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Case Study Of Motorola

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For example, Google acquired Motorola, the company that invented the mobile phone, in 2012 at a price of $13 billion with a purchase premium around minus $2 billion. The negative purchase premium comes from the fact that the market value of Motorola’s assets (Cash balance, prepaid taxes, physical assets, subsidiaries, and patents) were valued more than the purchase price.19 Yet in 2013 Google sold most parts of Motorola, except the patents, at a total price close to the acquisition cost; it was as if Google got the patents of Motorola for free, and was paid by Motorola’s shareholders to get the rest of the company! Of course financial wizards will point out that all the transaction was done in Cash, thus selling the company was a good exit strategy for …show more content…

In practice the difference between the inventor-idea and the innovator-idea has tremendous implications on the Research and Development (R&D) costs of a company. Companies whose innovation process is based on the inventor-idea spent huge amounts of money in idea screening, or what they call opportunity screening. For example, drugs companies like Merck invest time and money each year in screening tens of thousands of ideas for a new drug; toothbrush manufacturers screen each year hundreds of possible models for a new toothbrush.23 Why do companies explore so many opportunities before reaching a winning idea? The answer is statistics. From historical data of a company, or an industry, a company knows how much percentage of new ideas fail. For example, in the drug industry, the success statistics of a new drug idea is around 1 in
1000;24 in the software industry this statistics rises to 1 in 10.25 Considering the success statistics (probability), companies would try as much ideas as possible to guarantee success. It is like you are shooting arrows at a target; and knowing that only one in a hundred arrows will reach the target, what

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