Call it the cost of doing business, but Google paid a premium to get its hands in the mobile market pie, a recent document the search engine giant filed with the Securities and Exchange Commission reveals, as the $12.4 billion price tag for its acquisition of Motorola Mobility went far beyond what the company was actually worth.
To that end, it was widely speculated when the acquisition was first announced that Google was attempting to bulk up its defence of Android by acquiring Motorola’s patents, the need of which still evidenced no more so than Apple’s continued legal onslaught against Android partners like Samsung and HTC. Of course many continue to be concerned that by acquiring Motorola Google will be putting itself in direct competition with the very companies that make Android a success, but that’s for another day.
The document filed with the SEC outlines how the search engine giant valued Motorola Mobility and justifies the price paid, but given the fact that Motorola’s intellectual property portfolio—considered the focal point of the deal—is valued at just under half that total, did Google pay too much?
Perhaps it’s the wrong question to ask, if Google paid too much for its acquisition of Motorola, given the fact that its difficult to put an exact price tag on securing certain patents and bolstering one’s legal defence against challenges to intellectual property rights. But that said, in the document filed with the SEC Google outlines how it valued Motorola and came up with the number of $12.4 billion.
As summarized by CNET writer Don Reisinger, “Google says that $2.9 billion of the purchase price accounted for Motorola’s cash, while $730 million went to customer relationships and $670 million to other net assets.” The largest percentage of Motorola’s overall value, and the key to the entire deal according to Google, was the $5.5 billion in “patents and developed technology.” This total leaves another $2.6 billion that went to goodwill, or how much Google valued the company above and beyond its recordable assets.
Given the fact that Google made it clear the acquisition was done almost solely to secure Motorola’s intellectual property, and the fact that its patent trove was valued at only $5.5 billion, its clear that the other $7 billion paid was simply the cost of doing business, the price that needed to be paid to aid in the defense of the Android ecosystem.
Since the acquisition was announced, of course, many have speculated what Google will do with its Motorola acquisition, again given that the search engine giant was really only out for the latter’s intellectual property. While Google has given no indication of its plans for Motorola, for the first time it included the mobile company in its quarterly earnings report, showing Motorola’s $1.25 billion contribution to the company’s revenue, but also showing an overall $233 million dollar loss for the mobile firm due to operation costs.
In the end I have to say that it’s rare to get such a glimpse into the inner workings of such tech or telecommunication acquisitions, as companies usually play their cards close to the vest. But seeing just how much Motorola’s patent portfolio was worth, and how much Google paid to get it, gives you some sense of just how important patent defense has become in today’s mobile market.