Ericsson gets aggressive: The new wireless landscape
“By 2015 two thirds of all consumer electronics devices will have some sort of connectivity. Any company or manufacturer that wants to get in there will need an agreement with Ericsson.” -- Ericsson CEO, Hans Vestberg
According to a November 10th article in Businessweek on intellectual property, “Ericsson plans to get royalties from intellectual property in areas it hasn't monetized before, such as Web search and optical transmissions.” Vestberg also plans on collecting royalties from “shipping containers that transmit their position and interior temperature, as well as appliances that are hooked into a network,” in addition to “heating systems, health monitors and automobile traffic management”.
The last example may be the most apt of all. Metaphorically speaking, Ericsson will no longer be making cars and building highways -- they’ll simply be collecting tolls on everyone who wants the ‘luxury’ of driving. When the dust had cleared from the Nortel auction, Ericsson -- along with bidding partners Apple, Microsoft, RIM, EMC, and business partner Sony -- became an even bigger telecommunications patents holder than before. It was good timing for the Swedish company, which had struggled throughout the 2000’s. A return to profitability near the end of the decade was only possible with drastic layoffs, as well as a relatively successful partnership with Sony in the feature phone market.
At the end of October, the two companies announced that Sony would be buying out Ericsson’s 50% stake in the Sony Ericsson joint venture, leaving the Swedish company fresh out of the manufacturing end of the mobile business. “This means that the synergies for Ericsson in having both a world leading technology and telecoms services portfolio and a handset operation are decreasing,” reads Ericsson’s Oct 27 press release. “Today Ericsson's focus is on the global wireless market as a whole; how wireless connectivity can benefit people, business and society beyond just phones.”
Sony gets complete control over the mobile handset division, as well as “a cross-licensing agreement” with Ericsson. Sony, in other words, will be paying to use Ericsson’s telecommunications patents in current and future devices. I’m sure that there is a perfectly simple answer to the question of what Ericsson will be paying Sony for -- other than the privilege of no longer losing money on handsets, I mean.
"Ten years ago when we formed the joint venture, thereby combining Sony's consumer products knowledge with Ericsson's telecommunication technology expertise, it was a perfect match to drive the development of feature phones. Today we take an equally logical step as Sony acquires our stake in Sony Ericsson and makes it a part of its broad range of consumer devices. We will now enhance our focus on enabling connectivity for all devices, using our R&D and industry leading patent portfolio to realize a truly connected world" said Hans Vestberg, President and CEO of Ericsson.
Mr. Vestberg understandably leaves out one of the reasons why this step is so logical: Sony Ericsson kinda, well, sucked at smartphones. I’m not passing judgement on the objective merits of SE phones -- I’m simply observing that, outside of the home-court advantage of Japan and Scandinavia, only a relative handful of people were ever compelled by those merits to actually own one.
Take a quick look at the list of hundreds of models offered by Verizon, AT&T, Sprint, and T-Mobile... all in all, there’s only a single Xperia Play and only two carriers. In what seems to be an all-too-common transition for once-powerful tech companies, Ericsson has decided to focus on deriving additional revenue from existing patents. It certainly seem to be less demanding on any number of profit-killing investments, such as manufacturing, production, marketing, etc. Further trimming of unnecessary division could include research and development, leaving Ericsson solely concerned with collecting royalties.
They’re not the only one, though, not by a long shot. The 250,000+ patents in any given smartphone are all owned by somebody, and in most cases it’s somebody ELSE. Somebody who may or may not be getting paid what that somebody thinks they’re worth. If trends continue as they are, every one of the mobile device market leaders will be paying as much as they’re making -- to companies that may or may not find it profitable to make further R&D contributions.
Google is already well along that path, and licensing and litigation are even putting a noticeable dent in Apple’s considerable revenues. Without being privy to the undoubtedly intricate details that govern cross-licensing agreements, I must begin to wonder whether actually making and selling smartphones can still remain profitable, let alone a priority.
But back to Ericsson. Vestberg outlines the broad strokes of a compelling strategy, but one which ultimately faces a high risk -- if Ericsson fails to maintain itself through more aggressive licensing, all that will be left is a formerly innovative giant with a huge portfolio of telecommunications patents -- which brings us right back to Nortel.