Investigating Microsoft’s Intentions behind RIM Licensing Deal

by Jeff Wiener on September 20, 2012

While temporarily buoyed stock prices have provided a small reprieve from Research in Motion’s depressingly steady downward spiral, as E-Commerce Times writer Erika Morphy insightfully explains, things are so bad at RIM that “every move the company makes is viewed in the context of salvation, damnation or acquisition.”

So it should come as no surprise that analysts are delving deep inside the relatively innocuous licensing deal RIM signed with Microsoft yesterday, looking to see which one of these possibilities might come in to play.

In my mind, however, it seems that all three might be possibilities here, as acquiring license to use Microsoft’s exFAT storage technology could be one of the key building blocks RIM needs to reboot its once innovative mobile OS, or it could be the beginning of the always complex dance of acquisition, something many speculated when Microsoft entered into a similar partnership with Nokia last year. So just how far should we read into this licensing deal between RIM and Microsoft?

While using this relatively innocuous licensing arrangement to broker some sort of future acquisition deal certainly isn’t out of the question, it seems to me that if Microsoft wanted to acquire RIM (and all its associated headaches) it would have just gone ahead and done so, foregoing any sort of courtship dance that some analysts think they see here.

There’s no question that RIM patent trove and Blackberry technology would likely meld very well with Microsoft’s own products and mobile offerings, but to me this sort of deal seems to be more defensive, that is Microsoft trying to protect itself, rather than offensive, that is Microsoft trying to acquire something.

As tech analyst Rob Enderle explains, “I think this assures Microsoft should someone — read Google — acquire RIM, they can’t use RIM’s patents against any of Microsoft’s customers,” meaning that Microsoft is signing these sorts of licensing deals to protect itself in the future. If they were on the offensive, Enderle reasons, “they would either buy RIM or the patents — and then license them back to RIM.”

From RIM’s perspective, rather than seeing this as the beginning of a long courtship with a potential suitor, perhaps we can see it as an honest attempt at building a competitive mobile operating system, with the company knowing full well that this may be its last serious kick at the can. So signing such a licensing deal is simply RIM’s way of clearing some of the potential legal hurdles (and one needs to look no further than Samsung v Apple to see why this is important) on the way to producing a better Blackberry 10 OS.

As Barry Randall, principal with Crabtree Asset Management, explains, “Only by having a no-excuses mobile OS that meets and hopefully exceeds the user experience offered by competitors like Apple and Samsung can RIM re-establish itself as a credible player… Licensing exFAT is simply part of that effort and has no greater meaning.”

Simply put, while there’s a chance that this licensing deal between RIM and Microsoft is the beginning of a potential merger, it strikes me as unlikely. As was the case in the OS partnership deal between Nokia and Microsoft, one that itself raised many acquisition questions, the simplest reasoning is that if Microsoft wanted to acquire these either of these companies it would do so in one fell swoop, instead of acquiring either company piecemeal via licensing deals. The simplest and most likely explanation here is that RIM needs to improve Blackberry 10 and it has one shot at doing so, and the one thing it doesn’t need is legal troubles with Microsoft over innocuous but necessary intellectual property.

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