It has been announced, by none other than the Google CEO, that Google will acquire Motorola’s handset business for 12.5bn.
Now it’s not surprising that Motorola would want to exit the handset business. Ever since the Razr their handset market share has steadily progressed downhill. And although their embracing of Android has helped to lift them up a little, they face stiff competition from other handset manufacturers who also build on the popular open-source mobile platform.
From Google’s perspective, Motorola might be the perfect purchase.
First, Motorola’s declining market share makes them affordable. $12.5bn may seem like a lot but that is probably much cheaper than trying to go after HTC, for example.
Second, Motorola’s focus on Android fits in perfectly with Google’s larger “convergence” theme (web, mobile OS, TV, tablet, etc.). Motorola isn’t only a handset manufacturer. They have been pushing into the living room for quite some time and coupled with Android and Google (i.e., Google TV, set top boxes, etc.) this could be the combination that Google needs (software and hardware) to get a better foothold in the living room. There’s a war brewing for standardization of a “family” operating system and Motorola gives Google the hardware platform that their software platform (and web-based services) need.
Finally, though, Motorola gives Google what they really want: an inside track into the carriers. Up until now, Google hasn’t had any real connection to the carriers (where all the big, explosive growth in data traffic is happening and, consequently, all the rich data is being produced that would greatly impact ad CPMs; hint hint). But with the way that carrier/handset relationships work (the carrier works directly with the handset manufacturer to customize the handset for their needs and network), Google will now have the opportunity to develop carrier-specific features (i.e., some aspect of their ad network that a carrier can use to generate incremental revenue and which consequently generates additional revenue for Google) that are baked into the very handset and the carrier network. This is a really powerful value proposition (and one which Apple already has; just think visual voice mail).
Unlike some acquisitions, this is very good for both parties. Google gets their hardware platform/carrier relationship and Motorola gets to shed their ailing handset business. The big question, though, is will this be good for the customer in the long-run? Only time, and a few more billion handsets, will tell.
Logo hack courtesy of Graham Smith
In a recent posting on TechCrunch, the suggestion is made by a Citi analyst that the move is defensive. Although I agree that Google gets a large patent portfolio as part of the acquisition, those patents are not worth 12.5bn. And, if they already had leverage, why wouldn’t Motorola have brought them to bear already? It would be interesting to understand the percentage of those patents that are hardware related vs. software related. Regardless, as per my writing above, I believe this is a strategic, long-term move for Google to get closer to carriers and have a better shot at setting the direction for the “family OS.”
P.S. fixed up the language a bit. Rushed to publish without a good copy-editing. Sorry.
ReadWriteWeb has just published a synopsis of the transcript from the acquisition call this morning hosted by Google:
Ryan Kim @ GigaOm just published a nice collection of thoughts on this from around the Web. And even though he didn’t include any comments from my post , I think this is a great snapshot of thoughts on the Google acquisition topic. And, well, there’s a few in there that support what I said as well.
I decided to post another piece related to Motorola’s handset business. Does Google ditch it? I don’t think so…
For all those “this is a pure defensive play by Google to purchase patents,” here’s a critical reason for this acquisition: the battle for the “family room platform:
For all of those “it’s all about the patent” analysts, in the immortal words of Will Ferrel, “suck it!” Only .1% of the patents they got from Motorola will be applicable to defending Android:
Hmmmm, think there was something more involved in this acquisition?
An excellent writeup from an independent analyst (writing for the HBR blog) that really positions the Motorola acquisition as a “Google had no choice” purchase. The blog piece discusses the strategic mishaps that Google has had which resulted in them having to purchase somebody like Motorola. In short:
Instead, with Motorola, Google got a hold of the vehicle through which it can create and sell integrated products. The company is thus no longer just a plumber but also a house builder and real estate developer. It can now build showcases that demonstrate the value of its services. The challenge then is how it will sell plumbing to contractors while it also competes with them by building houses. Android’s big bet has yet to pay off and Google just doubled down.
Chairman Eric Schmidt has come out and said it: the acquisition is not just about patents. Whether or not you agree with him, it’s tough to believe that acquiring a company for $12.5bn had to do with just intellectual property. Obviously they weren’t acquiring a very good revenue stream. So one has to look at their product development/R&D and other intangibles (i.e., carrier relationship) as the principal driver.
Thought I was done updating this but, low and behold, the SEC doc comes out around the details of Google’s acquisition and whamo, we’re talking about it again. What concerns, me though, in this latest round of discussion is the focus: sensationalism. In a recent article in the WSJ, for example, the authors actually make the claim (not hypothesis, mind you) that Google’s overbid on Motorola clearly demonstrates they wanted the patents. Huh? But GigaOm also followed suit with their own piece about Motorola basically pressuring Google to make the purchase and that if they didn’t, Morotola would basically sink Android. Where does this kind of speculation come from?
My comment on the GigaOm piece summed up what I think the problem is: we are focused on the “why” and not the consequences:
There’s a lot of ingredients in the soup now. What it will taste like is anyone’s guess. I’m just not concerned anymore with where they got the ingredients. I want to see what they cook up.
With all these smart people talking about Google + Motorola, why are we still focusing on the reasons behind the acquisition? Why don’t we start intelligent, insightful, probing discussions on what it may mean? Let’s put our imaginations to use and leave the sensationalism in the bedroom.
Image courtesy of www.informationweek.com.
Originally posted 2011-08-15 08:08:34.