California - Google's recent acquisition of Motorola Mobility for approximately $12.5 billion raised more than a few eyebrows. However, now that the dust from the deal has begun to settle, the reasoning behind the deal has become clear and an interesting trend has appeared.
To fully understand the deal, a little history is required. Google purchased a small company called Android Inc. in 2005, cumulating in the 2008 release of the Android Mobile Operating System. Android is beloved by users, and its market share quickly rose to rival that of Blackberry. More importantly, Android was a departure from other operating systems because it was open source, meaning Google actively encouraged individuals to experiment with the software code.
Then, in late 2010, Google released its first and only smartphone, the Nexus One. However, the Nexus One achieved only lackluster sales. After the news of Google's acquisition of Motorola Mobility broke, the hope of a widely successful combination of Motorola's hardware acumen and Google's open source spirit spread like wildfire.
Experts estimate that a smartphone can involve to up to 250,000 different patents. Due to the millions of dollars in sales that any given smartphone can accomplish, even one patent infringement lawsuit can become a huge obstacle. Therefore, companies have been spending millions (or billions in this case) to acquire entire companies in an effort to expand their own patent portfolios while at the same time avoiding litigation.
With Google's acquisition, which could become a game-changer in the smartphone industry, the value of tech companies is increasingly becoming a function of the number of patents that the company owns.