At the risk of upsetting the other 38 vendors manufacturing Android devices, today Google made a $12.5 billion bid for Motorola Mobility. Say what??? My knee-jerk reaction to the news that Google is acquiring Motorola Mobility was: “this is going to piss off the other 30-40 device vendors using Android.” But upon second look, does this really put Google at odds with the other Android backers? Or are other forces at work here? What about Apple? What about Nokia? Microsoft? RIM? We believe it is more about the treasure chest of intellectual property in Schaumberg than the brand or manufacturing capability Motorola offers.
To Understand this Acquisition, Let’s Look at the Nokia Microsoft Partnership
Earlier this year, Microsoft and Nokia made news with the announcement that the two companies would partner and begin collaborating on the design, development and marketing of productivity solutions for the mobile professional, bringing Microsoft Office Mobile and Microsoft business communications, collaboration and device management software to Nokia’s Symbian devices. Yea, yea, yea…blah, blah, blah…big deal, right?
Well, then came the bombshell announcement that shocked the world. Nokia was partnering with Microsoft and would adopt Windows Phone as its principal smartphone strategy. After struggling for the past few years against the onslaught of innovative smart devices from Research in Motion, Apple, and Android, Nokia had abandoned its “Symbian for Everyone” mantra in favor of a tie up with Microsoft. And Microsoft, who has also had its fair share of problems in the mobile space, got a much needed partner to bring its industry leading PC operating system to mobile phones everywhere.
The formalization of the partnership repairs any of the past IP issues between Microsoft and Nokia. Over the past few years, Microsoft and Apple have likewise mended fences and resolved most of their previous animosity, especially that surrounding intellectual property and have a much improved relationship. Conversely, Nokia and Apple have been engaged in litigation and been picking apart each other’s IP portfolios, looking for areas to file suit. While few outside of the executive suites at Microsoft and Nokia know how their new partnership is structured in regard to the two companies’ patents, over the past few months we’ve seen a softening between Nokia and Apple and believe it is because of both companies’ relationships with Microsoft.
How Does the MSFT/NOK Partnership Relate to Motorola Mobility and Google/Android?
Companies like Google, Microsoft, RIM, Sony, Ericsson, Qualcomm, and Apple have been acquiring patent portfolios and intellectual property holdings in this ever litigious mobile marketplace. In late June, Carl Icahn met with Motorola Mobility and urged them to leverage their IP portfolio and even potentially sell because the value of their patent portfolio is greater than that of Nortel ($4.5 Billion) which Google recently bid on. This acquisition should amplify the number and quality of Google’s mobile patent portfolio greatly.
The two largest Android (in terms of volume) handset makers – HTC and Samsung have both publically stated their support of and intentions for using multiple operating systems (Android, Windows, Bada, etc). Google has always shown its desire to provide the Android platform to multiple vendors. I believe that HTC and Samsung will continue to support the Android platform and have relationships with Google similar to their respective Microsoft relationships.
Let’s Talk IP
It seems that most large companies don’t compete on innovation, they acquire it. And when someone else comes along and does something similar, the first thing to do is sue for patent infringement, whether it has occurred or not. Why? A patent is not a guarantee that you can do or build something (since your implementation may require the use of or infringe upon someone else’s patents). A patent merely is the right to preclude someone else from doing something; without permission or more importantly compensation. Think of the race for patents in the mobility space like a revival of the Cold War Arms race.
With approximately 17,000 patents granted, and another 7,000 patents applied for, Motorola Mobility’s patents could be invaluable for Google for a few reasons.
First, Google can shore up its nearly non-existent IP portfolio and utilize the patents to bolster Android's position against patent lawsuits. So far, Google has stayed out of the litigation fray and made its ecosystem partners (such as HTC, Motorola, Samsung, and LG) fight their own battles. If they want to keep partners happy, Google must stop being a spectator and become a vested participant.
Second, by acquiring Motorola’s patent portfolio, it can protect the rest of the Android ecosystem should Motorola wish to go after other OEMs that use Android. Motorola has historically been fixated on Nokia, Apple, and RIM when it comes to litigation around IP, while companies like Dell, Acer and HTC are more vulnerable for attack.
Will the Integrated Device Battle Now Begin?
Some out there think that this deal means Google is immediately focusing on becoming a hardware company. We do not. While Motorola is internationally known for world class innovation (they invented Six Sigma) and manufacturing first-rate innovative hardware (DynaTAC, StarTAC, RAZR) with great scale, we believe that Google will not forsake its other partners to focus on Motorola/Google branded hardware.
Since Google will now control Motorola's design and engineering process and team, does this mean Google will cut out Samsung, HTC, and the other 30+ vendors who are building equipment as part of the Android consortium?
The acquisition will allow it to carefully tailor both future smartphone hardware and its own Android OS software together. This will provide Google with better hardware and software integration and spawn devices with improved functionality, increased battery life, better performance, greater reliability, and fewer OS bugs at launch. Something Apple has mastered with the iPhone. But because of Google’s belief in Open Source and spirit of collaboration with which Android was founded, we believe this will give Google the ability to share best practices and the lessons learned by the new combined team with their partners.
What this Doesn’t Fix
The one thing that this doesn’t fix for Google and the entire Android ecosystem is the difference between the Android Marketplace and Apple’s App Store. While the Android Marketplace has expanded, the iPhone App Store dwarfs it in size and gets much more favorable press. While the quality of applications between the two stores (App Store and Android Market) is similar, apps seem to make it to the App Store much quicker, the interface is better integrated, and the updating process works better.
The App Store advertises its lucrative ecosystem for developers, touts the number of users actively purchasing applications, and has spent a lot of time and effort cultivating its developer community. Conversely, Android users are more likely to come from a different socioeconomic demographic and are more likely to expect apps to be free and are less willing to pay for things.
Advertisements, developer recognition, usage contests and education are the best hopes for Google improving it’s the application ecosystem.
For Investors
The acquisition is a great deal for Motorola Mobility and its investors. If you remember, prior to splitting into two companies (Motorola Mobility and Motorola Solutions) last year, Motorola put its mobile assets up for sale in 2008 and could barely get a bid (the only bid was $3-4 billion by Indian manufacturer Videocon).Today’s bid by Google seems to be a windfall for investors.
For Google investors, I doubt much will change. The acquisition will keep the Trolls from chasing Android partners to the courthouse, and will shore up relationships with MNOs and Cable Companies (with whom Motorola has a much better relationship than Google). But I doubt it will do much to make the needle rise on Google stock.
Things to Watch
While on the surface, it appears as if this deal should not experience any legal or regulatory difficulty because Google doesn’t have a position in the device space, any time a company becomes the size of Google; extra scrutiny is applied to its acquisitions. In the past, Google has had trouble pushing through acquisitions because the government is keeping a close eye on anti-competitive signs from the company. Microsoft, Apple and others may fire up the lobbyist community in an attempt to stall if not quash the deal. Google, however, spoke with great confidence about the acquisition during the announcement press conference and backed up this confidence by “putting its money where its mouth is” with a $2.5 billion reverse termination fee, should the deal for Motorola Mobility not pass muster.
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