Corporate Aug 16, 2011
Google's $12.3bn purchase of Motorola Mobility is being seen by some as being about handsets: acquiring a hardware company would let Google's Android smartphones can go toe-to-toe with Apple. However, dig a little deeper into the portfolio of products owned by Motorola and a whole range of opportunities starts to become apparent - opportunities that begin to explain why Google would pay a 63% premium on a company that frankly has been struggling for year.
Motorola used to be one of the titans of tech(PDF). Their radios were essential communications kit for the US military during World War II. They provided radio communications for Nasa, including for Apollo moon landings. They were pioneers in the mobile phone business, launching the world's first mobile phone in 1983. They built the chips for the original Apple Macintosh computers and worked with IBM and Apple to develop the PowerPC processor.
The company is renowned for its engineering, which should make it a good fit with Google, but it has struggled for more than a decade after a bad bet on the Iridium satellite-based mobile phone system. It failed to capitalise on its early lead in mobile and the fortunes of its chip division flagged before being spun off in 2004, creating a company called Freescale. In January 2011, Motorola spun out its mobile phone and television set-top box division into a separate company, Motorola Mobility, which Google has just bought.
First let's deal with the obvious. This isn't just about buying into the hardware business. In fact, that was one of the weak spots of the deal for me. Google's Android mobile phone operating system has been doing just fine without Google building its own phone. Yes, Google offered the Nexus line of phones, but those were built by HTC and Samsung.
Having a hardware maker of its own, Google can now go head-to-head with Apple, which controls the OS and hardware for its iPhone and iPad. Larry Page, Google CEO, said:
Motorola Mobility's total commitment to Android has created a natural fit for our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers.
I'm a little sceptical that this will have an entirely positive impact on the Android ecosystem and I think Google will face challenges to keep other handset and tablet manufacturers happy. I agree with Roger Cheng of News.com, "The deal simultaneously lends stability to and shakes up the Android world."
However, Google also didn't just buy a company. It also bought patents and intellectual property, something it desperately needs in its battle against Apple. Apple is waging a high profile war against Android-manufacturers Samsung and HTC, and Google just bought a job lot of ammunition. Motorola's CEO Sanjay Jha boasted of the company's 17,000 patents with another 7,500 patents pending.
Jeff Jarvis, media pundit and the author of What would Google Do?, described the deal as "lawyer repellent":
Or rat poison, if you prefer. It is a tragic and wasteful by product of our screwed-up patent system. Just this year, $18 billion is being spent not on innovation and invested not in entrepreneurship and growth but instead in fending off lawsuits.
Google lined up the CEOs of LG, Samsung, HTC and Sony Ericsson to announce their support for the acquisition. However, they all robotically repeated the same line praising Google for its commitment to the Android ecosystem and defending their partners. I'm inclined to call their PR departments and say, "Again chaps, with feeling."
While this is being played as strictly a deal about Android and smartphones, there is another angle here. Motorola Mobility also has a digital television and set-top box business. Google TV hasn't exactly been a roaring success and Google TV box maker Logitech revealed that it has had more devices returned than it actually has sold. Ouch.
I wouldn't surprised if Google TV died a quiet death while Google search and YouTube find a place in Moto's set-top boxes. Motorola also has been promoting its vision of allowing consumers to take their digital media from their home entertainment system with them via their smartphones and tablets.
Adding a little extra spice to the deal is the rumour that Google is in the running to buy video-on-demand service Hulu. If that happens, Google moves from being simply a search engine into a major media player, one to rival Apple.
Of course, Google is also under anti-trust scrutiny in the US and Europe. Anti-trust regulators get very nervous when a company uses its dominant position to expand vertically and, while patent suits might be the legal headache forefront in Google's mind right now, this could add to its anti-trust troubles. The patent wars pushed Google into opening its wallet, but the anti-trust regulators means that one growth area that the internet giant is sure to have is its legal department.