The Motorola Mystery Deepens

Steve Wildstrom / August 2nd, 2013

The Moto X is a phone.

It’s a little newer than your phone.

It will be available for sale in late August.

This is the true story of the Motorola Moto X.

–“The Amazing True Story of the Moto X,” John Herman’s Buzzfeed story in the form of a poem

Fifteen months ago, Google bought Motorola for $12.5 billion. And we are still trying to figure out why.

The flagship Moto X handset, announced Aug. 1, doesn’t do much to clarify things. It’s the first product that bears the clear stamp of Google management. And it appears to be a very nice phone, with solid specs and fully competitive with the latest offerings from Samsung, HTC, Sony, and whoever else is still in the Android phone mix.

What it isn’t is particularly disruptive. Like other flagship Android phones–the Samsung Galaxy S4, the HTC One, the Sony Experia Z–it has some distinctive features that set it aside from the pack. But at bottom, it is built from the same specs and will be sold through the same carrier channels at the same price and with the same plans as its competitors.

Its most notable features include customized colors and textures (initially available only on AT&T models), the ability to take a photo by shaking the phone, even if it is asleep, and tapping the screen, and software that listens and will respond to voice commands at any time. These seem less gimmicky than some of the features of the Galaxy S4, but they don’t feel like enough to shake Samsung’s dominance of the Android market.

In the rumor-laden run-up to the Moto X announcement, there was talk that Motorola’s expertise in sensor technology would yield some revolutionary use of the phone’s ability to sense its surrounding, for example, a phone that might automatically adjust its behavior when it realized it was in a moving car. A lot of this speculation was encouraged by the public statements of CEO Dennis Woodside. So it’s not unreasonable that we hoped for something more interesting than shake-to-shoot.

So the question remains is just what problem Motorola Mobility solves for Google. The Moto X doesn’t reduce Android fragmentation. Instead, it adds its own mildly customized user interface to the Android 4.x mix. It doesn’t answer the question of who is really in charge of the Android user experience, the OEMs, the carriers, or Google. And I have no particular reason to believe it will significantly reduce Moto’s losses, which are running at a pace of about $1 billion a year.

Maybe Google has some grand scheme for its disparate efforts whose logic will some day be revealed to us. Or maybe it really is just a unfocused collection of efforts, ranging from handsets to self-driving cars, funded by a massively profitable search advertising business. Some day we will know.

 

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.
  • Defendor

    The motivation for Motorola purchase seemed largely fear based.

    At the time Moto was losing money and turning to lawsuits. There were concerns that Moto would soon start suing other Android handset makers or that Moto IP could land with Microsoft/Apple.

    Google was being sued by Oracle at this time and handset makers were being targeted by Apple and Microsoft.

    I think it was primarily fear of yet another IP battle front opening up against Android, that motivated the Moto purchase, and the potential to use the patents in defense of Android. Naturally there would be some planning around trying to make a going concern out of Moto once acquired, but I think that was secondary.

    • steve_wildstrom

      The problem is that the Motorola patent portfolio was full of standards-essential patents subject to fair, reasonable, and non-discriminatory licensing. Such patents cannot be used effectively either offensively or defensively. So either Google was stupid, which seems unlikely, or their motivation was something else.

      • Herding_sheep

        Seeing as Google attempted numerous times to use Motorolas standards-essential patents both in offense and defense, I would say Google thought Motorolas patent portfolio was more valuable than it actually was. When Google bought Motorola, it really was at the height of the lawsuits. Apple, Microsoft, and Oracle all targeting Android OEMS, and Google even admitted themselves part of the reason was to strengthen Android from attacks.

        So my instinct is to say it was a little of both. A stupid but mysterious decision to pay that much for a declining OEM and SEP-littered portfolio. My gut says it was more of a stupid knee-jerk reaction than some masterful grand vision. I wouldn’t exactly call Google visionary. Dreamers and idealists, but not true visionaries who can execute and follow-through all the way to fruition.

      • Joe_Winfield_IL

        The company was clearly struggling, and didn’t have the scale to compete even if it could turn things around. The last, best weapon available to senior management was a sale. There weren’t any other buyers willing to fork over anywhere near the $9.5B (net of cash) that Google paid, which implies that Moto was worth much more to Google than anyone else. The question is why. It was my understanding that Motorola leveraged its patents to force its own acquisition. Essentially, the theory (and I can’t remember who put it forward) was that Motorola had enough IP ammunition to bury Android.

