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Why Google Kept Motorola’s Research Lab

Motorola Mobility’s sale to Lenovo only looks like a loss—the patents were cheap, and Google might yet advance wearables, home devices, and modular phone hardware.

Android is the dominant operating system on smartphones globally.

Google’s $2.9 billion sale of Motorola Mobility to Chinese PC maker Lenovo might seem like lousy business, given Google’s $12.5 billion purchase in 2012 and losses in the interim. But it leaves Google with a mobile research unit and a war chest of patents arguably bought at a very good price. And it gives a boost to Android in developing countries.

Hardware App Store: One research project Google is retaining is Project Ara, which aims to create a developer ecosystem for smartphone hardware modules allowing varying battery, processing, communications, camera, and sensor combinations.

Google earlier sold off the Motorola Mobility Home unit for $2.35 billion (see “Why Google Wants Motorola”). With losses and other factors also considered, the cost to Google for the research lab and Motorola’s 17,000 patents represented a much better value than the $4.5 billion that Apple, Microsoft, and other tech companies paid two and a half years ago for 6,000 patents from Nortel Networks, a now defunct Canadian telecommunications maker.

“If you were looking at it as patent acquisition, they got those patents for a lot less than the per-patent charge of the Nortel deal,” says Joseph Hadzima, a senior lecturer at the MIT Sloan School of Management and cofounder of IP Vision, a patent strategy and analysis firm in Cambridge, Massachusetts. “I think they achieved what people were thinking their strategic purpose was.”

The sale doesn’t necessarily mean Google is out of the hardware business either (see “Motorola Reveals First Google-Era Phone, the Moto X”). It is retaining Motorola’s secretive research division, Advanced Research and Projects (ATAP), headed by Regina Dugan, a former director of the Defense Advanced Research Projects Agency, or DARPA.

One effort at that unit, called Project Ara, centers on creating modular phone hardware. The idea is that components like batteries, sensors, wireless transmitters, and cameras could be swapped at will by consumers—which has the potential to do for smartphone hardware what Apple did for software when it created a market for software applications, or “apps.” ATAP is pursuing other far-out ideas, too, including doing away with passwords using, for example, electronic tattoos or even a pill that, once ingested, starts generating a tiny wireless signal with an ID code. Google’s existing research efforts also include energy-efficient LCD screens and ways of detecting energy leaks in smartphone apps.

In the past, Google CEO Larry Page has used earnings calls to drop hints about possible advanced-mobile-focused research efforts, including ones for more-durable screens or longer-lived batteries (see “A Longer Lasting Phone? Google’s Larry Page Says It’s Coming” and “What New Ideas Does Google Have Brewing at Motorola?”). Page didn’t join an earnings call last week, but he wrote in a blog post that Google would focus its hardware efforts on other areas ripe for innovation, namely wearable computing and the home market—not a surprising statement given Google’s fresh acquisition of smart-thermostat maker Nest (see “Nest Acquisition Is Like Apple and Google Teamed Up”). ATAP may be retooled to fit into that vision.

Besides the research lab, Google is retaining a stockpile of patents to position itself nicely against Apple and Samsung. And Lenovo will be able to build and distribute Android-powered phones cheaply to more areas of the world, potentially giving Google an even larger search and advertising reach.

“They are in the core business of Android and ads, and achieved what people thought their strategic goals were. It sounds like a directional win-win for them,” Hadzima says.

Though Google would find it hard to get back into manufacturing, it could start selling licenses to various things it’s ginning up in research. With hardware manufacturing capacity now gone, “I am a little hard pressed to see how they are going to say, ‘We are going to make any kind of awesome new devices,’ unless they become a company that licenses IP,” says Carl Howe, vice president of Yankee Group, an analyst firm in Boston.

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