What’s the true motivation behind Google’s sale of Motorola?

January 29, 2014
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Moto X

To say that this has been an interesting week for Android fans would be probably the biggest understatement ever written. Over the weekend, Google and Samsung announced a 10-year cross-license patent agreement, effectively bringing the two companies’ relationships closer together than ever before. Now it seems that this is only the beginning.

In  a period of less than 24 hours, we’ve not only learned that Samsung might be scaling back its own custom apps and services in favor of working closer with Google’s software and apps, another bombshell was dropped this afternoon by Google and Lenovo.

Three major Android-related pieces of news hitting in the same week? We find it hard to believe this is simply a coincidence.

Google has now officially announced that it will sell Motorola to Lenovo for a sum of $2.91 billion dollars, with Lenovo providing $1.41 billion upfront in the form of $660 million in cash and $750 million in shares. The final $1.5 billion is expected to be paid over the next three years.

Three major Android-related pieces of news hitting in the same week? We find it hard to believe this is simply a coincidence.

In an official blog post from Larry Page, Google says its reason for selling Motorola is that “the smartphone market is super competitive, and to thrive it helps to be all-in when it comes to making mobile devices. It’s why we believe that Motorola will be better served by Lenovo—which has a rapidly growing smartphone business and is the largest (and fastest-growing) PC manufacturer in the world. This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere.”

Okay, but taking a possible loss on the company only because you feel you don’t have the time to really take it to the next level? We don’t fully buy it. Surely there is more to this story.

CES 2014 Samsung Curved Flexible Displays-7

The Samsung connection

As already mentioned above, there is a new rumor going around that claims Samsung has formed some sort of pact that goes beyond their new patent agreement with Google.

It’s no secret that a fair deal of Google’s success with Android comes from the popularity of Samsung’s Galaxy brand.

Citing “multiple sources familiar with the companies’ thinking”, Recode reports that Samsung may soon be giving up or at least altering its Magazine UX and possibly Touchwiz. Furthermore, Samsung plans to pull back the emphasis on some of its special software in favor of Google’s own apps and services.

At the time, it was unclear what kind of concessions Google would have to make in order for Samsung to agree to these radical changes in direction. Although neither Samsung or Google have confirmed that such a pact really exists, today’s news of the Motorola sale seems to lend credence to the idea.

With previous reports suggesting that tensions were high between Samsung and Google, it makes sense that the two companies sat down and had an intimate talk about their mutually beneficial relationship and where to go from here.

The idea could be that Samsung will be scaling back its focus on software, and in exchange Google will scale back its focus on hardware

It’s no secret that a fair deal of Google’s success with Android comes from the popularity of Samsung’s Galaxy brand. Android and Google’s services have been equally important for Samsung. Where the companies butt heads, however, is in current (or perhaps now ‘previous’) direction.

Samsung hasn’t been too happy with Google’s attempts to jump into the mobile hardware game and Google hasn’t been thrilled at Samsung’s attempts to shove aside Google services in order to bring out their own alternatives.

In short, we speculate that at least part of Google’s reason for selling off Motorola surrounds whatever talks went down with Samsung. Basically the idea could be that Samsung will be scaling back its focus on software, and in exchange Google will scale back its focus on hardware — hence the need to ditch Motorola.

When Recode reported on the Samsung/Google pact, one of their sources said that their agreement represented a “a huge change, a sea of change”. They weren’t kidding.

Google Project Ara Large

Google got what it wanted from Motorola, now it’s time to let go

Although it seems likely that Google’s talks with Samsung tie into the decision to leave Motorola behind, there are probably other contributing factors as well. For starters, despite the fact that Google has helped transform Motorola’s image and worked directly with the company to bring us devices like the Moto X and Moto G, Motorola isn’t exactly swimming in money just yet.

Motorola still has a long ways to go before it reaches its full potential, even if the groundwork has been laid. In their official statement, Larry Page said that they felt another company can better run with this direction as they can give the effort their undivided attention.

Google is keeping the parts it really wanted from Motorola in the first place, and letting another company deal with the headaches involved with the smartphone manufacturing game.

With that it in mind, it’s hard to see what Google has to gain by sticking with Motorola, especially if they really are getting Samsung to scale back their software and ecosystem ambitions. We already know that Google isn’t completely walking away from everything it acquired when it first bought Motorola.

For one thing, Motorola’s Advanced Technology group and Project Ara are staying behind with Google. We also know that Google is keeping the vast majority of Motorola Mobility’s patent portfolio. Bottom-line, Google is keeping the parts it really wanted from Motorola in the first place, and letting another company deal with the headaches involved with the smartphone manufacturing game, an area where Samsung has traditionally excelled.

Still, it’s seems hard to understand why Google would invest so much time and money in Motorola, only to let it go less than two years later. For now, all we can say is that Google had its reasons and we will likely better understand these reasons in time.

Lenovo Brand 2014 CES 3

What’s next for Motorola, and what does the deal mean for Lenovo?

We don’t honestly know what the future will bring for Motorola. So much remains unknown. Lenovo has said it will evaluate whether keeping Motorola’s Texas plant open is the most effective strategy, but they haven’t really committed beyond that. We also don’t know if Motorola will continue long-term as its own firm or if it will be fully merged with Lenovo and simply used as a brand name for select products.

Still, Lenovo clearly sees this as their golden opportunity to break into the U.S. Market. They also are likely planning to use the brand to further expand their presence in Europe. After all, not every customer is going to know that the shiny new Motorola handset is actually a Lenovo product. Heck, there are quite a few non-techie types that probably have no clue Motorola is currently owned by Google.

At CES, they told us personally that they aspire to be the largest manufacturer of smartphones in the world, and that they seek to accomplish this over the next several years. They were able to become the largest manufacturer of PC’s in a relatively short period of time, so it will be very interesting to see how the approach this.

Lenovo Vibe Z side

While I could be wrong, I have a feeling Lenovo won’t make too many sudden changes to Motorola, at least at first. Google has arguably given Motorola a roadmap for success and it makes sense for Lenovo to follow things through, provided they can do so while turning a real profit. Of course, that’s the real clincher. It’s hard to say if Lenovo can fully follow the direction Google was taking without burning a big hole in their pocket book.

Still, fans of Motorola shouldn’t give up hope completely when it comes to the brand. Lenovo knows that it will also be under tough scrutiny by Motorola fans across the globe, and so it makes sense for them to tread carefully. This will especially be true in the United States, where some folks already are leery about the idea of buying from Chinese companies.

Lenovo will need to find a way to gain the loyalty of folks that aren’t so sure that Lenovo has Motorola’s best interest at heart, and sticking with Motorola’s ‘user interface over powerful specs’ strategy is probably a good place to start.

Google-IO-2013 Keynote 8 vic gundotra io logo 1600 aa

Wrap up

We might not know all the reasons behind Google’s decision to rid itself of Motorola, but we know one thing for certain: change is coming. In the meantime, Motorola will continue to run in a “business as usual” manner, as the sale will need to go through regulatory approvals and other closing conditions in the U.S. and China.

What do you think of Google’s decision to sell Motorola? What do you believe is Google’s real motivation behind selling the company? Do you think that Lenovo will be able to continue building on the foundation already built for Motorola? As always, we welcome your thoughts and comments.

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