Why Google Should Buy Motorola

on August 10, 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.