Google Officially Owns Motorola–Now What?Reading Time: 3 minutes
US Regulatory agencies along with the European Union approved Google’s acquisition of Motorola today. This acquisition, although initially positioned for Motorola’s patents, could very well cause quite a bit of change in the mobile landscape.
I wrote a column back in August on all the reasons why Google Should Buy Motorola. To my surprise five days later Google actually did buy Motorola Mobility, Inc. As a part of my work as an analyst we do future scenario planning and that column was a theoretical analysis of a scenario we could see playing out.
My main logic was around how difficult it is in mature consumer markets to be a hardware only company and thrive. I was convinced that over time Motorola would face financial struggles and would need to be bailed out or go out of business. Google was my logical choice to buy them in that scenario. The patents and other points were timely but icing on the cake.
There are some strategic elements of this deal that whether or not were clear to Google at the time could be very interesting. Assuming Google does not sell the hardware business at some point in time, which would be sealing Motorola’s fate, I see two directions Google can take with Motorola’s hardware business.
Attack the High End
Right now the point needs to be made that Motorola hardware is the ONLY hardware brand which is committed to Android only. Every other partner of Google with Android also ships or will ship Windows Phone and perhaps something else as well in the future. It is also no secret that the Android ecosystem is broken and fragmented and needs to be fixed. I went into depth on that last month in this column.
Because Motorola is the only handset and tablet brand that is Android only, Google could turn Motorola hardware into the flagship, premium, hardware and Android experience. Android devices need more differentiation in order to compete in the sea of sameness which is Android devices. Google could focus on heavily differentiating Motorola hardware and focus on the high-end, premium part of the market. Perhaps Motorola hardware could become the Nexus line of devices, and used as the flagship “hero” Android products.
Attack the Low End
The other thing Google can do with Motorola is attack the low-end part of the market and practically give Motorola hardware away for free. On this point it is key to note that Google is a services company. Any and all hardware that Google cares about exists only to give consumers access to Google’s services. Therefore, it is within Google’s strategic interests to get as many Android devices out there as possible. One way to do that is to give away, via heavy subsidization, handsets and tablets in order to make up lost revenue elsewhere.
As it stands today Android hardware is just one piece, and not even a big piece, of Google’s revenue stream. Google makes a lot more money elsewhere and does not necessarily need to make money on hardware. It is more important that they get that hardware to as many consumers as possible.
Motorola could become the entry-level brand with the Droid brand or some other “fighter” brand going after the lower end, entry-level, cost conscience part of the market.
Not Competing with Partners
The biggest concern many have with Google owning Motorola is that it sets Google up to compete directly with their partners. If they focus on either the high-end or the low-end, they could then focus on helping their customers compete on different playing fields.
This could perhaps work best if Google choose to go after the low-end for example. This would then give Google the ability to figure out how to help their Android partners better differentiate themselves from the sea of sameness and compete in the higher end of the market which allows for more favorable margins.
It will be fascinating to watch how this all plays out. We believe going vertical meaning single companies owning hardware, software, and services (like Apple does) is a disruptive trend. This is not easy but strategically could protect from market volatility. Now that this deal is official Google has a number of company defining decisions in front of them.