Has Google wasted $12bn on a dud patent poker-chip?
Larry Page's Moto bluff fails to convince
Analysis It's all about patents, says Google co-founder and CEO Larry Page. Google insists that it bought Motorola to shore up its Android platform, which is caught in a litigious pincer movement from old buddies Steve Jobs and Larry Ellison. Microsoft is merely egging them on the sidelines as the manbags fly, shouting: "Fight!"
But analysts I've spoken to are already wondering how much due diligence Google performed before the announcement, or whether the Motorola acquisition will turn out to rival Terra's legendary, rushed purchase of EMI. Here's why.
Android is a copycat platform. The APIs copy Java, and the UI copies Apple's iPhone. Oracle believes Google has violated Java IP, which it acquired with Sun Microsystems. Google says the language, and a third of Android's API's are "derivative" of Java. On the other warpath, Apple has launched three dozen lawsuits relating to usability and UI. Apple is hurling these lawsuits at Android licensees, rather than at Google itself. Google has refused to indemnify its partners, causing much nervousness.
But Motorola's IP war chest does not help Google here. It is poor where it needs to be rich. It is no help at all in the Oracle battle, which (alas) as many people have forgotten today, is largely about copyrights not patents. The Motorola patent war chest could only help Google against Apple by opening up a new front, with retaliatory litigation which threatens every rival handset manufacturer. But have a look where Motorola patents' strengths are: radio engineering and design. The most vital radio patents are already covered by existing patent pools.
Bear in mind, too, that Nokia has a patent portfolio that is as strong as – or stronger than – Motorola's. Nokia executives believed it was so strong it would derail the Cupertino upstart. But when Nokia and Apple settled last month, Nokia barely came out ahead, with a one-off payment of €430m.
These radio and design patents of legacy manufacturers such as Motorola or Nokia really aren't worth quite as much as their owners think they are.
Google has paid $12.5bn for a negotiating chip that appears to be almost impossible to redeem. In this light, the acquisition looks like panic, rather than a calm and carefully deliberated strategy. Google didn't take IP seriously, bidding silly numbers (such as pi billion dollars) for the Nortel patents. Then it realised it might be in trouble, and so went out and bought some IBM patents. Now it has splurged $12.5bn, truly believing the IP is going to be useful.
Google's innovations got lost in the Lab
The bigger problem is that Android is blatantly a copycat, but didn't need to be. Google took a shortcut to get into the handset business, making decisions that were largely avoidable. Why didn't Google develop its own language and platform? The company is full of brilliant engineers, many of whom have mobile platform experience, and who have created some of the milestones in computer history. Why not use Go, the language Ken Thompson helped develop? Or something like it? Or less ambitiously, why not use Gtk and build on it, much as Nokia did with Maemo/Meego? You may have heard of one or two of these.
By innovating, and donating the innovation into the platform, Google could have avoided its IP woes altogether. But rather like a super-rich, spoiled child, Google seemed to be unaware of the issues it was getting into, and now thinks it can buy its way out.
Well, maybe it can, maybe it can't.
Just because Android has the look and feel of a knock-off doesn't mean Google will necessarily pay the price in court. IP lawsuits are a crapshoot. Anything can happen. But on an objective analysis you have to say that the odds don't look good for Google, and they don't look much better if the Motorola acquisition goes through for reasons I've explained above. The purchase will leave Google $12.5bn poorer and with indigestion from swallowing one of corporate America's most dysfunctional bureaucracies. (Remember, Motorola was run by three generations of the founder's family – that's about as un-Googley as you can get.)
Earlier I mentioned the obvious flaw of the deal: the golden rule that says platform suppliers don't compete directly with their customers. I'll return to this again, but I wanted to point out that chanting the mantra "it's all about patents" needs a bit of qualification. It might not be about anything, other than a lack of grown-up thinking, and consistently poor executive leadership.
Deal of the Century... for Moto
Hats off again to Motorola's leadership, though. The company has been trying to sell its phone division for over three-and-a-half years – and nobody wanted to know. "Who would buy a loss-making mobile maker?" we asked in 2008.
Moto merely had to whisper to Google: "We can solve your patent woes," and its shareholders were rewarded beyond their wildest hopes. Google's offer price has a huge premium over the market's valuation of what Motorola is worth.
With the right timing and the right sales seduction, it is amazing what the right mug punter can be prepared to pay. ®