Fast Company

Why Google Bought Motorola Mobility, And What It Means

With the "unanimous" approval of both boards, Google has agreed to hand over $40 per share to acquire Motorola Mobility--the spun-off phone-making wing of the original Motorola, separate from its government and enterprise business. The price is a big premium on Motorola's last closing share price, and amounts to some $12.5 billion. That's about a third of Google's cash reserves, as per the most recent figures, which demonstrates exactly how gigantic a move this is. But exactly why is Google pulling this trick off?

Hardware-software synergy

The most obvious interpretation of the deal is that Motorola is already an internationally renowned expert in something Google is painfully naive about: manufacturing hardware in massive numbers. Motorola brought the world many of its important mobile phones over the last several decades, and the famous Razr device was so unusual and radical in design that it sold over 130 million units. While Motorola's fortunes then took a dive, it took a bold move and launched itself into the Android smartphone market--making the Droid line of smartphones that saw broad market approval.

Now Google gets access to Motorola's design and engineering process, and this will allow it to carefully tailor both future smartphone hardware and its own Android OS software together. Don't mistake this for another Nexus One, which came from external manufacturers.

Making phones in-house means a Google Droid phone will likely have better battery life, slicker performance, greater reliability, and fewer bugs, which is exactly what Google needs to rival Apple, with its iron-fist control over seamless integration of software into custom-crafted hardware.

And because Motorola is already so huge, and long-established, it has extensive and very strong links to manufacturing partners around the world. Those relationships are now owned by Google, which means it can hone and refine them to meet future Android phone (and tablet?) needs.

Google is in the hardware business.

Patents

Here's a gem in the Google blog post

We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to "protect competition and innovation in the open source software community" and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.

This transaction, as much as it is about getting some really, really slick Android hardware out on sale, is also about protecting Android from IP battles. 

The ongoing and devisive legal battles around the world concerning theft of Apple IP by Samsung (on its Android-powered smartphones and tablets) and other Android device makers are numerous and complex: Apple even succeeded in barring sales of Samsung's flagship Android tablet PC the Galaxy Tab 10.1 in Europe, on the understanding that the design, elements of the UI and even the packaging are clones of Apple's own efforts. It's widely thought that Apple sees these numerous suits as a way of indirectly tackling the way Android gently emulates some of iOS's functionality.

Android also closely mimics Microsoft IP, and in a similar move to Apple, Microsoft has been indirectly snipping away at the problem by targeting different Android device makers--generating more income in licensing fees than its own Windows-powered smartphone business makes. Motorola itself had very recently hinted it may attempt collecting royalties on Android sales, which would further damage the device's credibility (by potentially bumping up the handset's prices across the board). 

With the recent billion-dollar purchase of Nortel's extensive patent cache, many of which may be applicable to the smartphone and tablet computing world, Apple and a group of similar companies sparked off a war of words, centered on IP, with Google. Google alleges the deal is a murky attempt at killing its business, but its own bids--which were multiples of scientific numbers like Pi--didn't seem serious. By grabbing Motorola, Google's certainly gained access to more patents to shore up its Android patent portfolio and thus enable it to counter (and respond with counter suits) any future IP threats.

Where this leaves other Android phone makers

This is a very difficult question, and one that casts a long-enough and deep-enough shadow that Google felt it necessary to mention several times in the press release. Motorola will be run as a "separate business," and it will remain a "licensee of Android," maintaining a slight separation from Google proper, and suggesting the Motorola brand won't be going away. Though we expect that Motorola smartphones may quickly become the slickest, best-performing Android units, Google's careful to note "Android will remain open" and the partnership will make "amazing user experiences that supercharge the entire Android ecosystem." Also, Google's mobile boss Andy Rubin is quoted saying the overall Android vision is "unchanged" and Google's strongly committed to keeping it "an open platform" with a "vibrant open source community" thanks to "all our valued Android partners."

