Google / Motorola: what's the Industry reaction?
Here's our round up of initial industry opinion on Google's $12.5bn acquisition of Motorola Mobility. The main themes are: 'It's all about the patents'; 'Impact on Android'; 'Impact on other vendors'; 'Google as Apple'; 'Beyond Android'; and 'Doom!' - all outlined below.
We'd like your views too - there's a 2 minute survey here - we'll publish the headline results in the next couple of weeks (and send you a copy of the results if you want). We'll also use this as input to our further in-depth analysis for 'Apple, Google, Facebook, Amazon, Skype - Disruptors and Co-opetition Strategies', the Strategy Report that we're publishing next month (please email email@example.com for more on this.
It's All About the Patents
If there was a consensus of opinion, it was that Google really wanted Motorola's intellectual property. Moto, after all, is the company that made the very first cellular phone call back in 1973, ringing up the then director of Bell Labs to needle him about it. They also developed North America's first line of cell phones (StarTAC) and launched the first smartphone, as well as making major contributions to iDEN, CDMA, GSM, UMTS, and WiMAX networks.
Larry Page's official statement on the Google corporate blog certainly supports this view:
We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to "protect competition and innovation in the open source software community" and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.
He's talking about the constant rows over Android intellectual property, although it's very likely that the ones with Oracle about its home-brew Java virtual machine are more serious, and of course Motorola won't help with that. (contd.)
The point is made over here that Google is getting 17,000 patents, although as a IPR expert points out, their existence didn't stop MS and others suing Motorola. Much of Moto's record of innovation in this field goes back to the 2G era, and some of the patents will likely expire soon.
ZDNet's Steven Vaughan-Nichols notes that many well-informed voices doubt that the patents everyone is arguing over have much real technical content, and describes the system as "broken". Instead, they are basically bargaining chips. Vaughan-Nicols argues that Google has just added a lot more chips, and notes that Google has also recently acquired significant numbers of patents covering database technologies from IBM. If the Motorola assets are needed to hedge against Apple and Microsoft, the IBM ones may be there to deal with Oracle.
The Register's Andrew Orlowski is also sceptical of the real financial value of the patents, although he thinks that the rest of the industry is as deluded about this as Google. He makes the good point that the really critical wireless IPR is now either pooled, like GSM and UMTS, or open-standard, like WiMAX and WLAN, and that Nokia's settlement with Apple proved to be disappointing in cash terms.
Also, Motorola outsourced much of its device UI and operating system work to Symbian, and who knows where those patents have ended up?
RCR Wireless points out that each single patent is valued at over $500,000.
The New York Times Dealbook blog reminds us, however, that Google has been emphasising mobile for some years as a central pillar of their strategy. Is Google actually trying to create a huge integrated mobile business, with Moto's silicon, device design, and manufacturing assets, Android, and Google's online services? And Moto's network of relationships deep into the telcos?
Impact on the Android Ecosystem
Is Android becoming Symbian 2.0? Florian Müller points out that the ecosystem will be very different now that one of the Android vendors is the "official" vendor, directly linked to the platform's makers, as well a competitor to the other vendors.
Horace Dediu draws the parallel with the history of Symbian, pointing out that the other partners in the original Symbian JV became progressively less interested and suspected that the whole thing was run in the interests of Nokia, while Nokia spent huge amounts of time managing the relationship. Will the Open Handset Alliance go the same way?
(Of course, Motorola was a founder member of Symbian.)
Another parallel might be Microsoft's acquisition of Danger, not a triumph, even if the interpretation is more than a bit of a stretch.
A typically detailed story from Bloomberg points out that there is potential conflict here, and that some vendors may fear they will become "second-class citizens". They also make the very good point that so far, Google has pursued a policy of having a preferred partner for each new Android release, which gets to see the code first. This role has been rotated between the vendors so far, but for how much longer?
Wired notes that Google has committed itself to keeping the platform open-source and free, but also uses this odd analogy:
Apple and Microsoft suing Motorola is like the United States and France separately fighting the Viet Cong. Google joining the party is like the Chinese army pouring over the Vietnamese border.
Not only did the Viet Cong beat both the French and the United States, the Chinese army poured over the Vietnamese border to attack the Vietnamese, not to help them fight the Americans. And the Vietnamese won, or at least came away with a score-draw.
FierceWireless notes that Google has agreed to a $2.5bn break clause, suggesting some concern on Moto's part about the deal going through.
The Register's Rik Myslewski argues that there is a trend towards re-integration of operating systems and hardware, noting that Apple, HP, and RIM have all gone this way and only Google and Microsoft are left. And both of those have taken a big step towards closer integration recently. You could also point out that, in the hoary old world of big enterprise systems, IBM and Oracle do a lot of business that way as well, as does the enterprise side of HP. Cisco and Juniper's routers come with their own special purpose OS. It's the open-source world that likes to keep them separate.
Impact on Other Vendors
Fierce Wireless argues that the biggest loser is Microsoft, which can expect to be shut out of one of the biggest mobile vendors and also to see a much stronger defence against its patents squeeze.
ZDNet's Larry Dignan thinks the deal may be positive for RIM, either by stoking interest in a merger (perhaps with Microsoft or HP), or else by disrupting LG, HTC, and Samsung as major Android-based competitors.
GigaOM notes that Microsoft considered buying Motorola itself, and that Microsoft has been making eyes at the Android vendors again. It's unlikely that Google would have paid quite so much without Microsoft's interest.
ReadWriteWeb argues that HP may be moved to licence, or even open-source, WebOS, especially if the Android vendors fall out with Google and Motorola.
