubt that the deal -- if it passes regulatory scrutiny at a time when the Federal Trade Commission is already investigating Google -- would certainly realize Google's longstanding ambition of becoming a much bigger player in the TV industry. The acquisition also highlights the growing importance of web and mobile players in the TV industry, and in some sense might be considered the first big deal of the tablet revolution that is transforming the way viewers access and watch TV programming. As part of the deal, Google will acquire the set-top box and cable equipment operations of Motorola Mobility, one of two dominant suppliers of set-top boxes and equipment to the U.S. pay TV industry. Stephen Froehlich, senior analyst of consumer electronics at IMS Research, estimates in a report that as of the end of last year, "28% of digital pay-TV households in North America are on Motorola cable systems--i.e. used Motorola's Mediacipher conditional access system." At minimum, Google could use that market clout to strengthen its ties with major operators looking to deliver more content to more devices, including phones and tablets using the Android operating system.

HP-Palm Deal Looks Better With Time

Hewlett-Packard’s $1.2 billion acquisition of Palm last year suddenly looks smarter.

Google’s $12.5 billion deal to buy Motorola Mobility, and the earlier frenzied bidding for Nortel’s patents, have revealed the riches in mobile computing intellectual property. And HP snatched one of the most important troves for a price that now looks cheap. Yet, it could be challenging for HP to cash in. A big trove of patents allows the owner to demand royalties from rivals, prevent them from incorporating particular features or at least negotiate from a position of strength. On the simplistic metric of enterprise value per patent, H.P. paid about $750,000 for each of Palm’s roughly 1,600, in line with what Apple, Microsoft and the others did for Nortel’s collection. Google, meanwhile, paid slightly more than $550,000 for each of Motorola’s 17,000-plus patents. But all patents aren't created equal. For a time, Palm’s products dominated the market for personal digital assistants, precursors to today’s smartphones. The company also later developed an innovative operating system for handsets. So its patents sit in the mobile device sweet spot, whether related to displays, interfaces or other features. On average, those should be worth more than the wider range of Nortel’s or Motorola’s patents.

BlackBerry Maker RIM Again Subject of Takeover Talk

Ever since the introduction of its first BlackBerry more than a decade ago, Research in Motion has defied expectations that it would be gobbled up by a larger rival and has effectively created the market for smartphones. But as Google moves to buy Motorola Mobility, RIM, already under pressure from diminished prospects and declining market share, is once again the subject of takeover talk.

RIM has plenty to offer suitors. Despite reducing financial forecasts, the company remains firmly profitable. In the latest quarter, the handset manufacturer reported net income of $695 million, down from $769 million in the quarter a year ago. BlackBerry, too, remains a valuable brand, even as its market share declines. It is the device of choice for corporate customers in important industries like financial services and law enforcement, which depend on the unique features of the BlackBerry to safeguard their e-mail. The security stems from RIM’s proprietary global network, a system that is hard to duplicate and also generates recurring revenue for the company.

The Many Wars of Google

[Commentary] The mobile market Metternichs are out in force, wargaming Google's $12.5 billion purchase of Motorola's handset business.

The imponderables are many. Will partners like Samsung and HTC, which have been enriched by Google's Android phone software, abandon Google, or even look at Google cross-eyed, now that Google will own a competing phone maker? Don't bet on it. Android has been hugely advantageous for everyone who is a successful phone maker not named Apple. Remember, Apple's premium smartphone holds up the pricing structure for the whole industry. Samsung, HTC and the rest have been selling phones into this market and pocketing huge margins because they pay nothing for Android. Google wouldn't be human if it didn't want some of this loot, which buying Motorola would enable it to grab. But that doesn't mean, in the long term or the short term, that other hardware makers will walk away from a relationship that has lined their pockets and propelled them to the top of the rapidly growing and giant new business of making smartphones. Let's just say that while having Google as a competitor is not ideal, handset makers will learn to live with it

When Google Met Moto

People familiar with Motorola's inner workings say there is still a big gap from the culture at Google, a child of the Internet age that helped pioneer a free-wheeling style that values improvisation. Though Motorola delivered some hit cellphones, for example, others were slowed by a bureaucratic layer of middle management and little innovation from rank and file workers, say some current and former employees. Google's Motorola Mobility purchase will make things uncomfortable for former partners, like Samsung and Nokia, which have turned into rivals overnight, Nick Wingfield reports. A key difference between the companies stems from Motorola's focus on hardware and Google's on software. That helps explain why Google is more able to take risks, Motorola CEO Sanjay Jha said. If he worked at Google and "wrote a little bit of code, and if there are bugs, I can fix it later," he said. "When I deliver a phone, I don't have that flexibility."

Google Plus members value their privacy

According to an analysis from data-mapper Matthew Hurst, new Google+ members may be seeing very little activity from the site’s 20 million users.

His analysis shows approximately 48 percent of Google+ users haven't posted publicly. One selling point for Google+ is that it gives users the chance to build in private groups from the ground up. Sure, you can make friend groups in Facebook, but I know I have better ways to spend my free time than sorting all the friends I've picked up through school and beyond into appropriate groups. But since Google+ has built that feature in, it’s easy to organize people as you move along. And it seems plenty of people are using that tool.

Benton

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