Kodak Patent Deal – Locking Down the Loose Nukes

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With Kodak now gone, today comes the announcement that pretty much every major technology giant on the planet has agreed to jointly purchase 1,100 of Kodak’s patents for $525M. Google, Apple, Samsung, Facebook, Microsoft, Amazon, RIM, Hwawei, Adobe, Fujifilm, HTC, even Shutterfly (whaaa?). It’s a regular League of Nations, groups otherwise currently engaged in the throes of fevered patent wars amongst themselves. So what gives?

The analogy that springs to mind is the crumbling of the former Soviet Union. The last thing that the global technology industry needs is loose nukes, in the form of intellectual property. So rather than create yet another ridiculous patent bidding war, or worse yet leave the stockpiles lying around for the next Klausner or NTP to snap them up and wreak havoc, the giants all decided to collude for the greater good. Under the auspices of famed IP merchants Intellectual Ventures and RPX, the deal was concluded with a direct purchase by IV and subsequent licensing to all parties.

Kodak was certainly hoping for a bigger haul – $2.6 billion according to the WSJ. Given Nortel’s $4.5 billion IP sale after a tasty bidding war, this was not entirely unrealistic. But the reality is that the technology titans are a bit worse for wear after the past few years. Litigation, injunctions and the like get expensive and distracting to senior management, and as Apple found out this week, sometimes you lose in a big way. If Apple’s second patent is ultimately invalidated, they will likely see their $1.05B damages against Samsung reversed, and will find it much harder to keep Samsung from shipping products into various markets.

It certainly seems we may see more brokered deals like this going forward.

Hallelujah – Softbank/Sprint Makes Three

News photo

Since the announcement yesterday that Japan-based Softbank is making a bid for majority control of Sprint-Nextel, the analysts have been busy churning through the implications. But the simplest and clearest one is this: The US wireless market will no longer be a tightly-controlled duopoly. What’s even better, Softbank has the ambition, experience and sheer chutzpah to be what this market has always pined for but never had – a challenger who will shake things up. Consumers- cue the rejoicing.

Sprint has tried (sometimes admirably, often pathetically) to be that #3 player that made a difference, but even with last year’s company-busting iPhone bet, they just never had the capital they needed to be a proper player. Their purchase of Nextel was a bust (now they are finally turning off Nextel’s iDEN push-to-talk network, and all those construction guys are on other networks). Their embrace of all things WiMAX, including Clearwire, was doomed from the start. Their market cap is lower than their commitment to Apple to guarantee all those iPhones get sold, and Clearwire’s only decent asset is all that spectrum.

So now on to Softbank. You may know of them as a Japanese dot-com investor from the old days, and you would not be mistaken. They have spun off an impressive list of VC alums and spin-offs: Softbank Capital, which begat Mobius, which begat Foundry Group, Qiming Ventures, and many others. Brad Feld, Heidi Roizen, Gary Rieschel – what a list. You may also know them as major investors in Yahoo Japan (which has always been far more successful than its parent), and Renren, the ‘Chinese Facebook’. But you may not be familiar with how they came onto the telecoms scene in Japan and beat up the two incumbents.

In 2006, Softbank bought Vodafone Japan, formerly Japan Telecom, which was the struggling #3 wireless carrier (sound familiar yet?). In 2008, Softbank became the sole carrier in Japan to sell the iPhone, and they used their exclusivity to effectively double their market share (until KDDI finally got the 4S this year). NTT DoCoMo and KDDI were floored – unlike every other market on the planet, virtually every phone on their networks was from a local handset manufacturer (no Nokia, no Blackberry, no Motorola). Ten years ago, that meant Japan had the latest and coolest mobile technology; now it’s as woefully dated as, well, Nokia, Blackberry and Motorola! So the impact of the iPhone was earth-shattering: every time I am in Tokyo I am amazed by the number of people on the street lovingly staring at their iPhones.

