Interesting Times, Pt 1: Google’s Acquisition of Motorola

‘Interesting Times’ in the World of Technology, Part 1:
Google’s Acquisition of Motorola

The phrase “May you live in interesting times” has never been truer than recently in the world of technology. Usually late summer is a down time for the technology industry, but recently three of the biggest tech companies made major announcements.

First, Google, an internet search and software company, got into the hardware business by buying Motorola Mobility, one of the leading phone manufacturers in the world. Next, HP, the world’s largest personal computer manufacturer, announced it was spinning off its PC division and killed its line of tablets and phones running on its own mobile operating system, webOS. Finally, Steve Jobs, founder and CEO of Apple, the world’s most valuable technology company, announced he was resigning his position as CEO. All three of these announcements sent shockwaves through not only the technology industry, but throughout the broader markets as well. In this first installment in this series of articles, I will touch on Google’s acquisition of Motorola.

Google is primarily a web search and web ads company. It makes its money from people using its incredibly popular search engine which serves up ads next to every search result. Hands down, that’s how Google makes the lion’s share of its money. It is most definitely not a hardware company and up to now has not made any kind of physical product you can buy. The incredible profit Google generates from its web software funds other projects which are designed to funnel users back to its core business: ads. One of those Google side projects is Android, a mobile device operating system designed to run on phones and tablets. They offer it for free to mobile device manufacturers under the guise that if they use it, people will be more likely to use Google’s products. Those products consist of search, maps, mail, shopping, and a wide variety of other web based services which funnel people back to Google’s ads. Android is used by almost every mobile device manufacturer including HTC, Sony, Samsung, Motorola, and many others.

Google’s Android has been under fire recently in a series of patent lawsuits which claimed Android violated patents held by Apple, Microsoft and others. These lawsuits were not brought against Google directly, but rather against Google’s Android hardware partners, primarily HTC and Motorola. The result of one of these suits is that HTC has to pay Microsoft a royalty for every Android phone they sell. This is a blow to Google because they want to offer Android to their partners as a free OS and if the hardware partners have to end up paying anyway, Android is a lot less enticing. Under the current state of the patent system, only large companies with vast libraries of patents can protect themselves from these kinds of patent lawsuits.

Recently a group of patents held by Nortel, a former giant in the mobile phone industry, went up for bid. Apple and Microsoft formed a consortium with several other companies to bid on the patents as a group. This would ensure that none of these tech giants could sue each other based solely on these patents. Google was invited to partner with this consortium, but instead chose to bid separately and lost. After Google lost, they went on a PR campaign calling for patent reform and saying that companies should not litigate on software patents alone. However, this did not sit well with Google and its partners. In a shocking announcement, Google purchased Motorola for 12.5 billion dollars, quite a bit of money for Google. That’s over two years of Google profits tied up in this one purchase. Motorola has a large collection of patents, primarily because it was the company that invented the mobile phone. These valuable assets have been speculated to be the reason Google purchased the company. However, Motorola’s trove of intellectual property did not protect it from litigation tendered by Apple and Microsoft in past months (which is still ongoing), so the question remains: how good are the Motorola patents?

The biggest question about the Google Motorola acquisition is why they are attempting to buy it in the first place. Google could have just licensed the patents from Motorola or purchased the rights to litigate on those patents. That would have saved Google a lot of money as well as a lot of other headaches. The main difficulty of Google purchasing Motorola outright is that it will have a very difficult time integrating the company. Google currently has 30,000 employees who go through a rigorous application process. Motorola has 19,000 employees which come from a completely different background and corporate culture. To try and merge the two diverse groups of people will be nearly impossible.

Some speculate that Google will simply spin off the hardware business and keep the patents. However, if only getting the rights to the patents was the goal, we are back to the question of: why not just license them? That begs the question of what Google actually wants to do with Motorola’s hardware business. Those close to Google’s co-founder and CEO Larry Page say that he wants to keep the hardware business, but no one yet knows why. Will Google start making Google branded equipment? Will Motorola get exclusive access to the freshest versions of Android and therefore have the best Android products on the market? Will Google make Android an exclusive product? These are the questions that will be answered in the upcoming months.

The most interesting part of this Google Motorola acquisition is how Google’s Android partners will react to this deal. In an early press release many of Google’s partners seemed favorable to the idea mainly because it means Google will be actively defending Android using Motorola’s patents. However, that doesn’t exactly make sense, because that same portfolio of patents did not deter Microsoft and Apple from already proceeding with litigation against them. Since it’s unclear what exactly Google has planned for Motorola, it makes for a very tense and exciting time in the world of the Android operating system. This could mean better more specialized devices from Motorola. It also could mean ending the ‘openness’ of Android and making it a one-vendor product like Apple’s iOS or it could just be business as usual.

In a strange turn of events, the early winner in this situation might just be Microsoft. They also have a mobile device operating system which they are looking to license out for hardware manufacturers to use on their products. The main difference between Microsoft’s mobile OS and Google’s Android is that Microsoft wants to license their OS for a fee, while Google wants hardware manufacturers to use Android to drive users back to Google’s products. Earlier this year Microsoft chilled the market on its new mobile OS by making a landmark deal with Nokia, at the time the largest mobile phone producer in the world, to exclusively use their mobile operating system on all their products. This caused the other manufacturers such as Samsung and HTC to balk at the idea of paying a licensing fee to use Microsoft’s OS instead of the “free” and “open” Android. However, Android partners are now being sued and having to pay Microsoft licensing fees on patents Microsoft claims Android violates. Also with Google having purchased a hardware manufacturer, Android is looking a lot less tempting. What will be the final result of this acquisition? Only time will tell.

In my next installment of this series I will touch on HP, the world’s largest PC manufacturer, getting out of the hardware business as Google gets into the hardware business. Interesting indeed.