Google is sensitive that other makers like HTC and Samsung will be very nervous about the new deal, so its promising that Android will remain as it is--a very accessible and "open" platform for other makers to build great devices upon. But does this actually ring true? If Motorola's future Android phones acutally do benefit from enhanced hardware-software integration, then they may out-class the competition (particularly if Motorola helps with Google's sometimes sticky interpretation of the core Android user interface) ... and that could steal market share from Google's own partners. It's going to be a tricky path to walk.

The fallout for HP/Palm, Nokia

Competitor smartphone platforms will be worried, for sure. Android was already a hugely powerful competitor and has snipped up over half the new touchscreen smartphone market (and about 20% of the tablet market), leaving little space for Palm or Microsoft. Microsoft has big hopes for the future of its Windows Phone 7 software, particularly thanks to its hardware-software partnership with Nokia, and HP has great hopes for the future of its Pre phones and TouchPad tablets which are the result of a software-hardware synergy created when it bought Palm.

Google, however, may have seriously dented these ambitions. By buying Motorola, it's positioned itself to concrete its hold over the smartphone game, and possibly deliver even better hardware to market. Apple's iPhone platform isn't going anywhere either, and it's even predicting bigger sales of its future iPhone offerings than had originally been predicted for 2011. Between these two giants, HP/Palm, Nokia/Microsoft and others may see little space to maneuver.

Update: Google just completed a webcast press interview about the news, and kept very closely to the lines that've been presented in both the press release and the company's own blog post. It's all about bringing Motorola's expertise into the fold, Motorola will remain as a separate company, and Google values its other Android partners. In fact, the company spoke to the top five licensees, and secured "enthusiastic support," by which we can assume Google allayed their fears. One way they may be planning to do this is by having a bidding program for the flagship Nexus line of Google-branded Android phones, which is still open to other companies (as well as Motorola)--HTC and Samsung have been previous partners here.

There's also an intriguing hint about Motorola's "IP set-top boxes," or Net TV devices. Google has so far failed to dent this market, despite trying hard, but sees "great convergence" between mobile and set-top box content, and plans to "accelerate" this process. A big hint that Google may try a different, Apple TV-style attempt to get into the game.

[Image: Flickr user don solo]

Chat about this news with Kit Eaton on Twitter and Fast Company too.

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5 Comments

  • egojab

    Are people actually buying the "Apple/Microsoft/Everyone-on-the-planet Conspiring against Google to kill Android" excuse?
    Are people actually buying that Google is doing any innovation in the mobile phone space?

  • copyguy

    In the Oracle v
    Google case, Oracle will win the copyright lawsuit, and will get its injunction
    against Google. In order for Google to ship droids, they need to acquire a
    license. The only place Google could acquire one was to purchase some one who
    has the license. The copyright claim is breach of license, and does not matter
    if Google gets it after the fact. All Google did was cap the damages with the purchase.

    Why this is important, is that when the
    judge issues an injunction against Google for copyright infringement, Google
    can continue to sell phones through Motorola.

    What people forget
    is that copyright is based on the old printed books. The copyright law has a
    provision to “disgorge profits”. In this case, this means that all Google
    revenue that they received from any service that runs on the infringing device
    is up for seizure by the courts. (ads, google docs, google+ etc)

    The problem that
    Google now has is that the have placed a value on the patents in the Oracle
    case. So I suspect you will see Oracle file a complaint that Google made false
    pleading filing when they tires to get the damages reduced to $100M. The judge
    will not be pleased that Google just spent 1$2b to reduce infringement claims.It appears that Oracle $6.1B damages was on the low estimate.  Now Oracle can submit new data to the court and up the damage estimate.,  

  • John Pope

    Examples of Google's Spin-Doctor-Lying- Machine as follows:

    "Microsoft and Apple are banding together in anti-competitive patent attacks on Android" and "better protect Android from anti-competitive threats from Microsoft, Apple and other companies."

    If this isn't a perfect example of "The pot calling the kettle black", than I don't know what is. Google has demonstrated hundreds of times that it is willing to destroy competition by giving away everything for free, thus eliminating businesses that don't have as deep pockets and crushing them out of existance. Then they spin their tactics in the name of benevolence and "in the best interests of it's users." Total bullshit.