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Japan’s domestic mobile market share (including feature phones), fy 2011 via MM Research

OK, big deal, you say. Verizon, AT&T and Sprint all have iPhones now. But what Sprint doesn’t have is cash. Verizon and AT&T are flush with both cash and spectrum. An injection from Softbank would allow Sprint to finally take over the rest of Clearwire, and continue its plan to redeploy its TDD spectrum away from WiMAX to LTE. But in addition, Softbank can also help Sprint with its experience in marketing. It’s not clear if their omnipresent and hilarious mascot Otosan (‘Dad’ is a white dog with a human family) will make the trek across the Pacific, but it sure beats listening to Dan Hesse.

Otosan vs. Tommy Lee (aka ‘Alien’) Jones

Otosan gets his iPhone

T-Mobile’s grab at MetroPCS will help it gain some market share as well, but for now my bets are on Softbank/Sprint to bring some genuine mass market competition to the US mobile industry. And if they are even moderately successful, they may someday snap up T-Mobile too . . .

Sprint has truly Bet the iFarm

Here we go again.

Repeatedly, Sprint has tried to bet the farm (and failed) in its quest to remain relevant. They bet the farm on Nextel, then Wi-Max and Clearwire, then all-you-can-eat plans, and all along on wholesale/MVNO. Frankly, it’s amazing they have any farm left to bet – having lost EIGHTY PERCENT of their market value since the first iPhone went to market in 2007.

But now they have allegedly placed every last chip on the table, plus the car and house keys and maybe their firstborn: they apparently have agreed up-front to purchase 30.5 million iPhones over the next four years, estimated at $20 Billion, regardless of whether they sell through to consumers. Rumors are they may even get the iPhone 5 as an exclusive for a while, as well they should with that price tag.

Leaving aside whether Sprint can survive this bet (who knows?), this is a complete game changer for the wireless ecosystem. Last year I suggested the iPhone was the Maserati to Android’s Ford Taurus (not a perfect analogy but you get the drift). This news is almost as if GM decided in a desperate measure to stop production of their entire product line, pre-pay Maserati for four years of commitments, and start selling them at Ford Taurus prices. A-mazing.

So as consumers, what does this mean? Bonanza. You now have the choice of the iPhone 4 (and someday the 5) with data caps, bloatware, obscene international roaming charges, spotty network, and so on – or the iPhone 5 with all-you-can-eat bundles, WiMax speeds, and lower charges across the board.  At a minimum, this will go a very long way to tame the duopolistic tendencies of the Big 2 carriers in the US.

What this means for Android is less clear. Google has successfully positioned Android as the faster-growing, low margin, multi-OEM alternative to the iPhone ecosystem. Buying Motorola Mobility complicates that, as does Amazon’s successful OS hacking for the Kindle Fire. But this Sprint deal is the biggest blow of all: at Sprint fire sale prices, we’d all rather buy an iPhone than a Droid. The Android team may be best served by aggressive forward integration into the hardware business with Motorola and make some magic before the OS fragments away into oblivion.

The other big loser here is AT&T. Verizon can certainly survive this, given the strength of their network and size. However, AT&T is in the process of losing the T-Mobile acquisition, and if the inMobi survey is anywhere close to accurate, 41% of all mobile users intend to purchase the iPhone5. Any AT&T customer (iPhone owner or not) will be giving serious consideration to switching to Sprint.

While I never thought I’d say this, Sprint may finally have found its comeback vehicle. Hitching a ride on the most wildly successful mobile platform ever created is the right move at any price. Even if that price is almost 2.5x your market capitalization? Time will tell . . .

AT&T-noMo: DoJ calls it quits on merger

So much for the wireless duopoly: the Department of Justice has announced they will move to block the merger of AT&T and T-Mobile on anti-competitive grounds. Normally this sort of thing gets under my skin, but in this case it may have some merit. Recently there was a leaked document (http://www.dslreports.com/shownews/Leaked-ATT-Letter-Demolishes-Case-For-TMobile-Merger-115652) that made it blatantly clear that AT&T’s rationale for the deal was nonsense (increasing coverage, additional investment in infrastructure): they want to reduce competition.

