Patent power (part 2) – Google buys Motorola Mobility

Today’s big news is Google’s acquisition of Motorola Mobility. What is fascinating is the logic for the deal. This is not a deal driven by customers or operating synergies – it is all about Motorola’s patents.

The give-away is the final paragraph of Google’s announcement:

“We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to “protect competition and innovation in the open source software community” and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.” – Google

Having failed to acquire Nortel’s patents, this move is all about positioning Google for a series of multi-jurisdictional patent claims and counter-claims coupled with positioning for cross-licensing deals.

It remains to be seen what impact this will have on other parts of the mobile eco-system, but it may heralds the start of the more aggressive use of patents by technology companies – by way of example see Apple’s recent successful blocking of the launch of the Samsung Galaxy Tab in Europe as a result of a German court injunction.

Visa adds mobile payment and banking capabilities, as Google and MNOs launch contactless payment services

This week Visa Inc added significant incremental mobile payment and banking capabilities – acquiring Fundamo, a mobile money transfer software company and announcing a five year deal with Monitise.

The Fundamo deal is designed to bolster Visa’s position in developing markets where the mobile operators are increasingly able to leverage the lack of a traditional banking infrastructure and their customers’ trust into providing ‘banking for the unbanked’ (or at least mobile enable payment and money transfer). In contrast, Monitise provides a sophisticated platform and links to the banking ecosystem that enables banks in the developed world to provide mobile banking solutions. See this recent post on the launch of the  Monitise sponsored Future Foundation’s report on their research into consumer adoption of mobile banking for more background on why adoption rates are likely to increase over the near future.

Visa’s announcement follows Google’s recent announcement of its (so far available only in the US) mobile wallet,  which will exploit NFC technology in the current generation of android smartphones to enable users to use their phone to make payments. The announced functionality seems similar to that provided by Orange / Barclays in the UK, shortly to feature in a TV ad.

I have been trying to use contactless payment wherever possible, but judging by the blank looks  from retail staff when I try to use it to buy a coffee it is clearly in the very early stages of adoption, and is still not a familiar technology.

Microsoft buys Skype: comparison with eBay deal logic

The big story yesterday was the acquisition of Skype by Microsoft for $8.5 billion. It was only 6 years ago that eBay bought Skype for $ 2.6 billion. I thought it would be interesting to compare and contrast the publicly announced rationales for the deals.

First, here is Microsoft CEO Steve Ballmer yesterday:

“Skype is a phenomenal service that is loved by millions of people around the world. Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world.”

Back in 2005, Meg Whitman eBay CEO said:

“Communications is at the heart of ecommerce and community. By combining the two leading ecommerce franchises, eBay and PayPal, with the leader in Internet voice communications, we will create an extraordinarily powerful environment for business on the Net.”

Whilst eBay wanted to incorporate Skype into its core offering of online auction and payment platforms, the explicit Microsoft rationale is much more closely aligned to Skype’s existing business model – significantly reducing implementation risk.

Although not part of any official announcement, the six years since the eBay deal has seen the rise not only of Google, but also of social media (Facebook, twitter, et al). More recently open warfare has broken out in the mobile ecosystem with Apple’s iPhone and iPad redefining smartphone and tablet categories, and Google’s Android becoming the mass-market smart-phone platform, eclipsing Nokia’s market position in the prior generation of mobile handsets.

Microsoft’s recent deal with Nokia shows their intent in this arena and commentators have suggested that Skype is just another part of the broader struggle for market position going on between Microsoft, Google and Apple.

RIM and Google compete to acquire Nortel’s patents

Readers with long memories will remember Nortel’s glory days of the 1990s, when it expanded rapidly by supplying equipment on the back of significant investment in competitive telecoms networks unleashed by the first wave of telecoms market liberalisation. It was badly hit by the dot.com crash, but managed to struggle through the noughties before filing for creditor protection in January 2009. Whilst the global financial crisis may have been the proximate cause of its filing, for Nortel the crisis had started much earlier.

Whilst Nortel’s glory days are in the past, there remains enduring value in its patents. The reason is the commercial power of patents: a patent grants the holder the right to exclude all others from using the patented invention, giving them a exclusive monopoly for the life-time of the patent (typically 20 years). This monopoly can be exploited in a number of ways: worked by the patent holder, enforced to keep others off the market, exclusively licensed, non-exclusively licensed or cross-licensed with others to get access to their technologies.

