The big news Monday was, of course, Google’s $12.5B purchase of Motorola Mobility. (Though Motorola has $3B of cash on hand, so when & if the deal closes I suppose it is more like a $9.5B deal since Google gets the cash.) That’s Google’s largest acquisition to date and certainly big news no matter what. It is also a big bite to swallow. Motorola Mobility currently has around 19,000 employees, while Google reportedly has around 30,000. Without massive layoffs that’d be a nearly 60% jump in one bite. That’s a lot to digest.
Yes Android, smartphones, and patents are all key factors – but they’re not the only ones.
Google is acquiring all of Motorola Mobility, Inc. (MMI), pending regulatory approval of course. When most people think of Motorola they think of cell phones. And ‘Mobility’ certainly plays into that. But when Motorola split into Motorola Mobility and Motorola Solutions, mobile phones weren’t the only products Mobility got. The other major product line they have are cable products – set-top boxes, DVRs, CableCARDs, Tuning Adapters, and cable modems. Plus head-end systems for the MVPDs. Motorola Mobility is the top cable STB vendor in the US, and a leader in cable/IPTV hybrid systems as the sole hardware provider to both Verizon FiOS and AT&T U-Verse.
While Android is a focus for phones, remember that Google has a little Android-based product called Google TV. And just two months ago they acquired DVR software maker SageTV. SageTV’s products covered DVR and placeshifting, with cross-platform support and excellent UI design. While no plans have been announced, most speculation (my own included) has been that Google is looking to add recording and/or placeshifting to the Google TV platform. Google TV has failed to really catch on to date, with hardware partners Logitech and Sony slashing their prices on Google TV products.
Keep in mind that Android phones struggled for their first two years of life, until the Motorola Droid launched in late 2009 with Android 2.0 and really jump started growth. Later this year Google TV has it’s first big upgrade coming out, based on Android 3.1 Honeycomb, which will add apps, a new UI, and other features. Additional hardware partners are also expected to enter the market with the new version.
Now Google owns the largest set top box maker in the US. Motorola has hardware design and production expertise, not to mention all of their existing MVPD relationships. The one area they really get dinged on is their software. Rarely does anyone have anything good to say about cable STB software. But what if the Google TV OS is ported to Motorola STBs? MVPDs could offer their customers a glossy, polished UI with numerous over-the-top features. Roll in the SageTV capabilities and you have something that can power DVRs and placeshifting hardware.
Motorola doesn’t sell video STBs at retail, but they do sell cable modems. How about an STB which combines Google TV and a cable modem in one box? It might sound odd, but remember EchoStar/Sling Media was pitching a Slingbox/cable modem at MSOs a few years back. Since Google TV is all about OTT content, being the home gateway gives it the most direct access to the pipe, and therefore the best performance. It would also allow MSOs to offer a leased version with dedicated access to MSO-provided content that wouldn’t count against a data cap, etc. Just as Virgin Media does with their TiVo in the UK. Of course, there really isn’t much to stop Motorola from taking one of the cable boxes to retail as a CableCARD device if they wanted to, just as the TiVo Premiere Q/Elite is slated for both MSOs and retail.
With Motorola and SageTV Google has the ability to truly build a ‘God box’ which could serve as cable modem, DVR, placeshifter, and OTT STB. Again, very similar to VM’s TiVo play in the UK. All powered by Android in the guise of Google TV. If Google does go down this road, putting a Google TV-powered DVR on Motorola HW and marketing to MSOs, TiVo would face the biggest competition to date, IMHO.
Note that, aside from Android & smartphones, this is the one area Google CEO Larry Page explicitly called out in his announcement of the deal:
Motorola is also a market leader in the home devices and video solutions business. With the transition to Internet Protocol, we are excited to work together with Motorola and the industry to support our partners and cooperate with them to accelerate innovation in this space.
But that’s not all MMI makes – just look at their consumer products and commercial products. They not only make mobile phones, they also still make home phones. Google has been pushing the growth of Google Voice hard, adding calling features into Google Talk, Gmail, etc. What about a Google Voice phone for the home? They could compete with the likes of Vonage & Magic Jack, offering cheap – or, knowing Google, even free – VOIP phone service run through Google Voice. They could even make fancy units with touchscreens, powered by Android. And video calls through your Google TV, of course.
Let’s step away from hardware just for a moment, and look at software. In particular, remote control software. I don’t mean your TV remote, but software like LogMeIn or Citrix for remotely connecting to a PC or Mac. Or, to be more specific, I mean the Timbuktu Remote Control Software from Netopia. But who is Netopia owned by? Right, MMI – and now, therefore, Google.
Google recently added Citrix support to Chrome OS, but what if they could bake Timbuktu into Chrome OS and Android, and sell, or give away, the server piece that you install on your PC or Mac? Maybe give away single-user versions for end users, and sell multi-user corporate versions.
Suddenly all of those Chome OS netbooks and Android phones & tablets take on a new capability. Being able to connect to a PC, or central corporate server, to access software not (yet) available on Chrome OS or Android. Or simple to do heavy lifting tasks better suited to a beefier platform. Or just for remote control – operate the conference room PC from your tablet. It opens things up. Sure, you can do this today with third party apps, but if they bake the client in and make the server piece free, or cheap, it makes it ubiquitous and I’d bet usage would increase – along with sales of the client devices.