So despite the daunting challenges of merging a CDMA/WiMax shop with a GSM/HSPA one, I boldly predict Dan Hesse over at Sprint is licking his chops at the prospect of taking out T-Mobile and becoming the third dominant carrier in the US. Can’t wait to watch the fireworks!

Android: The Empire Strikes Back

Just when you think the Don’t Be Evil Empire faces certain defeat, Google comes roaring back with a gutsy conquest – Motorola, truly one of the stalwarts of the mobile industry (if a bit tarnished of late). Some implications are obvious (they need patents to defend their platform and just got a treasure trove) – and some not so much (how does Google owning one of the top Android manufacturers impact the other Android OEMs in the medium term?)

Ever since Android was a twinkle in Larry’s eye, experts have wondered what bold strategic moves Google might make – Would they bid on spectrum and become a carrier? Build their own phone and bypass the ecosystem? (ok, they tried-so much for that) Buy or partner with an ailing network operator? Instead, they co-opted an anti-Apple brigade of handset makers (Samsung, HTC, Motorola, Kyocera, LG) and took the mobile industry by storm.  Call it Android’s Clone Wars era: an endless sea of nearly identical handsets, churned out by the millions, new models almost every few weeks, finally establishing a viable alternative smartphone platform to the monoculture of the iPhone ecosystem. I believed that as a result, Apple would not be able to Beat Android – the simple fact that Apple would never relinquish complete control of manufacturing as well as the OS meant that Android would keep up or surpass iOS (in terms of volume market share, as opposed to profits). Android thus effectively inherited the mantle of Microsoft in a new platform battle against Apple.

But Apple wasn’t about to give up without a serious fight or two, and continues to aggressively go after Android’s proxies (eg Samsung) as well as directly against Google. The most obvious weakness was Google’s deficit in intellectual property: Sun/Oracle attacking from within (arguing that the core IP of Android infringed Java), and Apple and other OEMs attacking from without (UI and a host of others). The sorry state of IP law being what it is, the only way to win (or not lose) is to have enough patents to horse-trade when the lawyers come calling. And Google had nothing to trade.

Google tried to beef up its patent portfolio in mobile by bidding on Nortel’s huge patent auction (up to $900 million), only to find an unholy alliance of Microsoft, Apple and RIM paying 5 times more. Microsoft is meanwhile shaking down the OEMs for licensing fees, repeating the mantra that Android isn’t free, it just steals from others. So the MOT deal makes enormous strategic sense. But aside from helping Google’s in-house counsel finally sleep at night, what happens next?

Google insists they will continue to allow Motorola Mobility to run as a separate business, which makes sense. Any benefits from closer integration would be a direct offset against losing the loyalty of other Android OEMs. But very likely, they may continue to hedge their bets anyway by supporting other operating systems, and Microsoft Phone 7 may yet find a second lease on life. In fact, if I were Samsung or HTC, taking out RIM might be a great way to ensure they remain relevant in the fight for market share.

The other possibility is Google keeps the IP and jettisons the manufacturing business out of the airlock, unless they can find an interested buyer. Not that likely though – I think they still harbor a dream to get Nexus right and show the carriers who’s boss after all.

Amazon Cloud Locker and the Stuff Wars

As George Carlin once famously opined, life is really all about finding places to put your stuff. On that note, here is a Carlinesque take on the recent Amazon announcement about Amazon Cloud Locker and Cloud Player:

So over the past 10 years, everyone’s personal collection of digital stuff has exploded in size. Stuff to listen to, stuff to look at, stuff you work on, etc. Most of this stuff we used to keep on our hard drives, until of course your hard drive fails (and it always does eventually), and often enough you end up losing your stuff. And losing your stuff really, really sucks.

But then bits and pieces of your stuff could be saved from destruction by putting it somewhere else – “The Cloud” (which used to be known as the Internets, but that doesn’t sound nearly as cute and fluffy) .   You gave stuff to Facebook, Flickr, Gmail, Google Docs, YouTube, and many other stuff stewards (which was fine unless you were that one poor guy who lost all his stuff on Flickr). Maybe you even started putting stuff on Box.net, Dropbox, Mozy or Carbonite – which wasn’t that different from putting your stuff on your hard drive, but I guess copying your stuff and putting it in lots of places is a good way to keep your stuff from disappearing.

