The strategic rationale behind Google's acquisition of Motorola

By Malik Saadi

The acquisition of Motorola Mobility by Google could be seen as the first time ever that an Internet company acquires an established hardware business. We are likely to see more acquisitions of this kind in the future, thanks to the strong investment force and cash availability of Internet giants, such as Google, Facebook or Twitter, that have the potential to absorb the most established tech businesses even beyond telecoms and media. As the telecommunications business converges with the multimedia business, integration is becoming imminent and Internet companies are better-positioned to make the new converged word a reality.

There are three obvious reasons for Google to acquire Motorola Mobility.

The first is Motorola’s strong patent portfolio. Bearing in mind that Google has just lost the bid for Nortel patents, the acquisition of Motorola will enable the software giant to inherit an essential base of patents that could be used as a trading power in the IPR landscape while easing the way for innovation.

The second reason is Motorola Mobility’s long history as a successful hardware integrator and a champion in the mobile industrial design world. These two qualities will enable Google to create a superior user experience through tight software integration. This is becoming important in a time where the competition is now evolving from an OS battle to ecosystem war. In this war, two approaches have emerged: The open approach championed by Google around the Android ecosystem, and the vertical approach that is led by Apple and RIM and was also recently adopted by Microsoft. Although the open approach seems to be winning, its future is under threat because of the potential technology fragmentation around it, the brand dilution, and the lack of effective business models that could be adapted to the mobile environment. Therefore, Google could no longer ignore the threats coming from the companies taking the vertical approach.

The third reason for this acquisition could be linked to Google’s ambitions to enter the home-networking market via Motorola’s connected-home business. If Google manages to create enough synergies between Moto Connected Home and its Android framework, this could make the company as a leading player in this nascent but lucrative business.

Informa Telecoms & Media believes that Google should maintain Motorola Mobility as an independent business with its own roadmap, operations and P&L management – at least in the short term. Motorola Mobility should remain a standalone brand and Google should not interfere significantly in the operations of the hardware company. The deal should be perceived as a back-up to protect Google should the Android open approach fail against the vertical approach adopted by likes of Apple, RIM and Microsoft. Any ambitions that suggest otherwise would send the wrong message to the industry – particularly to Google’s partners for Android (e.g., HTC, Samsung, LG, Sony-Ericsson, Huawei and ZTE) that have invested massively in this ecosystem solely because of its agility that enables differentiation and the flexibility to adapt to different hardware environments.

It should be borne in mind that these players have already shown concern when Microsoft announced its partnership with Nokia – some have even considered removing Microsoft from their OS portfolio. This transaction could push these players to reconsider adopting a multiple-OS strategy so that they avoid locking themselves to a single player/platform. This is a development that could indirectly benefit Microsoft and also – to a certain extent – other smaller-scale OSs such as WebOS and MeeGo. This is a real opportunity for Microsoft to persuade its old partners to reconsider their multiple-OS strategy and continue to adopt Microsoft as a challenger to Android. Microsoft could even take it one step further by acquiring Nokia’s mobile business without fearing any retaliation from the key industry players. In a similar fashion, Microsoft could operate Nokia as a separate company while taking advantage of its host of patents and IPRs.