About the valuation report we submitted to Google. We had no idea how to value the trade mark, so we turned to a specialist firm in the UK, Valuation Consulting. They came with good credentials, having worked extensively for the government as well as the private sector. Their report, written at our expense and submitted to Google, concluded that the trade mark value is somewhere between $48-$64 mn. We considered this to be high since we accepted that our rights to the trade mark were imperfect in some jurisdictions, and the board of the company considered the minimum level at which it could dispose of the asset to Google, that would be a level that we felt could be defended to shareholders.
About Google's statement that the "amount that we were demanding is exorbitant". Google made us a very low offer, and then subsequently a much higher offer - which was far below the minimum we believed we could accept. We repeatedly asked Google to provide the reasoning for its offer, so that we could at least understand the supporting logic. We do not believe that Google consulted with either internal or external experts before making its offers - the numbers were in effect random, and as such could not be justified to our shareholders. The standard by which Google measures our proposals as "exorbitant" is therefore not at all clear to us. As an aside, we see substantial irony in this complaint from a company whose business model, based as it is on the auctioning of advertising space, is explicitly about getting paid the highest possible fee levels for its web property.
About the amount of the offer we made, and Google's statement on its website yesterday, asking you to "trust that we will do the best we can to make sure your email address won't ever have to change". Google broke off negotiations with us when we indicated that the minimum deal that we could accept, to transfer our entire rights to the trade mark, would be an annual licence at US$500,000 (FIVE HUNDRED THOUSAND US DOLLARS) per year (which is the real cost to Google) plus the same amount in advertising credits, to help us to re-brand our service. To put that in perspective, we believe that there are currently around 5m Gmail users globally - so assuming that this user-base never grows when the service is out of beta (which is clearly unrealistic), the cost per user is ten cents per year. Google was not prepared to settle at this level in order to legitimise its use of our intellectual property, and to allow you to avoid the hassle of possibly changing your details - which to our mind sits uncomfortably with its statement about "doing the best we can". We will certainly be thinking about this ten cents later today, when we learn from Google's third quarter results exactly how much more money it is earning from your eyeballs through advertising revenues this quarter.
About the changes Google announced yesterday. Google is attributing the change to pressure that we have brought to bear, but this really makes no sense. Our challenge to Google is not specific to the UK so there is no reason for Google to have made the change here, only, and not elsewhere in Europe. Furthermore, making the change for new Gmail users only leaves a problem in that existing Gmail users will still risk infringing our trade mark, when the trade mark application process concludes. We suspect that the reason for the change has much more to do with Google testing the water for an extensive re-branding of all its products to "Googlewhatever". We understand that when asked yesterday why the change had only been made in the UK, Google's spokesperson responded that it is because IIIR's claim relates to the UK. This is completely wrong.
About the impact of yesterday's changes, on our position. From our point of view, yesterday's changes were meaningless because it was restricted only to the UK. The bigger problem is that the damage has already been done - whatever address is associated with Googlemail, Gmail is now irrevocably associated with Google, not IIIR. Our analogy is that Google has been camping on our front lawn and, even though they have finally moved off, there's a lot of debris and damage left behind.
About why it has come to this. Google is a business (some of you seem to forget that). It makes its money, now, from collecting information about you and using that to attract advertisers. It has great technology and great products, and its best people are almost certainly working away on all the new stuff. That, we think, is why insufficient attention is given to the more mundane matters like dealing properly with intellectual property. So sometimes the company appears to be playing fast and loose - the complaints Google is facing about copyright infringement in the US are a good example. The way that Google still fails to understand what we do, or our technology, is another. With some senior management time applied to this earlier on, it would never have reached this stage in our view.
What next. We don't think that our proposal to Google - equivalent to ten cents per user per year - was exorbitant, on any measure. We wish they agreed so that further disruption to them, to us and to you could have been avoided, and perhaps it still can. Google broke off negotiations, but our door has remained open. If you still want to express an opinion, we suggest you make your thoughts known to Google.
Regards,
Shane Smith
Chairman and Chief Executive Officer
Independent International Investment Research Plc (LSE: IIR)
shane.smith@iirgroup.com
http://www.iirgroup.com
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