        In other words, the purchase was indeed about patents, but not about using the patents against competitors. I have no idea what the truth is, but this theory at least makes sense to me.

        • steve_wildstrom

          Again, the fact that the Motorola portfolio was full of standards-essential patents meant that that while they could be a significant source of revenue from FRAND licensing, they could not be used to bury anyone.

    • DarwinPhish

      One of the biggest benefits from the deal were Motorola’s accumulated losses which Google could use to reduce its taxes. The value of these to Google has been estimated to worth over $6 billion. However, the IRS would not allow these if they believed the purchase was all about the tax breaks. So Google talks up the patents and other Motorola assets to appease the taxman.

      • steve_wildstrom

        Google has better ways to defer taxes than paying cash up front for Moto’s tax loss carry forwards. If Google is now dedicating its energy to GE-style financial engineering, we’re all doomed.

        • DarwinPhish

          There is a diffrence between tax reduction and tax deference. More importantly there is a difference between making a deal for tax reliefs vs. using tax relief to effectively lower the cost of acquining something else.

  • Glaurung-Quena

    Have you seen “Google Logic: Why Google does the things it does”? That article argues that Google’s science/engineering mindset, the fact that it isn’t actually a publicly traded company (since over 50% belongs to the two co-founders, they can do what they like and profits be damned), and the desire of Larry Page to put his stamp on things now that he’s finally the CEO again instead of an apprentice under Schmidt.

    • Hosni

      I would add that Larry Page is immature, like Steve Jobs before he was fired by Apple and nearly lost his fortune on NeXt computer. Jobs proved that one can be enormously creative and still go bankrupt. He eventually harnessed that creativity and put to good use, so perhaps Page/Google will do the same. Someday.

  • Kenny

    whoever think this phone will lose is a loser

    in business and technology there is something call Marketing, consumer base, target audience, and technology

    with a very Good marketing strategy, Motorola will completely change our approach to smartphone. from tech specs to Fashion and style.

    this phone is not for the specs gury techno guys like us

    this phone target the best audience any company wish to have as clients,

    women and Teenagers.

    ask yourself this question.

    why do victoria secret have so many underwear with so many different style, model, color, and stuffs that has nothing to do with its build quality.instead of simply the best of the best one ,

    the answer is women

    unlike men women and Teenager value these stuff ten times more than anything else and giving them the ability to built their phone using their favorite color scheme, angrave word and more will be a revolution, i can guarantee you that

    This phone is more of a Fashion statement than anything else

    Wait and See

    • tz

      I cannot comprehend why this statement has to be prefaced with a rude insult.

      • Kenny

        it was more of a sarcasme than anything else

        i apologize

    • FalKirk

      “whoever think this phone will lose is a loser” – Kenny

      Your opinion is interesting, Kenny, although I do not agree with it. Next time, express your opinion without the insult or I promise you, there will be no next time after that.

      “If the man doesn’t believe as we do, we say he is a crank.” – Mark Twain

      • Kenny

        i understand

        besides

        why do you disagree with my opinion?

        • samcvs

          “This phone is more of a Fashion statement than anything else”
          from what photos I have seen from the web “a Fashion statement” it definitely isn’t. I would call the HTC One, the Xperia Z, iPhone 5 a “fashion statement, not that “slab” that is the Moto X

          • Kenny

            Fashion is not about the best looking product, it’s all about the most unique and artistic one.

        • FalKirk

          “with a very Good marketing strategy, Motorola will completely change our approach to smartphone. from tech specs to Fashion and style. this phone is not for the specs gury techno guys like us. this phone target the best audience any company wish to have as clients, women and Teenagers.” – Kenny

          I don’t want to judge the phone before I see it. But I’m suspicious of your premise that the market is ready to be driven by fashion. Cases seem to handle the fashion aspect now. And I believe that there is far more technological and ecosystem growth yet to come in smart phones and tablets.

          As I said in my initial comment, you gave me food for thought. And that’s a good thing.

          • Kenny

            I understand your point

            but you must remember that fashion magazines and celebrities sell products better than anything else, because of their ability to inspire their Fan with their choice and style. that being said

            Having a couple of celebrity and Fashion magazine (Ex (Vogue) marketing their brand and fashion design with a well customize Moto x is in my opinion a recipe for success.