    If it's in the best interest of it's users to provide Google with their entire life story, information and data in order for them to monetize that data / audience through advertising in exchange for free stuff (gmail, android, maps, analytics, docs, etc.) than why are the FTC, Justice Department, European Commission and other regulatory bodies looking into Google's every move on the basis of anti-trust and anti-competitive issues?

    Google is in the People-Selling-Business a.k.a. Pay us a royalty, tax, tariff, or as they like to call it, Ad Revenue, if want to reach an audience.  Phones, search, social, maps, analytics, Youtube and every other application they own, is all a smoke screen - Google only wants YOU, THE PEOPLE.

    As Eric Schmidt said in 2008, "Google intends to be the first hundred billion dollar (in annual revenues) MEDIA company in the world."  The only way that happens is if Google adopts anti-competitive behavior strategies in every industry they compete in, which will, eventually, be any industry with any reasonable returns.  Google only supports innovation if it satisfies their needs, other than that, they stifle innovation where ever and when ever possible.

    Message to regulators: Break the company up now, Larry and Sergei have become megalomaniacs.  What started as a genuinely ethical and productive endeavor has become something far more sinister.  To Larry and Sergei this has become nothing more than a corporate chess game that they must win, they want to show all their competitive peers that they're the smartest guys in the room. L & S think they're playing with all kings on the board, while the competition is defending its queen with all pawns.

    The old saying, "Hell hath no fury, like a woman scorned" comes to mind when thinking of twenty first century geek culture, a contemporary slant should say, "Hell hath no fury like a Geek, with new found power, scorned."  To Larry, Sergei and Eric, it's payback time for all the Ivy- League-Big-Man-On-Campus types who pissed them off in the past. They're going to show everybody who's boss now.

    As far as their moto, "Don't be evil." is concerned, it's far too late, that ship has sailed!

  • Kheb

    You forgot to mention the enormous asteroid Google plans to crashland on earth. And AIDS. And atheism. All Google's fault. With these additions, your "holy shit I was born 5 minutes ago and I just now realized it turns out people are in it for the money" deranged ranting is complete.
    Welcome to Earth.
    And you know what? If Google keeps listening to its customers and provide free software and services to millions of people in exchange for some ridiculous and completely meaningless "personal" data, then one day decides to "Be Evil" and fuck up everyone, it will still be better then being fucked up by its competitors every day of our lives.

  • John Pope

    Kheb - You must be right genius. Every regulator on the planet must have a hidden agenda that is actually anti-consumer.

    And thank you for pointing out this profit motive thing for me, living in Never Never Land all these years has made life in this "nasty capitalist society" difficult for me to comprehend - please be gentle Kheb, this is all so new to me!

    Don't need to sensationalize with asteroids, aids or atheism, everything I alluded to is the real deal. Does the fact that I'm pointing out Google's hypocrisy and pseudo-benevolence bother you because of  your own agenda or have you just stopped by their Kool-Aid stand a few too many times?

    In reference to, "If Google keeps listening to its customers..." blah, blah, blah.  You've proved my point perfectly - You obliviously believe that you're the customer when in actual fact YOU'RE THE PRODUCT - surprise. You see, in order to be a customer you need to purchase things - 98% of Google's revenue is from advertisers - actual customers. You my friend are a USER. Appropriately, especially in your case, drug addicts are also referred to as users, ooh the irony.

    Also, you're "in exchange for some ridiculous and completely meaningless "personal" data".  Where should I start so that it doesn't confuse you and make your head explode.  That "meaningless data" is the foundation of Google's 30 billion in revenues and 40% net profit margin annually, hardly meaningless.  News flash - the marginal cost of selling that data (audience) is as close to zero as your IQ and the exclusive reason for Google's financial dominance.

    Any of this starting to make sense? Any synapses connecting inside your dwindling grey matter?

    Sorry to break it you Kheb, Google's altruism is as real as the Lochness Monster, Santa Claus and your awareness.  Time for a reality transplant my friend.

    Now run along Junior, your mother's calling you in for dinner.