ChannelTrends: Cloud Vendors Pull Out their Throwback Jerseys

Every year the NFL and NHL refit their players with some of their historic uniforms, paying homage to the great teams of the past—while raking in some extra cash by selling this limited-edition gear to their fans. They’ve learned that people relish the past and the organizations can still generate significant income by providing that link. While the correlation between that situation and what’s happening in the IT vendor community may not be exact, this week’s news seems vaguely familiar.  Of course I’m referring to the announcement that Google will purchase Motorola Mobility for approximately $12.5 billion, with the deal expected to close later this year or early in 2012.

While this isn’t an unprecedented move, does it signal a new “throwback” era where cloud vendors see the need to offer their own devices and delivery systems for their applications? Not exactly, cloud computing companies focus on the applications, not the access point, and this acquisition is likely not a sign of a strategic change for Google. So why did they make a surprise move and go after Motorola? For the one key feature a number of well-established tech companies have in common: a significant portfolio of patents.

Company executives acknowledged that intellectual property was a significant factor in the acquisition, although protecting the Motorola/ Google Android partnership also was mentioned as a highly valued concern. That part of the news should be a concern for the other smartphone and mobile device manufacturers with the purchase of one of their competitors by one of their key partner providers. How will LG, HTC and Samsung (all Android partners) respond to the acquisition? Each of those companies made initial public statements to the effect that “all is well,” but chances are their executives teams are currently researching their options relating to their partnership with Google.

To add more variables to the mix, yesterday HP announced it was going to take the opposite approach by shutting down its mobile device operations and exploring strategic alternatives for its webOS software. Perhaps the timing for this announcement was designed to take advantage of the Google move, getting back in good graces with LG, HTC and Samsung? Unless things change in the next few hours, that will leave Apple and Google as the only companies with their own operating systems and devices to run them on. While the iOS 5 system is limited to the iPhone, Android has been touted as a device-neutral platform provided by a company without a “horse in the race.” That all changed this week and the new mobility ecosystem is likely to cause the other manufacturers to adjust their relationship strategies in the coming months.

The Patent Effect on Tech Stocks
According to Google, there has been a “hostile, organized campaign against Android by Microsoft, Oracle, Apple and other companies, waged through bogus patents.” Just a single smart phone can garner as many as 250,000 patent claims, which Google claims are being used unfairly against its Android manufacturing partners in order to slow down the growth of the OS platform. With the Motorola Mobility acquisition, the company will gain access to approximately 17,000 patents and another 7,000 that are pending.

While Google’s $12.5 billion approach to solving the problem seems quite pricey, it could be a bargain compared to the $4.5 billion Microsoft, Apple and partners of their consortium paid for of Nortel’s patents (no hardware or facilities included). That $4.5 billion deal is at the heart of the anti-competitive practice allegations made by Google.

Could the patent war lead to the acquisition of other standards in the industry whose stock prices are currently making them look like attractive targets? RIM (Research in Motion), Nokia and Eastman Kodak each fall into that category with years of technology development and an extensive portfolio of patents. The photography pioneer has been quite successful at winning settlements (estimated to be around $950M) from Samsung and LG for violating digital imaging patents on their phone cameras. Kodak decided earlier this month to shop approximately 1,100 of these patents, with value projected as high as $3 billion—more than five times its current market value! And those represent just 10 percent of the company’s portfolio.

What are the patents by other mobility companies worth? RIM could be sitting on as much as $5 billion, according to some experts, while Nokia is expected to receive intellectual property licensing payouts of approximately $2.2 billion from Apple alone over the next four to five years. That patent revenue is significant for Nokia and could lead to an extremely large payday if they do choose to see them off. The real concern for solution providers and consumers is if investors see these “newfound assets” as a reason to purchase and divest the companies. With the current competitive environment in mobility technology, that’s a real possibility and could lead to fewer manufacturers and partner options.

Who would ever have envisioned the greatest asset of some of the tech giants would come from their intellectual property rights? It almost sounds like a “throwback” to the 1980s, when market conditions were ripe for corporate raiders, who bought and sold off the parts of a number of organizations. For the sake of all involved, let’s hope not.

Brian Sherman is founder of Tech Success Communications, specializing in editorial content and consulting for the IT channel. His previous roles include chief editor at Business Solutions magazine and industry alliances director with Autotask. Contact Brian at [email protected]