            Most people nowadays want their gadget to part of their conversation and also be an expression of themselves and their style, something i believe Google can accomplish with the Moto X.

            P.S: Human are Individual so should your Gadget.

          • FalKirk

            “fashion magazines and celebrities sell products better than anything else, because of their ability to inspire their Fan with their choice and style. that being said” – Kenny

            We’ll see. I don’t think fashion is anywhere near trumping technology and ecosystem yet. Fashion is the icing on the cake. Technology is still the cake.

    • AdamChew

      Moto is a very tired name that will only appeal to the older generation and not the teens of today.

      If they really want to appeal to the teens google should ask someone else to design the phone, hardware and software.

  • DarwinPhish

    “Google bought Motorola for $12.5 billion. And we are still trying to figure out why.”

    Would it help if you knew that Google effectively paid about 1/10th of that amount?

    Once you account for the cash on Motorola’s books (~$3 billion), the tax savings from Motorola’s accumulated losses (~$6 billion) and the sales of assets to Arris (~$2.3 billion), the acquisition really only cost Google about $1.2. Maybe a little more if you discount the future value of the tax savings. Still far, far less than the $12.5 billion everyone seems to blindly accept.

    • FalKirk

      “… far, far less than the $12.5 billion everyone seems to blindly accept.” – DarwinPhis

      If you don’t think that Motorola has cost Google at least 12.5 billion dollars, then it is you that is blind. First, Google had to kick out the initial 12.5 billion . Then there were the unsuccessful lawsuits based on the Motorola patents. But let’s set those costs aside. Then Google had to take billions in losses as Motorola continued to bleed red ink. Then Google had to spend an enormous amount of time and effort to integrate Motorola into the fold.

      At this point, Google would have been better off is they had burned half of that 12.5 billion dollars and buried the other half in a hole in the ground.

      • DarwinPhish

        You say all of that yet you ignore the facts. Yes, Google paid $12.5 billion in cash for Motorola. But, as I explained, they got over $11 billion in assets they could easily monetize. I am sure the decision makers at Google were aware of all of this. The finance side of the deal isn’t rocket science and Google certainly employees or works with the people who understand this. That the bulk of the business and tech media are too lazy to look into this very carefully does not make any of this untrue.

        Now, I am not saying the decision to buy Motorola was a good one, just that it is a lot better when you consider exactly what they got. And, yes, Google has had to absorb additional costs since the purchase, but likely far less than you imply.

        • Dekker

          I think your calculation (although we could quibble about the value of the tax losses) may well explain how Google management sold the deal to themselves (see this is really only costing us $1.5bn). I would also agree with FalKirk that the ongoing operating losses and cost of management distraction are considerable; not to mention the tensions caused by competing with other Android handset manufacturers. Ultimately that gets me to the same position as Wildstrom; the absence of a clear strategy/vision is a danger sign that suggests hubris and lack of focus.

        • AdamChew

          $12b is a lot of money to throw in initially to for returns which may not be there and at the same time bleed more red ink.

          Btw if they have $11b of assets they could have command a higher price than $12b.

          I side with Falkirk in his reasoning.

  • the Ugly Truth

    The motivation ain’t complicated…

    Samsung’s profits from selling Droid phones was enough to make GOOG drool. MOT’s patents was just an excuse. By buying MOT…GOOG gets to load it up with its latest and greatest OS. I’m sure GOOG will find a way to delay to withhold their preferred OS version from the rest of the “free” droid community.

    Suddenly…Samsung has AAPL (and MOT( breathing down on it from that top (and maybe soon to be mid) and the cheap Chinese droids from the bottom.

    • Hosni

      If Google paid $12.5 billion for Motorola Mobility mainly for its handset business, it is difficult to understand why it would have paid a 63% premium for an old-school feature phone maker, then promised other smartphone makers that Moto wouldn’t receive a superior version of Android, then laid off 77% of its employees over the following two years, and waited two years to launch a flagship phone that reviewers don’t much like.

