I returned to Canada late on Saturday, after 10 amazing weeks in France. It took me all of Sunday and most of today to get over the jet lag, and re-familiarize myself with Toronto life.
Hoping for a quiet Monday, instead I woke up to hear about the big acquisition Google’s making of Motorola Mobility. So, I apologize for taking until now to get this post published.
To recap the facts, quickly: Google is paying a 63% premium to purchase MMI at $12.5 billion, and there is a mighty $2.5B break fee. This is a friendly deal between the companies.
I spent a good part of today thinking about this transaction, and as of right now here are my thoughts on the whole matter.
Everyone is talking about patents and sure, it makes sense that Google wants more patents. Patents are like bodyguards. When you’re surrounded by huge muscle-bound dudes, people don’t tend to pick on you so much.
Apple’s got some great IP related to touch screens and the multitouch user interface. I’m sure their patent count is lower, but it isn’t just a numbers game. It’s about having useful patents.
Microsoft has been in the OS game forever, so they’re in pretty solid shape.
RIM pretty much invented the smartphone segment. They have oodles of patents around mobile data systems and they’ve been investing billions of dollars in beefing up their patent portfolio over the last few years. Remember how much criticism Wall Street gave them for it at the time? Maybe it was a smart move after all.
And then there’s Google. New to mobile, but kicking major ass and giving their product away for free. Competitors are pissed off. How do you fight back? Hey, they’ve got no big bodyguards – let’s beat them up! And let’s get more bodyguards ourselves, too (hello, Nortel patent auction).
But Google is a rich company. So they make a deal with Motorola, who has lots of fundamental wireless patents. I’m not a patent expert, and most people analyzing this stuff aren’t either … but I think we’re all just going to assume that Motorola’s patents offer some decent protection to Google.
Hardware: Conflict of interest?
Everyone is pointing out that Google now competes directly with its Android partners. Yeah, we’ve all seen the quotes from HTC, Samsung and Sony Ericsson saying that they support the deal. But quotes like that mean nothing to me. I just ask myself if an executive would ever say the opposite in public. If the answer is “no”, then the comment is meaningless.
I’m sure Samsung and HTC are upset. But what are their options? HTC could move back to a dual-OS strategy and support Windows Phone. Samsung is rumoured to be talking to HP about licensing WebOS. But it’s obvious that Android momentum is huge, and neither company will abandon it. So they’ll look at hedging their bets slightly, but they’ll just have to shake off the gut-punch and continue.
Can Google possibly be fair to these partners? Even though other Android partners see risk in Google’s Motorola acquisition, that doesn’t necessarily mean they’ll get the short end of the stick. In the optical communications industry circa 2000 it was extremely common for telecom infrastructure companies to also build their own optical components. They had separate component divisions that were run like independent companies.
Nortel and Lucent both did this, for example. Nortel’s first OC-192 systems relied on Lucent-supplied lithium niobate modulators. Lucent Microelectronics was the sole supplier of this part to Nortel. That was just the way business was done.
I do think it’s possible for Google to run Motorola as a separate company, and one that doesn’t get any more rights to Android than HTC and Samsung. That doesn’t mean it will actually happen, but it’s certainly possible and it wouldn’t be the first time such a model succeeded. More on this later, because operating Motorola independently flies in the face of the whole “integrated platform” argument.
Controlling the whole platform
Most industry pundits have pointed out that Android was becoming fragmented, and this is a problem for developers. So does owning Motorola help solve this problem? I’m not convinced yet.
I found this well-written article talking about how Android is no more open than iOS, and it seems than Google has a process in place to approve every Android device on the market if that device vendor wants to include Google apps such as Gmail, Maps, Android Market and YouTube.
In case you don’t want to read the story I linked to above, the gist of it is that Google won’t approve Android devices for a license unless they pass “compatibility testing”, and the results of this test may entirely depend on what Google wants. If they don’t like something about your device, they shut you down.
So Android is an open OS, but the important layer on top of Android is Google’s own apps. This means Google maintains as tight of control as they want to over Android. And perhaps this control has been getting tighter specifically because of the fragmentation problem.
So I’m left asking myself why Google needs to own a hardware company if they already have a stick they can use to beat hardware vendors into submission?
I guess what I’m also trying to say is that if Motorola is to be run as a separate company, then Google doesn’t own an integrated mobile platform. They own an OS, a bunch of apps, and an independent hardware company.
Or maybe it’s about the living room
That brings me to the final piece of the puzzle (at least for this post). Motorola has a strong position in the set top box market. Google TV hasn’t gained a lot of momentum yet. Maybe owning Motorola’s set top box business would accelerate things. Maybe it would be nice to have Android playing nicely with every single Motorola set top box on the market? Maybe Motorola can start building Google-branded products that are sold directly to consumers, and not through cable companies?
What do you think? I want your opinion on this.