Google’s entry in the mobile phone hardware market with the acquisition of Motorola Mobility seems to be the outcome of the company’s desire to acquire the 17,000+ patents that Motorola holds and compete more effectively with Apple and other smartphone/OS vendors. The acquisition will however, not only have an impact on the handset market but possibly will also have a big impact on the mobile services market. In particular, this may help Google to accelerate the growth of the m-commerce market.
Google intends to play a leading role in the m-commerce value chain. In just over six months, it has added NFC to the Android OS, announced the Google Wallet and Offers service, and has now acquired Motorola Mobility. It has also launched the Nexus S NFC phone and signed agreements with MasterCard and a number of retailers including Subway, Macy’s, American Eagle and RadioShack.
It will take a couple of years before NFC enabled handsets will be shipped in significant volumes. Consensus in the industry is that market penetration of handsets of at least 20 per cent is necessary before the mobile NFC market really starts to reach its potential. Google has implemented the necessary NFC software in its Android OS Gingerbread and wants to get the NFC hardware embedded in large number of Android devices. The acquisition of Motorola’s handset business means Google will be in a position to drive NFC device shipments.
Google’s main interest in m-commerce is not payments but the activity leading up to payments, such as search, advertising and special offers. It sees NFC as an extension of its advertising business model. NFC provides it with an opportunity to link the ads and offers it serves in the virtual world with purchases in the physical world. With the growing preference for CPA (cost-per-action) based pricing for Internet advertising, NFC can enable Google to prove to advertisers that the page impressions or click-throughs they’ve paid for have translated into the desired customer action and/or sales at shop tills.
Also, the acquisition of Motorola takes Google closer to having an Apple like end-to-end ecosystem for mobile devices and services. This has so far been the key differentiating strength of Apple. The vendor has complete control of the software and hardware that goes into the iPhone and with the acquisition, Google will also have similar control over devices manufactured by Motorola Mobility.