In Asia, the deal was greeted with optimism, on the basis that Samsung and other Android vendors would benefit from patent protection and that future Google-Motorola devices would mean good business for Foxconn and Samsung's semiconductor division.
However, Samsung CEO Lee Kun-hee brought his long spoon to sup with Google:
"We must pay attention to the fact that IT power is moving away from hardware companies such as Samsung to software companies. [The company] must strengthen the competitiveness of its information technology, secure more human resources and also more actively seek mergers and acquisitions."
Horace Dediu, for his part, thinks Google should have bought HTC.
The Android vendors' carefully policed PR response to the news was widely remarked on. Perhaps this had something to do with it?
Alternative Strategy: Google as Apple
A lot of the patent hawks expect Google to sell off Motorola Mobility's industrial assets and just keep the patents, and perhaps some of the design teams. An alternative view, however, is the one we briefly touched on above - that Google thinks that it's increasingly necessary to integrate hardware design and software, that there is real value in the hardware, and that they need their own supply chain and production. Like Apple, or these days, Microsoft.
(Motorola's Jaguarinha factory in Brazil - source)
ZDNet's Robin Harris has some useful context here, pointing out that Apple is very much an industrial company and much of its value comes from its command of hardware design, manufacturing, and the supply chain. How many other articles on Apple do you see that count up the available CNC machines for titanium alloy fabrication in Foxconn's subcontractor network? As we
Steven Crowley leads off, tweeting curtly that "if you want patents, you buy InterDigital; if you want to make phones you buy Motorola". Andrew Ross Sorkin agrees at Dealbook, pointing out that InterDigital has a comparably huge IPR portfolio at a much more reasonable price.
The Register's Matt Asay argues that Google won't hold onto the hardware business, but does intend the deal as a strategic move against Apple, whose defence relies on causing trouble about patents.
Eric Gonzalez argues that Google wants to make the hardware into a selling point, and that buying Motorola provides a better way of enforcing high standards on the other vendors than any amount of ecosystem management. Simply, Moto/Google will do a hero device that the others will have to match in order to compete. ReadWriteWeb concurs, arguing that there is no anti-trust objection to making a better phone.
Forbes's Peter Cohan points out that mobile vendors are very much defined by their channels to market - both the upstream supply chain and the downstream marketing channel through the network operators and resellers. Google has struggled with its own efforts to sell hardware precisely because it lacks a channel to market that compares with the ones through the carriers. Motorola, of course, is as closely integrated into the carriers as any company is - it's been selling telecoms equipment for as long as there have been telephones.
He also quotes Tavis McCourt of Morgan Keegan Equity Research as saying that Google might "take Android proprietary", which they could only do by replacing the entire OS kernel, as the Linux core of Android is of course covered by the General Public Licence. (This would also have major consequences for the developer world.)
Horace Dediu almost joins the hardware team, arguing that Google made a strategic mistake in assuming that it didn't need to own a chunk of hardware in order to keep control of Android, and that the deal is intended to keep Google relevant within it and see off a "Forkdroid" scenario in which other vendors or carriers trim out and replace the key ancillary software and services that Google's patents and terms of service control.
Ars Technica's Anders Bylund looks back to January 2010, when Motorola was in the doldrums and Google had yet to launch the ill-fated Nexus One adventure, and concludes that Google's interests would have been better served by skipping the Nexus and buying Motorola at fire-sale prices.
Motorola Mobility doesn't just make phones. Oddly enough, the (huge) cable TV division ended up in the Mobility side of the company when it spun out. This makes more sense if you think of a modern set-top box/media centre/PVR as being a small, usually Linux-based computer with similar capabilities to a low-end tablet, just in an uglier box and including a DOCSIS modem and a SCART socket. Moto Video Solutions makes up no less than a third of Mobility's revenues.
Benedict Evans points out that the cable-TV industry may not be best pleased that Google now makes the set-top boxes they pay for. Of course, the cableguys have their own standardisation system, CableLabs, but obviously Google is going to have a lot of input into that system now. What does this mean for Google TV?
Colin Dixon of TDG points out that there's a risk of a major culture clash between the MSOs, the cable engineers, and the Googlers, and that therefore we shouldn't be too forward in expecting the Googlisation of cable.
Reuters rings round its cable contacts and reports that they are distinctly sceptical.
Of course, there's an argument that Google TV could benefit from shifting some of its heavy video needs onto broadcast cable, like Virgin Media did with the BBC iPlayer.
GigaOM is more enthusiastic, pointing to the fact that Motorola is the leader in hybrid broadband/broadcast STB technology. If anything, Wired is more enthusiastic still. Slow down on the caffeine over there on the West Coast!
Google's WebM video protocol, meanwhile, may interact problematically with the MPEG standards used by the broadcasters. However, this isn't likely to change much as a result of the deal - Motorola isn't actually in the MPEG-LA patents pool.
ZDNet's Larry Dignan notes that Motorola has a sizable enterprise business and Google wants to have one. Informa T&M's Shailendra Pandey thinks it's great news for NFC, as Google is keen and can now order Motorola to integrate it in about a third of Android unit shipments.
Henry Blodget of Business Insider doesn't like the deal one bit. However, it's worth remembering that Google might find it easier to integrate the bits of Motorola responsible for their Android devices - this division was run as a Californian skunk works kept well away from headquarters in Schaumburg.
Also, Google does make hardware - it makes its own servers and data-centre kit more broadly. And given Google's huge requirements for these equipment classes, they must be doing it on an industrial scale.
Finally, don't forget to give us your views via the 2 minute survey here - we'll publish the headline results in the next couple of weeks (and send you a copy of the results if you want).