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The perils of licensing to your competitors

Aug 15, ’11 12:02 PM
Author Categories Industry

Google’s acquisition of Motorola is clearly designed to be an acquisition of Intellectual Property rather than an entry of Google into the phone business, but the impact on the business will be felt in many ways.

It is surely going to send some Android vendors scrambling. The situation is not without precedent however. The history of governance and ownership of Symbian shows how the licensing of platforms by licensor competitors leads to unintended consequences.

Symbian was formed to be governed in a way very similar to the original Android via the Open Handset Alliance. The company was owned by a consortium of phone vendors.[1] The shares were not equally distributed however with Nokia holding a larger share (though not a majority).

Although nominally involved in decision making, the smaller shareholders never felt entirely comfortable with the arrangement and over time some sold their shares and left the group even though they continued to license the OS.

Eventually Nokia ended up acquiring the company outright and open sourced the code. However, by then the product was obsolete and the only licensee was Nokia itself.

The lesson (and warning) was that a licensor that is also a licensee makes other licensees uncomfortable. The supplier is also a competitor. This is classic channel conflict and never ends well.

Open or not, with or without equity, these arrangements are always unworkable.

So Google’s promise that

“This acquisition will not change our commitment to run Android as an open platform. Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. Many hardware partners have contributed to Android’s success and we look forward to continuing to work with all of them to deliver outstanding user experiences.”

seems naive at best.

–

Notes:

  1. Before its outright purchase by Nokia in December 2008, Symbian Ltd. was owned by Nokia (56.3%), Ericsson (15.6%), Sony Ericsson (13.1%), Matsushita (10.5%), and Samsung (4.5%). The company’s founder shareholders were Psion, Nokia, Ericsson, Panasonic/ Matsushita and Motorola. Motorola sold its stake in the company to Psion and Nokia in September 2003. Psion’s stake was bought by Nokia, Matsushita, Siemens AG and Sony Ericsson in July 2004.
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  • rasimo

    Apparently Google bought MMI to keep it out of Microsoft's hands- so Microsoft wouldn't be able to make even more money from Android. http://gigaom.com/2011/08/15/guess-who-else-wante…

  • David

    Did anyone read Florian Mueller's take? Google has to pay a $2.5B break-up fee. In essence, if the sale doesn't go through, Google pays a 20% penalty. Yikes!

    Talk about a poison pill. I want MMI's guys negotiating *my* next contract.

    • asymco

      That number says a lot.

  • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

    I'm sure Google's negotiators made sure there was language to protect Google, if Google had a valid reason to walk away, or was forced to if regulators don't approve of the deal.

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  • jameskatt

    Motorola's patent portfolio hasn't stopped Microsoft or Apple from suing Motorola.

    How would Motorola's patent portfolio stop patent trolls (non-practicing entities) from suing Motorola if non-patent trolls aren't afraid to sue Motorola?

    How would Motorola's patent portfolio stop Microsoft or Apple from suing other Android OEM's???? It does not.

    How would Motorola's patent portfolio stop Microsoft or Apple from suing Google when it hasn't stopped them from suing Motorola???? It does not.

    How would Motorola's patent portfolio stop patent trolls (non-practicing entities) from suing Google when it hasn't stopped Microsoft or Apple from suing Motorola???? It does not.

    So how does Motorola's patent portfolio exactly protect Android????

    All that Google's purchase of Motorola's patent portfolio seems to do is to protect other Android OEMs from Motorola's patent suits against them, potentially adding another layer of costs to Android.

    • Hamranhansenhansen

      > So how does Motorola's patent portfolio exactly protect Android????

      Motorola was going to sue all the Android partners. Google-owned Motorola is not going to do that. Period.

    • Magnus K

      You forgot Oracle. Google seems to be losing that one, and mobile patents mean nothing in that case.

  • Andrew

    Thanks once again to "The Horacle" for presenting an informed analysis of the industry when other commentators are jumping to conclusions and distorting the facts to fit their agendas.

    I happen to be in a good mood, so despite all the sordid stuff involving lawyers and bankers, here is what I think are the potential "Good Things" to come from this acquisition:

    1. A widely-available Android Reference Phone: the previous models were both universally recognised as superior to alternative Android phones and subject to supply limitations, thought to be related either to Google's inability to do hardware support or complaints from Android rivals;

    2. A better iPad alternative: no Android tablet has been able to compete with Apple's iPad. RIM and HP have the advantage of owning both the hardware and the OS, and they too are inferior. Now Google owns both, they stand a chance of offering a competitive product.

    3. A better Google: if the above 2 points pan out, and if Google survives all the litigation threats, it may be able to improve the functionality of Android phones, Android tablets and even other stuff like the Google TV. Then it may be able to exploit its cloud services and improve the integration and synchronisation between them.