The last strategy (that of cross-licensing) in the perhaps the most interesting as patents are increasingly being used as strategic weapons by the largest global players – often the response to a patent action will not merely be defence of the action, but the launch of other actions relation to other patents or in other territories as a prelude to settlement and cross-licensing deals.

It’s this strategic power that explains Google’s $900m initial bid and unconfirmed reports yesterday that RIM has also entered the bidding for Nortel’s remaining 6,000 patents.

Meanwhile, in order to try to encourage patents to be held in the UK, the recent budget announced that the UK would continue to press ahead with implementing its ‘patent box’ tax incentive scheme.

Apple and Google go head to head for on-line subscription payments

With exhibitors packing up their stands in Barcelona, this week has seen the launch by Apple and Google of payment services for on-line subscriptions. The two propositions are different, and in this post I’ll unpack the details.

Taking them in turn:

Apple Subscription Payments in Apps Store

Used for the launch of News Corp‘s new online newspaper The Daily, Apple this week launched a new billing system in its Apps Store:

‘Publishers set the price and length of subscription (weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly). Then with one-click, customers pick the length of subscription and are automatically charged based on their chosen length of commitment (weekly, monthly, etc.). Customers can review and manage all of their subscriptions from their personal account page, including canceling the automatic renewal of a subscription. Apple processes all payments, keeping the same 30 percent share that it does today for other In-App Purchases’

However, the sting in the tail is some ancillary requirements:

‘Apple does require that if a publisher chooses to sell a digital subscription separately outside of the app, that same subscription offer must be made available, at the same price or less, to customers who wish to subscribe from within the app. In addition, publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app.’

I can see a number of potential avenues of challenge to these ancillary requirements, so will be carefully watching developments.

Google One Pass

There are a few key differences between Google’s new One Pass Service and the Apple offer:

  • Google only takes 10%, as opposed to Apple’s 30%;
  • it is a free-standing payment system, rather than being tied into the Apple Apps Store and ecosystem.  This increases its potential uses. 

There is a very pointed comment in the product description, that reacts directly against the Apple restrictions noted above:

‘It also offers payments in mobile apps, in instances where the mobile OS terms permit transactions to take place outside of the app market.’

Going back to my conceptual model for digital money, these are interesting moves from the online payment providers that increasingly overlap with the mobile ecosystem.

 

Will integration of mobile payment with location based advertising kill Google?

Sadly the watcher in not at Mobile World Congress in Barcelona this week, although from London it would seem that the volume of announcements is best perhaps filtered through the lens of distance.  In any event through the magic of twitter #mwc hashtags it seems possible to get live commentary on almost any session without needing to be there.

MWC is generating a lot of press and my eye was caught by this piece in the FT this morning flagging the increasing interest of the mobile operators in advertising. I can attest to this from personal experience having helped one of the UK mobile operators with a deal in this space in 2009.

What is even more interesting is to speculate on the end-game.

The success of Google has been driven by many things, but to my mind perhaps the single biggest contributor has been its ability to connect advertising spend to results. Even before the era of Mad Men there was a famous quote – “Half of all advertising is wasted – the only problem is I don’t know which half!”. Google’s insight was to connect payment for ads with results.

If you connect location-based advertising with the means to pay suddenly the mobile operators can take on Google in the advertising space. That for me is the real story behind the mobile operators’ move into both advertising and payment.

FCC approves nine White Space Database Adminstrators

In some areas, it seems that Europe is always following the US.

One of those areas is white space cognitive radio.  Whilst European and UK regulators seem content for the process to proceed at a leisurely pace, the Federal Communications Commission has recently provisionally approved nine white space database administrators for the TV band in the US.

The approved nine are:

  • Comsearch
  • Frequency Finder Inc.
  • Google Inc.
  • KB Enterprises LLC and LS Telcom,
  • Key Bridge Global LLC
  • Neustar Inc.,
  • Spectrum Bridge Inc.
  • Telcordia Technologies
  • WSdb LLC
  • The provisional approvals are subject to a number of conditions:

    1. Each of the designated database administrators must supplement its previous filings with sufficient detailed information to indicate how it will comply with the rule changes adopted in the Second MO&O. Amendments to proposals must be received by February 28, 2011. Any of the database administrators that filed separate proposals and now wish to consolidate their operations must submit an updated proposal by this same date. Any database administrators that wish to withdraw their proposals must notify the Commission by this same date.

