Last week, LoJack (NASDAQ:LOJN) announced the dawning of a new era in data recovery.
What? Is the groundbreaking gorilla of stolen vehicle recovery committing Peter Lynch's cardinal sin of deworsification into the unrelated field of hard-drive hacking? Not really.
LoJack is licensing its brand name to Absolute Software, which provides Computrace -- soon to be known as the "LoJack for Laptops" line of computer theft recovery systems. When a stolen Computrace-equipped system is connected to the Internet, it automatically and silently sends locating data to Absolute Software, which then calls out the law. In some cases, Absolute Software customers are eligible for a $1,000 guarantee payment when a stolen system is not recovered within 60 days.
In my opinion, LoJack investors should be pleased for at least two reasons. First, without committing any capital or assets, LoJack is collecting a licensing fee, as well as warrants to purchase 500,000 shares of Absolute Software, with a $2 per-share exercise price. Assuming that LoJack can capitalize on its option to buy shares profitably (Absolute Software shares are trading at around $2 each), LoJack investors might be looking at the elusive free lunch. As long as Absolute Software delivers on quality control and customer service, thereby maintaining its reputation, downside risk is relatively limited.
Second, and more importantly, the LoJack brand name is gaining free exposure in the laptop market, catering to a higher-middle-income individual and business population, which happens to be a major segment of LoJack's automotive target customer base. Ostensibly, LoJack's status as a recognized brand and market leader in its field stands to be confirmed and enhanced. If companies take note (and mass appeal exists), there might be more licensing revenue to come.
To be sure, in a business that depends on brand awareness and customer confidence, a deal like this carries tempered risks because a company's brand equity is tantamount to the success or failure of a product. That said, successful licensing also offers the possibility for even greater rewards.
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Fool contributor Michael Jaffe owns no shares in any of the companies mentioned in this article. Click here to see The Motley Fool's disclosure policy. The Motley Fool is investors writing for investors.
