Why Google Should Buy Motorola

by Ben Bajarin   |   August 10th, 2011

Article Disclaimer: This is all theory and purely speculative. This is simply a thought exercise.

Motorola has been an interesting company to watch over the past 10 years. They have been a driving force in bringing the cellular industry into fruition and recently Motorola spun out their mobile business and created Motorola Mobility. I find an intruiguing scenario to play out to be one where Google buys Motorola Mobility.

One particular reason this is interetsing is because Motorola Mobility is deeply committed to Android. In fact as of now it appears that the company is solely basing its future on Android. Recent reports indicate an interest in Windows Phone 7 and possibly 8 by Motorola but it doesn’t appear actual product plans exist.

Motorola’s challenge is that they are attempting something that is becoming increasingly difficult in the industry today, namely to make money on hardware alone. To make matters even more challenging they have decided to bet their future on a company who is less interested in helping companies make money on hardware and more interested in free.

In fact I am convinced that Google and the Android team in particular would prefer that Android handsets cost less rather than more.

All of that leads to the first major reason I think Google would benefit greatly from buying Motorola Mobility.

Google Could Practically Give The Hardware Away
Google has already demonstrated an interesting model regarding Chrome that basically presents a hardware as a service model. In this model Google is offering Chrome OS hardware to the business and IT community for $28 a month and to educational institutions for $20 a month. There we have it, a hardware as a service model and Google is already going down this path.

So why not consider this same approach with Android handsets? This is not feasible currently because a company like Motorola needs to make money on the hardware since they don’t get to participate on the services financial upside like a carrier and Google. However if Google bought Motorola they could sell the hardware at a loss and make it up with their backend services.

A strategy very similar to what we think Amazon intends to do with their tablet.

Google needs as many Android devices on the market as possible. And yes they aren’t faring to poorly currently but if they subsidized the cost of the handset with their own longer term services revenue, which Google could do, I believe the market would accelerate even faster. Making the point again, Google cares about the services revenue not the hardware revenue. It behooves them to seed as much of the market with Android devices as possible.

Imagine if you could get one of the latest Android smart phones fully featured for less than $99. The price barrier to high end smart phones would be gone and Google would have even more demand for Android.

The second major reason is patents.

Google Needs Patents
Patent lawsuit frenzy is sweeping the technology industry. The media, analysts, pundits and more have now made it glaringly clear that Google is on the weaker end of the spectrum when it comes to patents.

It is for this reason they attempted to purchase the Nortel patents. Based on recent actions it can be concluded that Google knows they need to secure a more robust patent portfolio. More specifically they need a patent portfolio around mobile devices to help protect Android.

Motorola has an incredibly robust patent portfolio. In fact they have nearly three times as many patents as Nortel. Some have alluded that Motorola’s patent portfolio is possibly the strongest in the mobile field. It could be debated but its possible that Motorola has the best patent defense against Apple’s in this field.

One interesting point from Morgan Stanley analyst Ehud Gelblum who wrote in a research note last month:

“It is interesting to note that Motorola asserted 18 patents against Apple, and sued Apple first, whereas Apple has asserted just six patents against Motorola.”

Scott Moritz from the street remarks:

“Not only does Motorola have far more patents than its nearest competitors, it appears to have more of the key patents that may help the Android camp in a battle against Apple.”

The Big Picture
Although this is interesting to think about I doubt it will happen. A result of Google buying Motorola would be that their other partners like HTC, Samsung, LG and more would become competitors. I doubt Google’s partners would appreciate that and could potentially dump Android in the process. Also as far as I know Motorola Mobility is not for sale.

This patent issue however is a real one and one that if not dealt with tactfully by Google and the Android partners could prove fatal.

What’s more likely to happen, which The Street article points out, is that those in the Android camp band more closely together and leverage each others patent portfolios to protect Android.

Motorola however needs to continue to post solid financial results as they did for the most part last quarter. As I stated earlier making money on hardware alone is going to prove very difficult but Moto can and should continue to invest in innovations that differentiate their hardware allowing them a chance to profit from hardware. It would be wise of them to get more into the services game but not much is being shown there yet.

Ben Bajarin

Ben Bajarin is a Principal Analyst at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research. He is a husband, father, gadget enthusiast, trend spotter, early adopter and hobby farmer. Full Bio
  • http://twitter.com/w_jackson w_jackson

    Not sure that it makes sense for a number of reasons:

    First, as a core software supplier of Android, does Google really want to get into the position of competing against most of its customers? What would the reaction be from HTC and Samsung, who are moving a lot of Android should their strategic software supplier now be selling (or giving away) hardware that competes with them? I’ve been through this kind of discussion and it’s not easy.

    Second, Motorola isn’t the group who is leading the charge in the handset business, much less the smartphone business. At this point they are an also-ran. The patents may be valuable, which brings an interesting point out that maybe what Motorola should do is sell the patent portfolio to Google. (ala Kodak’s move on its patent portfolio) A great influx of cash that could be used to try to turn the ship around.

