Why Google Is Buying Motorola Mobility For $12.5Bn

You can say we never really thought this would happen despite rumors that Google was in talks Motorola Mobility. Google and Motorola Mobility has just announced that the internet search and advertising giant will be buying the mobile phones maker for $12.5 billion, in cash. That’s a lot of money. But given the impact this deal has on the industry, I’d say it should be worth the money.

It would be the most massive acquisition of Google yet, and the boldest business move by new CEO and co-founder Larry Page, but there are a lot of reasons we can think of as to why Google has decided to hand over a huge part of its cash reserves to buy Motorola. The move certainly has the potential as a game changer in the industry, here’s why:

Think about the patents (and the protection they offer)

It may be easy to look at the deal in terms of the financial situation of Motorola. Or the fact that its smartphones are Android-based and therefore will be a good fit with Google. However, we think one of the biggest reasons why Google agreed to by Motorola is because it came to inherit over 17,000 patents and 7,500 patent applications when it was spun from its parent company.

Page said so himself. He said of the acquisition: “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,” CNet reports.

If you remember, recently, investor activist Carl Icahn – who also owns 11.36 percent of Motorola Mobility shares – saw the potential of this huge patent trove. He was campaigning that Motorola Mobility create a separate vehicle for its patents and monetize it. I guess we will not see that now. But the importance of the patents owned by Motorola – and Google when it acquires the handset manufacturer – remains the same.

If you can also recall, David Drummond, Google’s chief lawyer, slammed Apple and Microsoft for allegedly stifling innovation and competition, particularly with Android, using their developed and acquired patents. He cites the win of a consortium including Apple and Google in buying Nortel’s patent portfolio for $4.5 billion. Google had some fun bidding for that patent portfolio, making offers like a billion times the number pi, but it also seemed Google was bitter about its loss. The curious thing now is, whether Google will wield the Motorola Mobility patent portfolio as a weapon and use it as a weapon to protect Android and maybe even do some stifling of its own.

Nonetheless, Android just became stronger because of the patent portfolio of Motorola Mobility. Both companies’ boards of directors have apparently approved the acquisition and it will just have to pass regulatory processes. The deal is expected to complete by the end of the year. A report from The Associated Press also points that regulators will likely approve the deal because “the acquisition could help drive competition in the fast growing mobile device market.”

Google can now protect its Android software with the backing of the Motorola portfolio. Those who think of suing Google for patent infringement now has to think if they can be counter sued using Motorola patents. If you haven’t noticed, patent infringement cases seem to work this way: a company sues another company using one or more of its patents; the other company countersues using its own patents; the two companies settle either with one paying royalties or the two making a cross-licensing deal or both.

Another important factor to consider is that Motorola’s portfolio leans heavily on the mobile industry. The consortium Apple and Microsoft is part of may have acquired some key patents in the Nortel portfolio concerning the mobile industry, but Google has acquired a lot more mobile industry-related patents with Motorola. Nortel’s patent portfolio is about 6,000 patents, Motorola’s is nearly thrice that and more of the patents there are relevant to the mobile industry. Google will be paying nearly three times for Motorola’s patent portfolio, if you’re thinking of patents alone, but it also acquired nearly three times the number of patents where more are related to the mobile industry. Let’s not forget, too, that with the Motorola acquisition, Google will also get a manufacturing business, which brings us to our next point.

More control over hardware

If the patents portfolio lightsaber and the protection it offers alone seem to be enough to justify Google’s acquisition of Motorola, let’s not forget that Motorola Mobility also manufactures things: phones and tablets, to be exact.

After Google acquires Motorola, the search and advertising giant will now have more control over hardware development of devices running its Android software (or Chrome, perhaps?). This is certainly a key point and it also brings with it inherent risks.

“With mobility increasingly taking center stage in the computing revolution, the combination with Motorola is an extremely important step in Google’s continuing evolution,” Page said in his announcement of the deal, a report from the AP says.

This new control over hardware development means that Google can make devices exactly the way it wants. In the past, all it had extreme control over was the release of the versions of the Android OS. Even that could be modified seeing as Android is open source. But now, it can make devices it really developed from the software to the hardware.

The risks here, however, is that it remains to be seen if people will like the Google-developed Motorola devices. Google will also be stepping out of its comfort zone, which is software development, and will have to think about things like development and production of hardware which is very different from a software development perspective.

These reasons give a strong explanation why Google decided to pay $12.5 billion in cash for Motorola. Nonetheless, Google has a challenging road ahead. It scored a win with the acquisition of the Motorola Mobility patent portfolio, but it has to successfully integrate Motorola into its own fold.

It will be interesting to see how a mainly software-focused company combines itself with a mainly hardware-focused firm.

Google also needs to step up and make sure Motorola performs well financially. It’s a big business with potential to be a market leader; one certainly not about to be forsaken just because Google has taken the patents it wants. There’s also the reaction of other manufacturers using Android now that Google will have manufacturer of its own. That’s another issue, too, and I guess we’ll tackle that in another post.

This Google move sure is shocking because of its scale but not surprising because it makes a lot of sense. There are also a lot of issues it brings up and we’d love to hear what you readers are thinking so leave us a comment. Nevertheless, it will be interesting, to say the least, to see how Googorola or Motoroogle will perform.