Many analysts are puzzled as to why GOOG offered so much, for a business whose sales are a far distance behind Apple and profit margins well below its own.
MMI issued a new warning that its smartphone sales are slightly up (8%, trailing the market growth rate), while overall volume of devices sold is slightly down (7%), at some 27% margin.
GOOG, on the other hand, made $38 billion last year, with margins at over 37%. It also risked alienating its key hardware partners in the Android ecosystem, if it has plans to seriously compete with them. So why bother?
While the FT and others properly note that MMI’s patents have not had “a transformative effect” on the Android operating system, they are forgetting that IP must be viewed in a more strategic context.
There are rarely quick wins.
Yes, Nortel’s IP sold for $4.5 billion, but it took years and billions to build that value. Finding a wounded animal and selling it quickly doesn’t impart hero status on the trader, but on the folks who built it diligently and saw its value.
One upside of solid IP strategy is that the inherent value that is built up is not subject to daily market fluctuations, nor victim of quarter to quarter analyst-pleasing financial engineering (although it could be employed that way in part).
Solid IP strategy builds a fortress over time, and assures long term projection of power and market dominance.
Our analysis of MMI’s portfolio shows that it was built carefully over time, maintained vigorously, and it creates a fortress across several key areas. Ocean Tomo Patent Ratings® found the average IPQ® value of MMI’s U.S. issued patents at 115, (median is 100). This puts it ahead of most of the competition in the field, as assessed by an objective patent quality measure.
The second key analysis to think about is the value of MMI patents not on a standalone basis, but in GOOG’s hands. This is relevant both in how MMI patents line up with GOOG’s long term business strategy, and how they match up with GOOG’s own IP portfolio to create an integrated system.
Whether GOOG paid the right price or not is hard to estimate from the available data, but even from an IP strategy perspective alone it was certainly the right move.
I also feel that the acquisition of MMI’s IP itself was a necessary but not sufficient condition – there remain large holes and areas of weaknesses that GOOG needs to fill, if it is to have full freedom of action, and ideally, a dominating position in the long term. While Microsoft is now cashing in on the royalty agreements with Android makers, GOOG still has plenty of opportunity to catch up and leapfrog.
Follow @OTInsights on Twitter