A patently good deal

A patently good deal

At first glance, Google’s £7.6bn purchase of Motorola Mobility, which saw it pay 63% over the company’s share value, appears a high price to pay for a struggling handset manufacturer. But a closer look at Google’s motives shows the search engine giant has a lot to gain from the deal.

For Google, the jewel in Motorola Mobility’s crown is its patents and intellectual property portfolio, which will provide it with added protection against the technology patent litigation wars gathering momentum across the globe.

Motorola Mobility’s patent and intellectual property portfolio is vast and historic, while Google’s is puny in comparison, leaving it open to attack from rivals.

Ben Wood, technology analyst at CCS Insight, explains: ‘Motorola has essential and non-essential patents dating back to the dawn of the mobile phone believed to number 15,000 granted and 7,500 pending. This has undoubtedly been the key driver of the high valuation attributed to the business and should be set in the context of the $4bn plus paid for the Nortel portfolio.’

The recent auction of the Nortel portfolio of 6,000 mainly wireless and mobile patents ended in humiliating defeat for Google, which was trounced by a consortium of Microsoft, RIM and Apple.

So the acquisition of Motorola Mobility, which brings an IP portfolio twice the size of Nortel’s, will make that defeat feel less bitter.

The deal also gives Google traction in the converged market through Motorola Mobility’s thriving set-top box and home devices business, which delivered around $2.7bn in revenues for the company’s Home division in 2009/10.

Google is keen to get behind Motorola’s drive into this space. Wood comments: ‘Controlling the TV is already firmly on Google’s radar, as evidenced by Google TV and its Logitech partnership. Android on a set-top box with integrated content across phone, tablet and TV has to be in Google’s strategic vision.’

The deal could also offer Google entry into the tablet market, using Motorola Mobility’s successful launch of the XOOM as a launch pad for further development and wider applications.

Fred Huet, MD of telecom consultancy Greenwich Consulting, says: ‘Apple has demonstrated that to own the consumer you have to provide the device and the platform, which is an approach that Google will likely adopt with a Google tablet device providing a mobile link into the ‘cloud’.

‘It will also be interesting to see how Google’s recent bold moves with Google+ and Google Wallet will be integrated with this acquisition.’

However, Google must ensure the deal does not alienate its Android partners. Analysts believe the move could destroy what has been a level playing field for partners.

Gartner analyst Michael Gartenberg warns: ‘Third party ODMs are trying to put the best face on this today, but this is clearly not a good day for them. There are so many ways Google can play this.’

Forrester analyst John McCarthy predicts that Microsoft will leverage partners’ uncertainties.

He says: ‘Forrester can hear Steve Ballmer and company pitching the Asian players on how Microsoft is the only hardware-agnostic player left and that HTC, Samsung and LG should increase their support for Windows Mobile as protection against Google favouring its own hardware.’

But Wood takes a more upbeat view. ‘This will likely help Google improve the speed and quality of execution on Android. It will be able to deliver new devices on new versions of Android more quickly. However, it will be careful to keep Motorola at arm’s length so as not to disenfranchise other licensees.’

After all, this is a two-way street. Google will not want to jeopardise its partners’ investment in its market-leading operating system.

What the analysts say

Francisco Jeronimo, research manager at IDC
With Google’s cash and control of Android, Motorola will be better positioned to compete in the smartphone segment. The acquisition will allow the company to focus on differentiation, which has become the key to success in the crowded Android space.

Nick Dillon, analyst with Ovum
The move raises concerns for the wider Android ecosystem as the acquisition means that Google will become a hardware vendor. With this, Google will move from the position of partner to that of competitor to Android handset manufacturers, potentially placing significant strain on the Android ecosystem.

Neil Mawston, technology analyst at Strategy Analytics
Motorola’s patent portfolio is the primary reason for this deal so Google can better defend itself against attacks in the courts from Microsoft, Apple and others. At the same time, Motorola allows Google more access to set-top box and smart operating systems. Google is keen to get internet advertising into connected TVs – so if Google can get its smartphones interconnected with smart TVs and smart cars it can create a complete converged ecosystem to which Android and Google can sell advertising.’

Written by Mobile Today
Mobile Today

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Motorola Mobility, which brings an IP portfolio twice the size of Nortel’s. Motorola Mobility has 17,238 rehistered IP portfolio at last count. So its ...
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