Motorola buy sees Google having its cake and eating it

Tony Cripps, Principal Analyst, Ovum

AUSTRALIA: Google sought to reassure doubters on its investor conference call following the announcement, claiming that the top five Android licensees – presumably Samsung, HTC, LG, Huawei, and Sony Ericsson – support the move. Nonetheless, there is a chance that Google may put off some Android licensees from committing more deeply to the OS, with the increasingly expansionist Samsung perhaps the most likely to break ranks, especially given that it has its own platform strategy in the shape of Bada.

That’s a calculated gamble on Google’s part and perhaps it knows something we don’t as to those vendors’ future plans. The real question is whether Google’s action will drive those same licensees away from Android completely and into the hands of other platform providers?

This seems less likely to us, at least at the time of writing. After all, the main alternative to Android, Windows Phone, is barely different to Android from a competition perspective. Microsoft too sees its mobile OS investment as a Trojan horse for its consumer services, and more broadly its consumer-related interests, including advertising.

So it would be a case of “out of the frying pan and into the fire” for most Android licensees if they were to take this approach, although there’s nothing to stop companies such as Sony Ericsson from double-sourcing. Indeed, there may well now be more compelling reasons to do so.

OEMs have too much to lose in abandoning Android
At its root, there’s a very real sense in which many smart device OEMs are now beholden to Google and – albeit currently to a lesser extent – to Microsoft for device OSs. That dependence comes not from the fact that other options aren’t available. They are. Symbian remains in the picture, albeit in a diminished and diminishing role, while HP’s WebOS remains available and the Intel-backed MeeGo has now been given its smartphone debut care of Nokia’s forthcoming N9 (despite that company having now publicly redirected its future away from the Linux-based platform it co-created).

Rather, the dependence OEMs have on Android (and potentially Windows Phone) comes from a promise of hardware sales driven by the expectations consumers have of their devices resulting from using the software. Those expectations arise not only in terms of hardware design but also in terms of the applications, content, and experiences those devices provide access to.

This itself is a function of the software platform and ecosystem building efforts of the OS proprietors themselves catalyzed by factors such as attractive brands and price. Apple is the master of making this approach work, having recognized the strategic value in using its OS as the basis for controlling all elements of the ecosystem around its devices early in the existence of the iPhone.

As for the other mobile OSs in the market, neither RIM’s BlackBerry OS nor iOS are licensed, rendering them off limits to Android OEMs. And even if it were to become available to third-party OEMs, BlackBerry OS seems to be suffering from a similar malaise to that which afflicted Symbian, at least as far as developer momentum and end-user enthusiasm are concerned.

Hardware is the keystone for a concerted “extended home” push
If Google’s ploy works, buying Motorola Mobility may actually enable it to increase the dependency that end users and third parties are already feeling towards Android, even if it does ultimately lose some OEM support. Google itself could help make up and exceed the shortfall, using the substantial consumer goodwill bound up in the Motorola brand, especially by US consumers for which the Motorola name has a long association with US technology leadership and innovation.

Importantly, the goodwill captured by Motorola’s brand extends further, into the connected home, care of its successful set-top box business. With the Google TV platform currently struggling to find favor with either OEMs or consumers, there is a clear incentive for Google itself to drive home the benefits of a more integrated approach to multi-screen content, applications, and other services. Importantly, Motorola Mobility also brings related assets, such as video servers and data connections devices, that could prove a boon to Google in this space, as well as supporting broader “extended home” efforts.

Certainly, the future expansion of Google’s core advertising business depends to a great extent on taking its message not only wider but also in deepening the level of engagement it has with consumers. If that also means that Google gains a foothold in the high-margin market for “smart” hardware so much the better. The company will benefit from a degree of diversification as insurance against a downturn or greater competition in online advertising.

Motorola may be a launchpad to challenge Apple
In this light, the acquisition of Motorola Mobility presents the strongest means at Google’s disposal to challenge Apple, especially as that company finally turns its spotlight on the TV, as we’re sure it will (Apple TV does not count – it has always been discounted by Apple as “a hobby”). Indeed, we would not be surprised if part of the subtext to this acquisition is to revivify Motorola and to restore it to its former position of US tech archetype, a position it only lost in the past few years to Apple.

Whether Google can pull that off remains to be seen. Motorola Mobility currently only boasts around a 2.5 percent share of the global handset market. But even as things stand, Google is acquiring a much more focused and streamlined business in Motorola Mobility than was the case when the company hit the skids in 2008. Motorola Mobility’s portfolio of some 17,000 patents and another 7,000 patents pending globally is merely the icing on the cake for Google, following its recent failed bid to acquire Nortel’s IP treasure chest against a consortium including Apple, RIM, and Microsoft.

If nothing else, Google’s expanded patent portfolio will give it – and presumably Android licensees – more latitude to point the metaphorical intellectual property gun back at its rivals in cases of dispute in what is set to become a very litigious age in the consumer and communications technology spaces.