We have had a few days now to digest the acquisition of Motorola Mobility by Google. It is clear that the stock market does not like the deal – the price of a share of GOOG has dropped by $30 since the deal was announced. A respected analyst, Horace Dediu, has written a long article in the Harvard Business Review and talked more about it in the “critical path podcast” – both of which are summarized very well in Fortune’s Apple 2.0 blog by Philip Elmer-DeWitt.
I encourage all to read the pieces linked above and to listen to the podcast, but I’ll also cut to the chase. Dediu’s conclusion is that Google’s acquisition of Motorola Mobility makes no sense. Not as an expansion of Google’s business, not as a strategic decision to begin making telephone handsets and tablets, not even as an expensive way to buy lots of patents that deal with various aspects of mobile computing and communications.
One thing that we do know is that Google does not employ dumb people. They must have something in mind to support their decision to spend $12.5 billion – a lot of money even if you have Google’s bank account.
So then, why might Google be buying Motorola Mobility. I think it might be to provide an escape hatch from the money pit that is called Android. From the beginning, Android was supposed to make money for Google by providing access to mobile search.
Google acquired a mobile OS and built a large team to develop it into what is now Android – a team that recently was quoted as being over 200 people strong. That is an expensive team, and getting more so. In a startling move, Nokia decided several months ago to base future phones on the mobile OS from Microsoft instead of on the free Android OS from Google.
Further, the companies that Google has convinced to use Android in phones and tablets (by offering the OS to them for free) cannot be happy. Now, those companies appear to have a target painted on them. They have been getting sued because Android “borrows” patented technologies. Recent published reports have said that Microsoft gets more revenue from license fees from Android phones than it gets by selling Windows 7 phones. Apple has obtained injunctions against HTC and Samsung prohibiting sale of products that allegedly infringe Apple IP.
So, unless mobile search is making huge amounts of money for Google (which is certainly not reflected in their recent financial results), it is reasonable to think that Google executives just might be wondering if the whole Android business might be a mess that they should have avoided and one form which they need to extract Google. But no one would want to admit a mistake, and shutting down Android at this point would be admitting a big mistake.
But shutting down Android would be very attractive. By creating Android, Google has antagonized Apple, Microsoft, Nokia, and any other maker of a mobile OS. This has limited potential market in which Google can make money via ads and mobile search to those devices that run Android – giving it more costs and smaller revenues. After all, if Google had simply worked with each handset maker regardless of the OS that company chose to use, it would be able to sell ads on 100% of mobile devices rather than the subset that runs Android.
With that background, the acquisition of Motorola Mobility takes on a whole different possible meaning. It provides a way that Google can get out of the phone business without ever having to admit that Android was a mistake.
Watch and see if within the next year or two Google has a reorganization in which Motorola Mobility and Android are combined into a semi-autonomous mobile devices division. This could be done for lots of sound business reasons. Then, that mobile devices division can be spun out as an independent publicly traded company – with the marketing messages that this is good for both Google and for the new company because each will focus on their own separate businesses.
If the new company were to flourish, Google is a winner because it would own lots of the stock of the new company. If the new company were to fail, it would simply be one more Silicon Valley tech company that had a moment of brightness and then failed. Like Netscape, like Palm, like 3Com, … the list is essentially endless. Google is again a winner because the failure is not a Google failure and the losses are not Google losses.
Like I said, Google has really smart people. They generally don’t do things without thinking them through. And this could be one of those times that they have thought things through more than most of the rest of us.