From software over to services, remember Google is starting their broadband experiment with a fiber network in Kansas City. And they’ve talked about, or tried to launch, WiFi and broadband services in other locations. Now they’ll own a top vendor of cable and DSL modems, as well as home networking gear. That certainly seems like a leg up for a company looking to get into broadband.
Getting back to hardware, Motorola also makes the Motonav line of GPS devices. There’s another opportunity for Android I suspect. And even without going that far, they can be closely integrated into Google Maps. Plot your map on Google Maps and send it to your device. Record your trip and upload it to Google Maps, etc. There seems to be a natural link there.
I’m not sure where Motorola might fit in with Google’s announced plans for Android@Home, but I have a feeling there is a connection there. MMI acquired home automation company 4Home last year. MMI makes various consumer devices as I listed above, and they have a retail presence and name recognition. I could see Google capitalizing on that to launch Motorola branded Android@Home devices and bring the 4Home features into an Android@Home suite.
Of course, there is also their accessory business to go with all of their other products. And a few product lines that might not be a direct fit for Google, like Bluetooth headsets, two-way radios, and even baby monitors. Still, they’re further evidence that this is about more than Android smartphones and patents.
Of course, that’s not to downplay the smartphones and patents, I believe they were the largest single factor in this acquisition. But I think Google could’ve licensed, or purchased, the mobile patents for much less than $12.5B. Or they could’ve bid for just the smartphone group and not the whole company. Yes, it is possible that they’ll spin off other pieces once they close the deal, but I think they grabbed the whole enchilada because they can exploit a number of different groups.
If I had to single out just one key issue in this deal it would have to be patents. MMI holds approximately 17,000 patents in the mobile space alone, with another 7,500 pending. Remember last month when Apple, Microsoft, Research in Motion, Sony, Ericsson and EMC teamed up to buy 6,000 Nortel patents for $4.5B? Google just grabbed four times as many patents & patents pending for less than three times the price – and acquired a few thriving business lines in the process as a bonus. I don’t expect Google to go off suing other vendors as an offensive measure, but you can be damn sure they’ll be using their patents defensively if anyone comes after Android. And now they have a pretty big stick.
As far as Android smartphones go, it isn’t as clear cut as it may seem. Google cannot afford to show favoritism to Motorola and upset their other Android partners. As I covered last month, in the US HTC sells more Android phones than Motorola, with Samsung gaining from third place. And worldwide Samsung is the leader in Android phones. Asus has the top selling Android tablet with the Eee Pad Transformer, while Motorola’s Xoom has seen tepid sales at best, overshadowed by the likes of the Samsung Galaxy Tab 10.1.
The point is, Google can ill afford to upset their other partners and have them leave the Android fold. HTC & Samsung both produce Windows Phones as well, and Samsung has their own, in-house OS: Bada. Samsung has done a lot to bring custom apps to their Android devices to enhance them, but they could turn those resources toward Bada if they felt they weren’t getting a fair deal with Android. While Windows Phone is an option, it may not be more appealing than Android now that Microsoft has all but acquired Nokia and has already committed to giving them more freedom with Windows Phone than the vendors using it today. They’re already playing favorites, while Google is promising not to:
This acquisition will not change our commitment to run Android as an open platform. Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. Many hardware partners have contributed to Android’s success and we look forward to continuing to work with all of them to deliver outstanding user experiences.
But there are other options. HP has floated the idea of licensing WebOS to other vendors. Or someone could pick up an existing project like MeeGo and move it forward. So Google has to tread carefully. They can’t turn Motorola into their private skunk works, giving them access to insider knowledge not given to other partners. Nor could they prioritize changes to Android that benefit Motorola unfairly compared to changes requested by other vendors. And, worst of all, they don’t want to risk a massive schism with someone like Samsung taking Android and forking it completely away from the Google trunk.
Of all the divisions Google just acquired, I think they can least integrate smartphones. It is the one piece they really need to keep at arms length to avoid upsetting other partners. They may need to show some caution with Google TV, as they have partners for retail devices, but they could easily do that by keeping any Motorola Google TV products out of retail and marketing them solely to MVPDs. That would leave retail to their other partners.
Google’s position isn’t an easy one. Frankly, the historic record isn’t a good one. They’re facing many of the same issues as Palm did back in the day, or Nokia with Symbian. Trying to produce hardware using an operating system that you are also licensing to other vendors whom your hardware competes with. Palm had a period of success with licensees like Sony, Handspring, Handera, Symbol, Lenovo, Samsung, Qualcomm/Kyocera, Tapwave, etc. But over time, as Palm expanded their product lines, friction developed with their licensees.
Once Palm acquired Handspring, bringing the Treo line in house, that really drove away their remaining licensees. Many of whom turned to Windows Mobile as the only real alternative at the time. Palm tried the disastrous split into PalmOne and Palm Source, but that really didn’t do much to satisfy their partners.
Nokia had a similar history with Symbian, which was technically not entirely owned by them but de facto they really controlled it. Sony Ericsson and Motorola were the two big licensees, but they also had Samsung, Lenovo, Fujitsu, etc. Nokia finally acquired full ownership of Symbian so they could spin it out as its own open source group, in an attempt to make it more appealing to other partners. But it was too little, too late – and rather than attract more vendors, they lost those they already had. (Mainly to Android.) Nokia eventually gave up and pulled Symbian back in house – before finally giving it up entirely for Windows Phone.
Google needs to avoid a similar fate with their partners. Hopefully they can find the right balance to pull it off.