Google Buys Motorola
by Mark W. Hibben
Bold Move in the Internet Wars
If anyone doubts that the War for Mobile Internet Supremacy is indeed a fight for survival, not merely profit, that doubt should be erased by Google's announcement that it intends to buy Motorola Mobility Inc. (MMI) for US$ 12.5 B in cash. The defensive nature of the acquisition was immediately apparent in the joint conference call held by Google/MMI management this morning. Larry Page (Google CEO) and Sanjay Jha (MMI CEO) made it very clear that this was about defending the Android ecosystem from what was termed "anti-competitive pressures" and not about turning Google into a vertically integrated hardware/software provider a la Apple. Google execs repeatedly stated that Motorola would be run "as a separate company". But how does the Motorola acquisition strengthen the Android ecosystem? As we shall see in today's Tech Chat, there's really only one answer.
Android Activation Update
But first, turning to one of my favorite topics in the WMIS, the actual number of Android devices, Google execs did provide some confirmatory numbers that actually make sense. They reiterated that Android is maintaining a device activation rate of 550 k/day and that the total number of activations is now over 150 M. At lease these statements are mathematically consistent with the previous numbers reported at the Q2 conference call: 550 k/day activation rate and 135 M total activations. In the approximate month that has elapsed since the conference call, the activation rate would have added about 16.6 M devices. So, I now estimate that the worldwide population of Android devices stands at about 140 M (remember, there's an assumed replacement rate). Android appears to be growing much faster than iOS and closing the gap in worldwide device population (iOS stood at 208 M as of last month).
Since Android is growing so rapidly, the reader may wonder why Google couldn't leave well enough alone, and save themselves the US$ 12. 5 B.
Although Google is doing well as a company (see last quarter's results) and Android is expanding rapidly, it is nevertheless under attack on multiple fronts. An Apple-led consortium (including Microsoft, EMC, Ericsson, RIM, and Sony) out-maneuvered Google on June 27, 2011, to purchase the patent portfolio of bankrupt Nortel for US$ 4.5B, of which Apple contributed US$ 2.6B. Google has labeled this "anti-competitive", and the acquisition is under Justice Department scrutiny. Google was clearly stung and threatened by the loss of the Nortel portfolio. And then there is the Oracle suit, the subject of a recent Electro-Politics article of mine. Clearly, Google is starting to take the suit more seriously and has realized the potentially devastating consequences of losing it, since Oracle has requested that Android essentially be withdrawn from the market as remedy for Google's supposed patent infringement.
The Best Defense. . .
During the conference call, Google and MMI execs spoke glowingly of Motorola's 17 K of issued patents (with an additional 7 K applications) and clearly this was a big prize for Google. Perhaps, having realized their disadvantage in the Oracle suit, Google have realized that they need more patent ammunition of their own. Motorola was an early entrant into the GSM (Global System for Mobile communications, the standard AT&T and many foreign operators use) phone business. Recall that the early Star Tacs were GSM phones, so there probably are many Motorola patents for GSM chips that are licensed to other manufacturers, possibly even Apple. Google is now free to use the licenses as leverage to compel favorable settlements in its and Android partners' patent suits.
But beyond the IP, Google's claims that the MMI acquisition would strengthen the Android ecosystem and that Android partners were "enthusiastic" about the acquisition may seem a little far-fetched. Google execs even conferenced with the "top five" Android hardware partners the day before and claim they were happy with the news. How could they be? This appears to put Google in direct competition with their hardware providers, despite the repeated reassurances that MMI would be "run as a separate company".
The answer to this seeming paradox is that Google doesn't intend to use Motorola to become vertically integrated in the Apple mode. Thus, the protestations of separateness are sincere. Instead, Google intends MMI to become a development house for the entire Android ecosystem, with current and future IP to be shared among the Android partners via generous licensing terms. Google will have to walk a fine line, providing MMI IP to partners while somehow preserving the Motorola brand and consumer handset business. Ultimately, that business can't be allowed to emerge as a "first among equals" in the Android world due to preferential treatment by Google, and may eventually fade into the background as Google reaps the benefits of broader growth of Android devices.