Google SHOCK! Snaps up Motorola phone biz for $12.5bn
Are you a Droid handset maker? You were
Google has made its largest-ever acquisition, and biggest corporate gamble, by splashing out $12.5bn for Motorola's phone division, Motorola Mobility. The deal puts Google into the hardware business in a serious way – and into direct competition with licensees of its Android operating system, who woke up this morning thinking they were Google's business partners.
Google will pay $40 per share in cash – a premium of 63 per cent over the trading price – to grab itself a hardware manufacturer. The deal is subject to regulatory approval, which may not all be plain sailing, but Google hopes to wrap up the deal by next spring. It dwarfs Google's previous largest acquisition, DoubleClick.
Google recently lost out in a patent auction for networking IP, one it didn't appear to take seriously. Perhaps this explains why it was behaving so childishly. Or perhaps Google realised what a serious issue it is. After losing the Nortel auction, it went out and acquired $1bn worth of IBM patents. We shall find out which it is, eventually.
The deal represents a Houdini escape for Motorola, which has been bleeding red ink for much of the past four years. Motorola split the phone business off into an independently traded stock last year, and in its most recent quarter [transcript] reported earnings of $3.3bn, up 28 per cent year on year.
But what happens to Android? Buying Motorola might buy Google some IP, but it also brings with it a whole heap of new problems.
"Our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community," writes Android chief Andy Rubin in the canned statement. "We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices."
But once Google has a preferred hardware partner that it owns outright, it is hard to see why its former partners – now rivals – would wish to continue with Android.
Expect to hear a splashing sound as dozens of OEMs dump their green plastic robots overboard. But where will they go? ®
"But once Google has a preferred hardware partner that it owns outright, it is hard to see why its former partners – now rivals – would wish to continue with Android."
Wow, 10/10 for conjecture.
Every now and again, different manufacturers are selected to produce the flagship model (HTC, Samsung, LG). This doesn't result in all the others throwing a hissy fit.
Neglecting manufacturers other than their own subsidiary would dismantle the Android community. Any particular business reason for that?
Compared to ads, Android isn't a huge moneyspinner for Google. It's about establishing a platform for their services and advertising that they can't be locked out of, like Chrome.
Most other commentators have reasonably figured that the 24,500 patents might have something to do with it.
Oh those partners have been briefed with exactly what to say, its no surprise:
Peter Chou, CEO, HTC:
We welcome the news of today's acquisition, which demonstrates that Google is deeply committed to defending Android, its partners, and the entire ecosystem.
Bert Nordberg, President & CEO, Sony Ericsson:
I welcome Google's commitment to defending Android and its partners.
Jong-Seok Park, President & CEO, LG:
We welcome Google's commitment to defending Android and its partners.
This has parallels with Google & Mozilla. Google have their Chrome browser, with Mozilla Firefox being one of their main competitors. Google still pump tens of millions of dollars into Mozilla while Firefox tries to take market share from Android. Why? Because Google win either way, their market is advertising and they get a slice of the pie from either browser.
As long as you make more money than you would otherwise, jumping into bed with a competitor is often not the worst thing to do. Strengthening the market sector you're in may benefit others in that sector, but as long as it take share from other sectors (i.e. Apple) you're all quids in.
Companies like these will always have had a plan B at the back of their minds, even before this news, as Google could have messed up with Android in many different ways. It was never a proven platform. But at the moment, and perhaps for the foreseeable future, Android is still a better bet than the alternatives (Windows, Meego etc.). Google has the potential to drive a lot of advertising dollars its way through a diverse, happy Android ecosystem, probably a lot more than Motorola hardware sales could bring in. Google, and these other manufacturers, know this. Everybody wins (in the Android world, at least) if there is plurality in the Android harware market.