The Google-Motorola deal is about patents, not hardware, according to industry analysts.
On Monday, Google announced that it is to acquire Motorolas smartphone business, and said that it will run the Motorola business independently of its main business. Frost & Sullivan analyst Craig Cartier says that the deal strengthens Googles position in an increasingly litigious mobile landscape.
“Googles business model – offering a free platform as a route to advertising and application revenue – depends on that platform being, well, free,” says Cartier. “That status has been threatened as a result of the flurry of recent patent litigation. It is rumored that HTC, one of Androids main OEM partners, settled a suit with Microsoft by agreeing to pay $5 for every Android device it sells. Other Android manufacturers have also been under attack.”
Cartier says the Motorola acquisition is a response to this environment.
“Motorola has a portfolio of 24,500 patents and patent applications that instantly bolsters Googles strength in the IP war,” he says. “Looking at some recent patent auctions and using some simple math can show why these patents were indeed the target of Googles acquisition.”
Cartier argues that the valuation of the deal was based on industry patent-related precedent.
“Using one of the industrys recent patent auctions as a baseline, in December of 2010, Novell sold off its portfolio of 882 patents for $450m. A simple division calculation leads us to a value of $510,204.08 per patent. Well, lets look at the patent value of the Motorola acquisition. Forgetting that Motorola also makes mobile phones, lets say the entire value of the acquisition was in their 24,500 patents and applications. At a $12.5bn price tag, that equates to … $510,204.08 per patent. Can anyone guess what heuristic they used in the board room in valuing the deal?
“In the Motorola acquisition, Google bought a patent portfolio and got a mobile phone business thrown in for free.”