Google Gets Smart, Buys Motorola for $12.5 Billion

August 15, 2011
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We all know that the patent issue has been getting worse lately for Google. Google needed to solve this quickly before it got out of hand, and it seems they’ve just found the perfect way not only to get their hands on a huge trove of mobile patents, but to also spearhead their way into becoming a hardware company.

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The acquisition is not cheap -$12.5 billion is a lot of money. But I think it’s all worth it. Here are some reasons why I think so:

1) Patents

Motorola is the company that practically invented the phone. It has gotten many patents since then, and these patents will be valuable to Google in defending Android. They have 24,500 patents right now (17,000 granted, over 7000 pending), which is more than even Microsoft has, and the vast majority of them are related to mobile technologies. This makes Google now one of the biggest mobile patent owners in the industry. Their patent luck may just have changed.

People have been speculating lately that Google should buy RIM. That would’ve probably been smart too since they have a lot of patents as well,  but with just one problem. RIM is much more expensive. Even with no other bidders, RIM would’ve easily cost them twice as much. Put Microsoft in the auction and it might’ve gone to $40 billion. That’s basically all Google’s cash. They wouldn’t have risked all their money like that, just to get a bunch of useless patents that they’re never going to use anyway. They would just be there to legally defend Android.

One advantage would’ve been the ability to enter the enterprise market more easily . However, I don’t think that would’ve been as easy as it sounds. The transition to Android, let alone the transition of the enterprise customers to “Android Blackberries” would’ve taken years. At the rate RIM is falling right now as a company, who knows where the iPhone or even other Android phones will be by then in the enterprise market.

In hindsight, it looks like buying Palm would’ve been a much smarter move for Google. They would’ve gotten all Palm’s smartphone patents, and 1000 employees, many of which were engineers, and of course the webOS technology that they could’ve incorporated into Android, for only $1.2 billion. But that’s in the past now. And unlike Palm or RIM, Motorola has not only transitioned to Android, but it’s one of the top 3 Android manufacturers as well. So they don’t have to transition anything. Motorola is already a top Android player.

2) Setting the standard

Nexus One, Google’s first phone, wasn’t exactly a market success, but it was a success in a way that it made all the other manufacturers strive to make their phones as good as Nexus One (or better). Google would’ve wanted to continue that either way, but owning a manufacturer like Motorola will give them much more control, and they’ll be able to set the standard not only for multiple high-end models through out the year (unless they keep the Nexus One release model), but also for lower priced phones as well. Google could make the best phones for $500, $300, and $150 (unlocked pricing).

3) Going into the hardware business

Owning a real phone manufacturer will make Google more able to directly compete with Apple as well, and even make a lot of money from selling hardware, too. But if they want people to stay in line for their phones they will have to maintain the Nexus model of releasing once per year. Releasing one every month won’t make people stay in line for them, because they will all be split up. Some will buy the one from March, others from April, and so on, rather than waiting for “the one”. They can still release say 2-3 others for lower price ranges, and they could launch them either in the same time , or in a different quarter each. If Samsung can almost achieve the same level of popularity with their Galaxy S line as the iPhone, I think Google will achieve with theirs even bigger popularity, because I’m sure there are more “Android fans” that love Google, the ones making the OS, more than they love Samsung.

I believe it’s smart of Google to go into the hardware business. In a way it seemed inevitable. And I think making smartphones is merely just the beginning for Google as a hardware company. We’ll see a lot more types of products coming from them in the next 5-10 years. The tech industry is going to be the biggest industry of all, and Google is a very strong tech brand. They stand to make many billions by making their own stuff in the future. I, for one, am very excited to see what kind of phones and devices Google will release a year from now.

What do you think of Google’s acquisition of Motorola? Did they make the right move or not?

Full press release:

“Google to Acquire Motorola Mobility

Combination will Supercharge Android, Enhance Competition, and Offer Wonderful User Experiences

MOUNTAIN VIEW, Calif. & LIBERTYVILLE, Ill.–(BUSINESS WIRE)–Google Inc. (NASDAQ: GOOG) and Motorola Mobility Holdings, Inc. (NYSE: MMI) today announced that they have entered into a definitive agreement under which Google will acquire Motorola Mobility for $40.00 per share in cash, or a total of about $12.5 billion, a premium of 63% to the closing price of Motorola Mobility shares on Friday, August 12, 2011. The transaction was unanimously approved by the boards of directors of both companies.

“Motorola Mobility’s total commitment to Android has created a natural fit for our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers. I look forward to welcoming Motorolans to our family of Googlers.”

The acquisition of Motorola Mobility, a dedicated Android partner, will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing. Motorola Mobility will remain a licensee of Android and Android will remain open. Google will run Motorola Mobility as a separate business.

Larry Page, CEO of Google, said, “Motorola Mobility’s total commitment to Android has created a natural fit for our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers. I look forward to welcoming Motorolans to our family of Googlers.”

Sanjay Jha, CEO of Motorola Mobility, said, “This transaction offers significant value for Motorola Mobility’s stockholders and provides compelling new opportunities for our employees, customers, and partners around the world. We have shared a productive partnership with Google to advance the Android platform, and now through this combination we will be able to do even more to innovate and deliver outstanding mobility solutions across our mobile devices and home businesses.”

Andy Rubin, Senior Vice President of Mobile at Google, said, “We expect that this combination will enable us to break new ground for the Android ecosystem. However, our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community. We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices.”

The transaction is subject to customary closing conditions, including the receipt of regulatory approvals in the US, the European Union and other jurisdictions, and the approval of Motorola Mobility’s stockholders. The transaction is expected to close by the end of 2011 or early 2012.”

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