I was a bit surprised this morning to hear that Google has purchased Motorola Mobility (the portion of the former Motorola that produces cell phones, tablets, set top boxes, consumer grade two-way radios and the like) for $12.5 Billion. Merely for completeness, Motorola Solutions (the other portion), produces communications equipment primarily for government and public safety organizations.
In my nearly 20 years at Motorola, I had the opportunity to work in or closely with both organizations. I have also worked for several years at Microsoft on their Windows Phone team. What follows is a stream of thoughts about the implications of this purchase to the market, the companies involved and their competitors.
What is in it for Google?
In addition to acquiring a company that designs and produces some of the most popular hardware for the Android operating system, Google now becomes the owner of a large number of patents that Motorola has related to the design and development of cell phones and cell phone networks. I really believe that this is Google’s response to losing out on the auction of the Nortel patents earlier this year to a consortium of competitors including Apple, Microsoft and RIM. The Nortel patents went for $4.5 Billion. For a mere $8 Billion more, Google acquired all of Motorola Mobility.
What is in it for Motorola Mobility?
Until quite recently, Motorola has been in a downward spiral of market share loss that has led to the layoff of many thousands of workers. Recent success of the Android devices has eased the spiral, but it has also introduced very tight competition between Android device makers. This acquisition of Motorola Mobility is like a very wealthy family with very deep pockets adopting an orphan. Google has enough money to keep Motorola Mobility safe from harm and even potentially grow the business. I would expect flavors of Android and/or Chrome to appear on other Motorola devices in the not too distant future. Perhaps these changes will be coming to the set top box market?
Integration of the Work Forces
One very complicated issue with acquisitions of this type is the integration of the work forces. I believe there will be some issues and growing pains here. Motorola Mobility has very old roots and in many ways, the development work is accomplished through “old school” methods. I believe Google is more cutting edge and modern. Integrating the organizations culturally will also be difficult. From what I have heard of Google, the organization there is very flat while the structure at Motorola tends to be a bit deeper. I would expect some additional layoffs at Motorola Mobility in the year after the acquisition as Google trims redundant positions.
I believe the real losers in this deal are the other manufacturers of Android devices like HTC, Samsung, LG and others. What Google has ensured is that these manufacturers will NEVER have the latest Android software on the initial launch of their new devices. The Motorola Mobility arm will always be the favored recipient of updates to the OS as well. I also suspect we will never see another Google-branded phone like the Nexus.
With this acquisition, Google has become not only the supplier of the OS these manufacturers are running, they are also now a direct competitor for market share. I would not be really surprised to see some of these competitors run to the Windows Phone OS, Symbian or something else for some future models. I don’t believe the Windows Phone OS is nearly as good, but all of these suppliers have just been stabbed in the back. They are looking for any alternative to stop the bleeding. Many of these manufacturers have more invested in the Android business than Google has up to this point.
Microsoft really has to love this announcement. Not only will this result in in-fighting between Google and the other manufacturers, it opens the door for the possibility of Microsoft to purchase a hardware manufacturer also. Microsoft has been very careful in the past not to upset the apple cart (no pun intended) by being anything more than the OS supplier to the manufacturers. Microsoft has needed to stay relatively impartial and not appear to be a direct competitor or threat to these business partners. The precedent has now been set. They will watch very carefully how the market and these manufacturers respond to the news.
Apple is probably quite pleased with this announcement as well since it drives a wedge between Google and their hardware partners. I don’t believe any of them would be able to successfully partner with Apple. I believe Apple is quite content with the way things currently are in their camp.
The action today could also make RIM a viable target for acquisition in the coming months.