Google and Motorola Mobility

Big news in the tech industry today with Google announcing they would be acquiring Motorola Mobility (MM), which is a separate company than Motorola Solutions, Inc.

If someone had suggested this move last week, I would have said "maybe but probably not, too many employees and it's a hardware business" although there were some people who saw a lot of potential with the move.

It's difficult to say what will happen to Motorola Mobility's 19,000 employees. Google has stated MM will be run as a stand-alone company but obviously having a new boss means setting new directions. If I were a MM employee working with Android I'd be optimistic. If I was working on older technologies, not so much.

This is obviously a big, bold move by Google. Could it be a "disaster" - no, Google had about $40B in cash when they made this move. Worst case scenario is that it doesn't pay off and MM could be spun back off. They actually got a pretty good deal for MM  - the price of $12.5B includes $3B MM has in the bank so the purchase price was under $10B. Sounds like a lot but Google also paid $1.65B for a technology to share videos. Motorola invented the mobile phone.

As the leading Internet and mobile OS company, I don't think there's much that Google could do at this point in history that would really throw them much off course. They're going to continue on an upward trajectory for the foreseeable future as are others.

I think Google's acquisition can and should pay off handsomely in two primary ways - one is short term, the other long term.

Short term.

Everyone knows the first reason Google agreed to acquire Motorola Mobility. They have 17,000 patents and some of the best in the mobile biz. Most firms cower from Apple's litigation team. Not Motorola, they actually went after Apple first and as the inventor of the first mobile phone, they've got some serious history on their side. For some perspective Microsoft has about 18,000 patents and Apple about 4,000.

The press has also been all over the fact that MSFT extorts payments from Android vendors like HTC. Guess who pays Motorola Mobility royalty fees for every Xbox sold? Karma is a bitch with a great sense of humor.

There's no question, should the acquisition be successful, that Google has "solved" their patent problem. (The system itself remains a disgusting waste of resources.)

Long term.

MM is the market leader in set-top boxes. All those DVR boxes we have on our TV's come from either Motorola or Cisco. You may have noticed something about your set-top box - it kind of sucks. Searching is awful, the hardware is disgusting compared with modern devices, the functionality is meh, Internet integration is typically non-existent (which is amazing considering TV and Internet services are often coming in on the same cable or at least from the same company), and the user interface hasn't really change that much in 10 years. With the acquisition (assuming it goes through) Google has just become the leading provider of set-top boxes? Holy shit, that's huge. Consumers have a lot to gain in this traditionally stagnant space.

Overall.

Google sends another signal with this move. Yes, they are a bunch of geeky engineers more concerned with innovation than patent litigation but they also have $40B in cash, won't be pushed around and everyone trying to can kiss their ass. Some are even speculating Google's pursuit of the Notel patents was a ruse - we'll never know. I tend to agree they would have been happy to win the bid but were aware they might not and were pursuing many possible patent acquisition options simultaneously - when they lost the Nortel bid they decided to go big. But to anyone who thinks the world's leading Internet company and leading mobile OS company is going to give an inch as the opportunities of the mobile Internet are realized you've been put on notice.

Other winners.

Amazon. They've been investing in Android with their marketplace, HTML5 apps and rumored Android powered tablets. Patents issues increased the risk of this investment. Amazon benefits from Android's new patent war chest without having to fork over the dough. Personally I think Amazon has more potential to be a long term mobile player than Microsoft, Blackberry, Nokia or HP.

Barnes and Noble's Nook. They've been fighting hard to protect their Android powered devices from litigation by Microsoft. Like Amazon, they should benefit from Android's new patent war chest.

Samsung, HTC, other Google partners. The MM acquisition causes some channel conflict but I'd bet these firms would rather have that conflict to manage than getting their asses sued or extorted left and right by Apple and Microsoft. A stronger Android means a stronger platform for these firms. Samsung is also a leading ChromeOS partner, a Google more invested in mobile computing is a Google more invested in Samsung. A look at the iPhone shows just how much quality and value Samsung components can add to Google phones, tablets and PC's. There's no reason MM does not take more, rather than less, advantage of foreign manufacturing partners now that its business model is a bit more dynamic to say the least.

Biggest losers.

Microsoft. They've been all over Android, basically making a business out of threats. "Pay us on your Android devices or get sued." The king of mobile patents is Motorola Mobility. With this move Google kills this "opportunity" for Microsoft. Microsoft even pays MM a royalty fee for every Xbox sold. Apple and Google will now both have hardware businesses at their disposal. Obviously Google will not match the profit margins of Apple but they don't need to - the firms have extremely different business models. Microsoft has tons of dough, they should just buy Nokia AND Blackberry. Revamp the hardware, optimize for Windows Phone 7 and shove the devices down the throat of every market on earth. It wouldn't be pretty or elegant but that's the only chance they have in mobile. Google just up'd the admission fee to play.

RIM. The phones are awful. The company's business model is obsolete. As everyone else gets stronger or consolidates into a larger player, Blackberry gets weaker. And just when everyone thought RIM couldn't be any more meaningless.