We reported a couple of weeks ago that activist investors were pressing AOL hard to monetise their patent portfolio. The Board has apparently responded by appointing Evercore Partners to explore ways to do so.
We’ve said for a long while now that patent monetisation is passing through a phase, an epoch where monetisation is viewed through a one-D lens of “I’ll wave a big litigation stick at several large companies, particularly those later but more successful market entrants and that will demonstrate the value of my IP” or variations on that theme like “getting someone else to buy my stick and waving it at several large companies, particularly…..etc etc”.
I was taught a basic lesson in economics by an investment banker some while ago and it goes like this. If you can see a benefit then also try to work out where the cost is, it may not be obvious. And it particularly may not be obvious in an intangibles world where the impact may not be easy to see. Let’s explore that theory and wonder where the AOL cost could be.
According to our intangibles model, the benefit will be found by AOL in some short term disruptive revenues. Expect AOL to find some patents that Facebook, Twitter or a host of other web-based success stories are infringing and to take licensing revenues from them. The revenues may even be turned into a capital sum by selling off all or part of the portfolio and taking a license back. All pretty mundane and frankly unimaginative. And very short term. The sort of plan that could only really be invented by a legal mind.
And the cost? In our minds both Yahoo! and AOL will feel the cost in their corporate reputation. In fact Yahoo! could also feel it in its own pocket in net payments out if Facebook has done its job well in what it has bought from IBM. AOL too could feel the wrath of a newly patent confident and stocked up Facebook if it decides to wave its stick in that direction.
Short term revenues 1, corporate reputations nil, or in fact more likely minus a lot. Not a good outcome. Perception wise neither benefit. They would, we think, be better trying to work out how to better out-innovate and reinvent themselves. Think different. Facebook is not a popular social network with many of its users as it scrambles to monetise its base. Is there not a better way, focussed on giving a better consumer experience, than dragging a reputaion through the IP mud?
Food for thought AOL board?