You don’t have to look very far to find people who have characterized Google’s 2012 acquisition of Motorola Mobility and subsequent sale to Lenovo as a “mistake”:
These articles represent a cross section of mainstream media, technology reporting, and even a market research firm focused on the mobile phone industry. Did they really all get the story wrong?
Each article eventually mentions that Google is retaining most of Motorola Mobility’s patents, although you often have to get through several paragraphs before that fact emerges. But the patents were what this deal was always primarily about, as evidenced by Google’s announcement after the acquisition and by this leaked email from Larry Page following the sale.
Let’s do some simple math. Google acquired Motorola Mobility, including its approximately 17,000 patents for $12.4 billion in May 2012 (all figures in US dollars). They sold the set-top box business (and 1,000 patents) to Arris in December 2012 for $2.35 billion in cash and stock. And now they’ve sold the handset business (and 2,000 patents) to Lenovo for $2.91 billion. Now, the purchase of Motorola came with $2.9 billion in cash, so what we’re left with is $4.24 billion for around 14,000 patents. (You can shrink that number further by taking into account things like $2.4 billion in deferred tax assets Google obtained in the original acquisition, but we’ll set that aside for the sake of this argument.)
According to regulatory filings, Google had valued the original 17,000 patents at $5.5 billion (by far the biggest piece in their valuation of the acquisition). Now, anyone in the patent licensing business will tell you calculating a per-patent valuation for a portfolio is an over-simplification. But with all necessary disclaimers, this works out to around $294,000 each, and that they paid $303,000 each for the 14,000 they still have. That’s pretty close to their original valuation.
And does that valuation hold water? Probably the easiest checkpoint is Rockstar’s purchase of around 6,000 Nortel patents for $4.5 billion. That’s $750,000 per patent. (Before you start thinking this means Google may have undervalued the Motorola portfolio, please realize that such a portfolio comparison would be a futile, apples to oranges exercise. And don’t go multiplying your portfolio by $750,000 or $303,000 to try and value it. Free portfolio valuations are worth what you pay for them.)
The bottom line: Google never thought the $12.4 billion was just for the patents, but they certainly believed they were the biggest part of acquisition, and any analysis of the sale to Lenovo which doesn’t put the patents front and centre is missing the point.
|Case Code||:||BSTR401||For delivery in electronic format: Rs.500;|
For delivery through courier (within India): Rs. 500 + Rs. 25 for Shipping & Handling Charges
ThemesManaging Networked Businesses / Corporate Strategy / Mergers and Acquisitions
|Case Length||:||18 Pages|
|Teaching Note||:||Not Available|
|Organization||:||Google, Inc.; Motorola Mobility Holdings, Inc.|
|Industry||:||Smartphones; Information Technology|
This case discusses the reasons for the search engine giant Google Inc.'s acquisition of the mobile device manufacturer Motorola Mobility Holdings Inc. (MM), the value that MM brought to the table, and the downside that the acquisition presented to Google. In 2007, Google launched the smartphone operating system Android in collaboration with 33 telecom companies. Android was made available for free as Google's strategy was to reduce the cost of mobile web access, enabling more people to access Internet on mobile devices and induce them to use its search services which would bolster its advertising revenue. Android was widely adopted by device makers, and, by June 2011, it had cornered 43.4% of the worldwide smartphone operating software segment.
However, Google and Android had a weak portfolio of wireless patents, a fact exploited by Google's competitors like Apple and Microsoft, which filed patent infringement cases against Android collaborators. Many of these cases were settled or were expected to be settled in favor of Google's rivals, resulting in Android device makers having to pay royalties to the patent holders. Mobile device makers were finding it increasingly more expensive to deploy Android. Analysts felt that Google had to buy patent suites to file counter suits against the Android detractors. Google adopted this path and on August 15, 2011, announced that it was acquiring MM, a company with a deep suite of patents. With this deal, Google was also expected to compete effectively with Apple by coming up with refined devices that perfectly synced with Android. However, many experts felt that Google had committed a phenomenal folly and wondered whether it would be able to derive the intended synergies from the deal - they pointed out to MM's precarious financials and a weak smartphone market presence, Google's questionable capabilities in running a brick-and-mortar business, its ability - or the lack of it - to assimilate MM's mammoth taskforce given the stark contrasts in organizational cultures, and the potential dismantling of the Android network due to conflict of interests. A vital question being asked was whether Google could simultaneously collaborate and compete with its alliance partners for Android. This case is meant for MBA students as a part of the Managing Networked Businesses/ Corporate Strategy/ Strategic Management curriculum.
» Understand various issues and challenges in managing networked businesses.
» Understand which is a superior strategy, organic growth (which usually entails longer gestation period) or inorganic growth.
» Discuss the issues that companies need to take care of while building market shares, more so in the technology segment, and the capabilities that they should nurture to sustain the market dominance.
» Understand if it is a sustainable strategy for a company to acquire another one operating in a segment alien to it just to acquire market share.
» Understand the disadvantages of the strategy to compete at the expense of an existing and thriving collaboration.
» Discuss the strategies that Google needs to adopt to keep the Android network intact.
Competition and Collaboration, Managing networked businesses, Online business Vs. Brick-and-mortar business, Mergers and acquisitions, Strategic alliances, Market leadership, Market dominance, Business model, Synergies, Post merger Integration, Anti-competitive threats, Intellectual Property Rights, Portfolio of wireless patents, Innovation, Google's Statement of Philosophy, Smartphone market, Motorola Mobility, Google, Samsung, HTC, Apple
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