    Third, I’m not convinced that Google really wants a high-velocity hardware business. It clearly doesn’t have the margin profile that their software businesses have right now and that’s going to look like a drag on the financials. Sure the hardware as a service is interesting and they have the cash to dig the financial hole that it’s going to take, but there is another player in the handset game (the carriers) who are already trying to build a service business based on giving away hardware. Google’s last attempt to change that power balance was a failure (Nexus One sales by Google) and was abandoned. Do they and their investors have the stomach for this? Don’t know.

    Google clearly needs a very large hammer to hit Apple with in the patent department so buying this portfolio (or Kodak’s which already has an in-flight patent spat with Apple) makes a lot of sense. But I can’t see owning the company as anything but bad for Google.

    But it’s an interesting thought experiment.

    • http://twitter.com/w_jackson w_jackson

      Wow, what insight from you last week.

      I’m still not convinced that Google *wants* to be in the handset business but they now have a large defensive patent portfolio that they can potentially use to protect Android from the onslaught of patent lawsuits. It’s going to be interesting to watch this one!

      • Anonymous

        I think at this point they may have no choice but to start influencing handset design and tighter integration of Android on hardware they control. Especially if others start abandoning Android which is a good possibility.

        This has been a crazy week!

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  • http://www.iDoiDevices.com Jason Yeaman

    Why they should: patent arsonel

    Why they shouldn’t: MMI sucks

    Total solution: Buy MMI, sunset the entire line of handsets, giving 18 months of support to currently deployed handsets, after 18 months fire everyone (except the lawyers because Google needs to replace that little girl they have for Chief Counsel, david drummond) and put the patents in the drawer.

    Done

  • Alex

    I bow to your impressive foresight. Any thoughts on next week’s lottery numbers?

    • Anonymous

      Ha. I really didn’t think they would do it but as I stated I think it makes sense. I will have another updated analysis soon on the news.

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  • http://www.aakarpost.com Aakar

    Your predictions come true. :O

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  • http://www.distressedvolatility.com/ Dvolatility

    +1!

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  • http://www.vexite.com Marck

    This looks like deja vu.

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  • http://profiles.google.com/phradamon666 ionascu daniel

    Actually i beat you Ben, i called for this two weeks ago, when Google bought 1000 patents from IBM. :P

    http://renne.ro/it/google-cumpara-munitie-de-la-ibm-pentru-a-apara-android/234

    I hope Google Translate will do.

    Meanwhile i would like to point to two potentially blow hits that Android could take.

    1- HP buy handset division from Nokia an put webOS on them. This will disrupt everything in the industry, even Apple. HP have enough cash (12 B) and could offer some stock in the new behemoth too. Either they will take it, or Microsoft will be forced to bail out the Finnish company. Nokia on its own cannot survive, it losses 7 points of marketshare in a quarter and now they only have 15p on smartphones. In februaary-march 2012 they will be cheaper than ever. Nokia already wants to sell its network JV with Siemens and they’ll probably be forced by market to sell their Maps division to some like Garmin in order to survive. For Nokia it’s do or die.

    2- Dell should buy RIM. For now they are the only big player that has no vertical integration. Dispite their efforts, they couldn’t get a solid ground in smartphones and tablets. And these two fit, they are selling anyway most of their products to businesses. But here Dell would have to compete with Oracle. (14 B in cash vs 20 B in cash). They are on collision course, since Oracle bought Sun Microsystems and become a hardware company. Since the future is mobile, Oracle can’t miss that. And this giant is even more on high end business needs than Google. Either way, both new owners will ask some private equity hawks to chew some of the RIM’s parts. Also, in 2009 Ballmer talked several times he wanted to buy BlackBerry’s maker, not Palm.
    If these two don’t act now, it will be much more expensive down the road, the way Google could have had Palm for 1/10th of Moto’s acquisition if they acted last year. Why do you think Apple never brought a patent war to Palm if they were first to “clone” iOS?

    PS: Speaking about Palm, i guessed last year that HP will buy them, too :))

    http://renne.ro/it/viitorul-suna-groaznic-pentru-palm/234

    • Anonymous

      I am having trouble accessing your links. How do I translate your site? Good points also.

      • http://profiles.google.com/phradamon666 ionascu daniel

        We were having some problems with our site, we moved to other hosting firm. The problem is the site is in Romanian, i hope Google translate is better than at his begginings.

        Anyway, the part with HP and webOS is now history, HP is quiting the game after loosing the start :)))

        • Anonymous

          Yes interesting news. I agree with you about Dell but I feel Dell’s path will be similar to HP to get out of hardware.

          • http://profiles.google.com/phradamon666 ionascu daniel

            I agree. After last comments Michael Dell made regardin HP decision to spin off/sell the PC division, Dell seems to get out to services too. But this doesn’t mean an RIM acquisition isn’t verry cheap.

            Also, HTC should take the helm for webOS=> since HP seeks to license/sell it and webOS works for now only on Qualcomm chips.

  • Zerolinesofcode

    Wow just great to see such a prediction, although being read after the acquisition.

  • http://www.facebook.com/DroidArmy Musa Abu Ayyoub

    Awesome, I love that you predicted this. Great job!

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