    2. All database administrators must attend workshops to be conducted by OET to address the operation of the databases to ensure consistency and compliance with the rules and the database trials, as described herein. Each administrator shall designate a responsible party who will represent its organization at the workshops and also ensure compliance with all of the conditions herein by February 28, 2011. The first workshop is scheduled for March 10, 2011 at the Commission’s Laboratory in Columbia, Maryland.

    3. Each database administrator must cooperate with any steps OET deems necessary to ensure compliance with the rules, including for example security features.

    4. Database administrators must agree that they will not use their capacity as a database manager to engage in any discriminatory or or anti-competitive practices or any practices that may compromise the privacy of users.

    It would seem that provided the conditions are met, the US will then have nine competing whitespace databases, all of which will need to manage the same information – over the medium term that would seem to be a market ripe for consolidation.

    For this European watcher, the bigger question is whether the faster pace towards commercial deployment of white space cognitive radio technology in the US will make it much harder for European companies to compete in the white space value chain as the US sets de facto standards and operating processes.

    And the killer application for 2011 is …

    I’m very excited to have had my first re-tweet, so today’s post develops the thought further.

    The retweet was of an economist article which, in contrast to the emerging consensus that traditional telephone calls are dead quotes a recent Ofcom international research report as evidence that whilst fixed line volumes are declining across the world, their decline is more than offset by the volume of mobile calls. The Economist suggests, quoting Nielson and CTIA, that the US is the exception that proves the rule, and that voice is here to stay.

    However, the Ofcom research covers a lot more than voice traffic volumes, and to really understand what is going on you need to look at a few more statistics:

    1. First, fixed voice minute volumes are declining in all markets (driven by substitution to mobile and VoIP), and with continued per minute price decline, fixed revenues continue to slide.
    2. In contrast, mobile voice minutes continue to grow, and whilst it isn’t possible to unpick exactly what is going on in every market, it would appear that inbound substitution (from fixed) and usage increases are  currently still more than offsetting outbound substitution to e.g. mobile VoIP.  However, price pressure means that voice revenues are falling, albeit not as precipitously as in fixed voice.
    3. Whilst data connections and usage (both fixed and mobile) are rapidly increasing, the general failure to move from ‘all you can eat’ to usage based tariffs mean that this trend is not yet offsetting voice revenue falls.  However, mobile carriers in particular have woken up to this and are using device introduction (cf the iPad in the UK) to move towards usage based pricing.

    This is neatly summarised in this table extracted from the Ofcom report: Global Telecoms Revenue Trends.

    So far, nothing earth-shaking.  However, its time to answer the question posed in the title of this post: what is 2011’s killer app?  Of course, it all depends on how you measure ‘killer-ness’ – economic utility, user numbers, revenue growth or something else.  If (for the sake of argument) we use 2010 revenues, then it is very instructive to compare estimated total revenues for Facebook and Twitter with service revenue for traditional voice minutes.

    Now, as Facebook and Twitter are not yet public (on that, see http://bit.ly/dPjK4w), sources are somewhat unreliable.  My best crowd-sourced estimates are $1-2 bn for Facebook, and perhaps $50m for Twitter in 2010.  Compare those revenues to the Ofcom global figures for voice revenue in 2009 of c $680 bn  (= dollar equivalent of £511bn (fixed voice + mobile services) – £73bn (mobile data)). Even if you include $25bn for Google, you still end up with the revenues for Google, Facebook and Twitter combined being around 4% of traditional voice revenues.

    This leads me to the rather contrarian conclusion that the killer app for 2011 (at least in terms of extracting cash from customers) is old-fashioned voice calling.

    Now the problem with statistics is that you can use them to prove anything, so I shared this post in draft with my wife for a common-sense check.  She glazed over in the middle, but then brightened towards the end.  ‘You mean you have spent all this time writing a post that comes to the startling conclusion that people still like talking to one another?’