      Moreover, Moto CEO Dennis Woodside doesn’t display any of the aggressiveness or sense of urgency one would expect if Google did have high expectations of the smartphone division: “Of course we can’t be a drain on the company forever,” says Woodside, “but the goal is not necessarily to make massive amounts of money in a short period of time—we have a much longer time horizon than that.” (www.wired.com/gadgetlab/2013/08/inside-story-of-moto-x/)

      By contrast, at the time of the merger quite a bit was said about Google’s intention to use Moto’s patent portfolio to fight Microsoft and Apple to a standstill over charges that it (Google) had already violated their patents. In fact, Google attorneys directed Moto to file patent cases against Microsoft and Apple even before the merger was officially completed.

      Nothing is 100%, of course, so I agree that Motorola’s handset division had/has some value to Google. But it will have to do much better than the Moto X for that value to be justified.

      • the Ugly Truth

        I get what you are saying.

        Keep in mind that the purchase price cannot be justified in a year or two (hence, Woodsides’ quote…over the long term). While it may have appeared to be a “premium”…everything is relative as MOT’s price was already way off from its heydays.

        Think about the tax write offs as well and/or money saved from layoffs. MotoX IMHO wasn’t meant to rule all phones. IMHO, it was meant to be good enough to supplant the likes of S4 or HTC One or Nok Winphonies. We will know when GOOG has succeeded when it dethrones Samesung in the US as the top Android handset.

        MOT’s patent portfolio ain’t that potent; otherwise, there would have been a bidding war.

  • jfutral

    What I am curious about is how much of this device is a result of Guy Kawasaki’s input. Up to now Google has fallen into the typical Android device maker trap of specs over use. As Android devices go, there isn’t much (any?) focus on bullet point style feature lists. Or I could just have missed them. I am not part of their target demographic, I’m sure, so I haven’t looked too deep.

    Joe

  • Jun Hyeon Mun

    The biggest mystery is this: Motorola says it doesn’t get any advantage in software over other OEMs. Then, why did Google buy Motorola? Just to keep them alive?

    What Google & Motorola need to work on together is an iPhone 5 equivalent – a high-end Android smartphone that is compact and portable, yet very powerful. ( and also a premium design)

  • benbajarin

    I’m weighing in on this rather than writing a full article on my thoughts. I had been thinking about this acquisition for some time before it happened. When I wrote the article on why Google should buy Motorola (http://techpinions.com/why-google-should-buy-motorola/1561) the logic was simple. Moto was going to go out of business if someone did not buy them. I had been watching their numbers and tracking behind the scenes moves for some time and knew the company was in trouble. Moto had not diversified their OS offerings and were fully committed to Android. I reasoned the only likely candidate to help them out was Google.

    Although I included the patents as an attractive point in that article it was never the real reason I thought this acquisition happened. Rather, I felt Google could use Moto as the vehicle to do hardware as a service in many of the same ways Amazon uses hardware. The hardware is a throw away in order to support the larger services business model. Google has variations of this plan in place I believe. Google needs eyeballs and they have always pressured their hardware partners to lower costs of devices in order to get the deepest penetration of Android possible.

    There was also the very real threat that more Android partners would abandon Google because of their challenge in making money. Looking back, I can also reason that this acquisition was a back up plan in case partners abandoned them. Luckily for them Windows phone has flopped and that threat is not as large as it once was.

    There are still a number of strategies I can see Google taking with Motorola, whether they focus on the low-end or the premium sector, or simply give away premium hardware for free in the hopes to amortize the value of the customer. I have seen them hire very good hardware people and recruit heavily many others. SO it is clear they are now serious about hardware and I’d contend even more serious than before.

  • def4

    This is getting rather tedious.
    Are we really going to get a repeat of the same article every time Motorola takes yet another stumbling step?

    I see from your replies to other comments that you don’t buy the obvious explanation so let me paint it for you.

    It was the summer of 2011. The patent wars were young.
    Google had just lost the auction for the Nortel patents even though they had bid Pi billion dollars. Android was growing wildly, but wasn’t much bigger than iPhone yet and it was a laughing stock on tablets. Windows Phone had seen a poor launch, but many thought Nokia would give it all the boost it would need.

    Sanjay Jha saw the perfect opportunity to get the huge reward he was promised if he would bring Motorola to its former glory without actually doing all of that back-breaking work.
    So he picked up the phone, called Andy Rubin and basically said “nice platform you got there, it would be a shame if something happened to it”.

    Motorola is the ugly bimbo that tricked book smart Google into knocking her up.
    It happens. There’s no need to go looking for fancier explanations and cute rationalisations.

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