    Should be easy for Google to do all of these three – all they need to do is check out what Apple has done and copy it …………………………..

    • Hamranhansenhansen

      That's how I learned to play basketball: I just watched what Michael Jordan did and copied it. EASY.

    • Nangka

      People seem to think Google is some smartass who can do great things if it "owns" everything.

      Moto is already using Android in its smartphones & tablets and they're failing miserably. How do these people think Google owning Moto can somehow turn things around dramatically?

      Are Moto's failures a case of software impeding hardware, or vice versa? With Droid & Xoom being first out of the gates respectively, you'd argue that the failures are more than both Moto & Google can solve by one owning the other.

      In view of this, Nokia's bedding with MS perhaps calls for more optimism given that both can build with each other's strengths and turn out stronger.

      • David

        Let's put it this way. Xoom's Flash support was developed with, I suspect, Adobe, Google and MMI developers all the same "room". For months.

        And Flash still didn't ship on time, is still a beta and still doesn't work properly on Android devices. How is direct ownership going to help?

  • http://twitter.com/WaltFrench @WaltFrench

    Huh… nobody asking why MMI, this company with great resources, great history, blah blah, decides to sell itself just months after going public. Yeah, sales are down; profits are absent or actually losses; it's losing share to more aggressive Android partners. But still, it has a bright future as the originator of the Droid line, the first Android with tablet software, obviously working well with Google.

    All while under legal attack that could have forced it to settle rather than risk settlements that could bankrupt the company. I see lots of ad hominem attacks on Florian Mueller's credibility at some sites (actually, TechCrunch where the blog insisted on adding my employer's name, so I had to butt out) but I don't see anybody citing any actual reporting on the MMI lawsuits to suggest they were the merely nuisance distraction that some say is Apple's only intent.

    So, desperate times call for desperate action. (It should be Michelle Bachmann's campaign slogan.) MMI was *possibly* — you never know for sure about lawsuits, even the SCO mess, until they're settled — running out of time. And *if* that were to have happened, how does Google's PR campaign about “bogus patents” look? A major business partner found by a competent US court to have violated patent claims, for… using Android. Driven to bankruptcy in part because in the name of "the economics of ubiquity," Google sucks all the oxygen out of its own ecosystem in order to build dominant market share.

    My take is that this was indeed a smart move by Google, keeping up the aura of inevitability shiny, part of the PR campaign to deflect possible settlements or decisions against them. They'll be able to say that the acquisition allowed them “better” terms with Oracle. That their financial muscle helped MMI reach better terms with the predatory Apple & Microsoft. And that the implicit muscle of all the tonnage of patents protects Samsung, HTC et al.

    Really, what more could they want, or expect?

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  • allanram

    Google may be scrambling to put together a superior Android product before Apple's iPhone 5 launch this October. They probably feel that iPhone 5 may run off with a significant piece of the smartphone market pie. And it may be difficult to rally the various Android licensees, with their own adaptations of the Android OS, to produce something as compelling as an Apple product and try to stop Apple from capturing the market lead.

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  • sagar

    You dont get it people! Google makes money by ads and that is what is important to them. How can you even think that a company like Google colud "LICENSE" android to others?

  • EWPellegrino

    The more I think about this the better the deal actually looks for Google, but only if it is absolutely ruthless with Moto – consider what it paid and what it got. It paid 12.5BN, but Moto has a 3BN cash balance, so effectively the price is reduced to 9.5 BN. It receives a huge patent portfolio, let's assume that they are worth around the same as the Nortel package, or 4.5BN. Ignoring the set-top box business that means that Google paid 5BN for a struggling handset maker, which seems pretty bad – but in fact may turn out to be very good.

    Motorola is terrible at software, really really terrible. They've always been terrible and they've shown no ability to get any better at it, Moto-blur is loathed. The problem is fundamental, if you have no skilled software teams then you can't create a good software team because you don't have people with the skill to build one. Trying to hire in external talent invariably fails because you have to overpay to get them and they have to fight against the entrenched hardware focused management.

    Suddenly everything for Moto has changed, they're now a division in a software firm, one of the best software firms in existence. If Google can build a software division at Moto that is even 75% as good as a Google team then Moto will suddenly be ahead of Samsung and perhaps even HTC in terms of integration. A few years of significant smartphone profits and Google could be in a position to refloat MMI as an HTC like pure smartphone play at a significant profit.

    So for this to succeed Google doesn't necessarily need to give Moto any special treatment as an OEM, they only need to give them an infusion of software DNA and ruthlessly cull the featurephone business.

    My prediction is that we'll see MMI's handset business refloated in 18-24 months.

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