So far, so good. But the Media Companies who sold you some of your stuff are really paranoid that you might copy that stuff and give it away to all your friends (and honestly, everyone under 30 probably gets their stuff from BitTorrent so it’s a valid concern). So they have managed to keep the likes of Google and Apple from letting you stream your stuff to wherever you are. So now you’ve got stuff on your iPhone, your iPad, your work PC, your home PC, your kids’ PC, your TiVo, your AppleTV, your Roku – as George says, the supply lines are getting thin.

So Amazon steps in all of a sudden and says, to hell with all that – it’s your stuff, you can put it wherever you damn well please! Now their Locker isn’t much different from the Dropbox/Mozy guys – the only difference that I can see is that Amazon definitely owns the server farms where they’ll put your stuff, so maybe that feels better. ["Imagine that: there's a whole industry built around watching over your stuff!"] But the Cloud Player is a poke in the eyes of the Media Company lawyers who want to keep you from using your stuff any way you see fit – should be interesting to see who wins this battle in the Stuff Wars.

Who’s Left on the Burning Platform? Looks like it’s RIM –



Today Nokia CEO Stephen Elop made the symbolic leap off of the Burning Platform, and joined forces with Microsoft. There were rumors that both Android and Windows Phone 7 were in the running to supplant Symbian and save the once-dominant mobile phone maker, and of course Mr. Elop’s prior tenure at Microsoft might have helped the process along. But this is truly a bold move, and a smart one (for both Microsoft and Nokia).

The wireless ecosystem has witnessed dramatic, tectonic shifts in the past two years, all of which are good for consumers and application developers. Many wise men in the industry spoke of continued fragmentation of platforms, and to this I again say “pshaw!”  Before this decision, the industry was morphing at warp speed into an Apple/Android duopoly.  To wit:

Meanwhile, what happened to the other platform providers?

  • Microsoft launches Kin, pulls after one month. They then launch Phone 7 with half a billion dollars in marketing, and Christmas shipments disappointed.
  • Nokia dithered, played with MeeGo, and even took a cheap shot at the other handset makers, claiming that adoption of Android was comparable to a Finnish boy peeing in his pants (feels good at first, but not for long).
  • Palm released a great OS, but ‘twas a party to which no one came. Company sold to HP, who now isn’t quite sure why they bought it.
  • The feature-phone application developers using Brew and other tools are rapidly jumping to smartphones, because pretty soon that’s all there will be left.

So now, faced with the prospect of metaphorical immolation, Nokia has leaped into the chilly waters of Phone7, hoping to spot a life raft. Given the massive installed base of Symbian phones in Europe and Asia, this could realistically turn the smartphone duopoly into a triopoly, and save both Nokia and Microsoft Mobile in the process.

So where does this leave Blackberry? Well, they are the last ones left standing on that burning platform.

RIM, the company that arguably started it all in the smartphone world, is now facing an existential strategic dilemma. Once the preeminent enterprise smartphone of choice, it is now being hounded on all sides by the iPhone and Android phenomenon. Despite several smart acquisitions such as QNX, its phones still do not measure up to its competitors in any feature other than (of course) email. The average corporate user would always be the laggard in giving up the secure, reliable, and rock-solid email phone for some flaky touch-screen battery hog; however, even they are now migrating away.

So what can they do? For a long time, I thought that the best match would be to partner with Microsoft, but that ship may now have sailed. Microsoft still has its eye on the enterprise market, and RIM’s foothold there is still strong, but then again Apple wants to break in as well. And yet Apple is finally finding (oddly enough, with the iPad) its own way into the enterprise opportunity.

One interesting sign of where they might be headed is today’s announcement that RIM’s Playbook tablet will support Android apps. Is this a first tentative step toward partnering with Google, or does becoming yet another handset OEM fundamentally negate what RIM is all about? Maybe it’s better than being up on that platform . . .