Google announced today that it has agreed to acquire the smart-phone manufacturer Motorola Mobility for $12.5 billion.
In a statement, Google said the deal was largely driven by the need to acquire Motorola’s patent portfolio, which it said would help it defend Android against legal threats from competitors armed with their own patents. This issue has come to the fore since a consortium of technology companies led by Apple and Microsoft purchased more than 6,000 mobile-device-related patents from Nortel Networks for about $4.5 billion, in early July. Battle lines are being drawn around patents, as companies seek to protect their interests in the competitive mobile industry through litigation as well as innovation.
However, as people increasingly access the Web via mobile devices, the acquisition could also help Google remain central to their Web experience in the years to come. As Apple has demonstrated with its wildly popular iPhone, this is far easier to achieve if a company can control the hardware, as well as the software, people carry in their pockets. Comments made by Google executives hint that Motorola could also play a role in shaping the future of the Web in other areas—for instance, in set-top boxes.
Motorola is by far Google’s largest acquisition, and it takes the company into uncertain new territory. The deal is also likely to draw antitrust scrutiny because of the reach Google already has with Android, which runs on around half of all smart phones in the United States.
Motorola, which makes the Droid smart phone, went all-in with Google’s Android platform in 2008, declaring that all of its devices would use the open-source mobile operating system.
Before his departure as Google CEO, Eric Schmidt had begun pressing Google employees to shift their attention to mobile. Cofounder and new CEO Larry Page seems determined to maintain this change of focus. In a conference call this morning, he told investors, “It’s no secret that Web usage is increasingly shifting to mobile devices, a trend I expect to continue. With mobility continuing to take center stage in the computing revolution, the combination with Motorola is an extremely important event in Google’s continuing evolution that will drive a lot of improvements in our ability to deliver great user experiences.”
Motorola engineers have extensively modified Google’s basic Android platform for its devices. For example, the company designed Motoblur, a user interface that pulls together Twitter, Facebook, and other social sites, into a single stream of data, and this has been a major selling point for the company’s phones.
With input from Google, these sorts of modifications could get more juice—and might feature Google products more prominently. Motoblur, for example, might get an extra shot of Google+ integration.
“Google already had a big role to play in 50 percent of the smart phones being sold,” says technology and strategy consultant Chetan Sharma, president of Chetan Sharma Consulting. If Google uses the Motorola acquisition to grow the Android platform further, he says, “it is quite likely that their share will get to the 70 to 75 percent range. Essentially, this means they will have a huge say in how the mobile Internet is developed and implemented by the [manufacturers].”
Page also pointed to Motorola’s expertise with other Web-connected devices found around the home, saying, “I think there’s an opportunity to accelerate innovation in the home business by working together with the cable and telco industry as we go through a transition to Internet protocol.”
Sanjay Jha, chairman and CEO of Motorola Mobility, agreed, saying, “Our home business is uniquely positioned to capitalize on the convergence of mobile and home environments in partnership with our key customer.”
Google executives have stressed that the acquisition will not put other manufacturers of Android devices at a disadvantage. Google worked with HTC to build its Nexus One smart phone, and with Samsung to build the Nexus S. The company says Motorola Mobility will operate as a separate company and will have to bid for contracts to make future Nexus phones, just like everyone else.
Other smart-phone manufacturers support the deal as a way to protect Android against patent lawsuits, and Google has posted quotes from them online. HTC issued a statement that said, “This is a positive development to the Android ecosystem, which we believe is beneficial to HTC’s promotion of Android phones. The partnership between HTC and Google remains strong and will not be affected by this acquisition.”
Even so, Google may struggle to counter the perception that Motorola Mobility will get special privileges with Android. Sharma believes Google will eventually have to do more to placate other manufacturers if Android is to remain popular. “Long-term, I feel Google will divest the hardware business, and thus it will be less of a threat to the likes of Samsung and HTC,” he says.