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Google’s Motorola Deal Promises to Shake Up Mobile Technology Industry

August 16, 2011 at 12:00 AM EDT
Google announced plans this week to buy Motorola Mobility for $12.5 billion. In recent years the Internet giant has made big plays in the smartphone market through its Android platform. Jeffrey Brown discusses the ramifications of the pending deal with Staci Kramer of paidContent.org and Charles Golvin of Forrester Research.
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JEFFREY BROWN: And finally tonight, the business of mobile technology, smartphones and much more, just got a big shakeup.

Internet giant Google announced plans to buy Motorola Mobility yesterday, the price tag, $12.5 billion. It’s the largest purchase ever for the 13-year-old tech giant that’s best known still for its search engine.

But, in recent years, Google has also made a big play for the smartphone market through its Android operating software system. Launched in 2007, Android is now used in more than 150 million devices worldwide, including some 43 percent of the market for smartphones.

By comparison, Apple’s operating system, which is run only on Apple products, such as the iPhone and iPad, makes up 18 percent of the market. Now Google has taken another big bet, deciding to make and own the hardware, the devices themselves, by buying its own manufacturer.

Motorola Mobility itself split off from the larger Motorola company this past January. It has 19,000 employees. The deal potentially pits the Google against some of its own business partners, other device-makers that use Android software, such as Sony Ericsson. But Google can gain another important asset in the deal: control of Motorola’s more than 17,000 patents, plus another 7,500 still awaiting approval.

And we look at the deal and the mobile tech business now with Staci Kramer, editor of paidContent.org, a website that covers the economics of media and technology, and Charles Golvin, a principal analyst for Forrester Research.

Charles Golvin, start with the issue of manufacturing phones and other devices. How does owning a company does that fit into Google’s larger strategy?

CHARLES GOLVIN, Forrester Research: Well, it’s mainly about competing better with Apple, who owns the entire soup-to-nuts control of the software, the hardware, the content that they sell, and the channels that they distribute the devices through.

And Google, because they license their software to manufacturers like Samsung and LG, they don’t control those pieces, the hardware pieces. They just control the software pieces. So acquiring Motorola gives them more of that top-to-bottom control over the total phone or tablet experience.

JEFFREY BROWN: And, Staci Kramer, if you put this in a larger context, this is clearly part of the continuing move towards mobile computing generally, right?

STACI KRAMER, paidContent.Org: Well, it is.

I mean this is Google’s way of literally being — being in your pocket, being on your tablet, being everywhere you are straight through the day. Larry Page said on the last earnings call, the CEO of Google, that he really likes to look at new products or new ideas that are — make Google like brushing your teeth. They’re just something you just use and you don’t really even have to think of.

And this is, to me, another one of those kinds of things.

JEFFREY BROWN: Now, Charles Golvin, much has been made of this patent issue, in fact, some people seeing it as even the major part of the deal.

Now, explain that, why these — Google getting control of these thousands of intellectual property patents that the Mobility company has, why is that important?

CHARLES GOLVIN: Well, it’s important because the negotiations among the phone manufacturers, the wireless operators, the software makers are really a horse-trading game of: I have these patents that are required for you to make your product. You have some patents that I need to license in order to make my products.

And they come to some kind of common ground. And maybe it results in payments in one direction or the other. But those assets that you bring to the table are critical in not making you a seller, if you will, you know, of revenue. So, having an equal stake or a strong portfolio of patents allows Google to be at the table and have something to offer in trade and not have to pay out too much revenue or their partners pay out too much revenue, or face lawsuits for, you know, violating others’ patents.

JEFFREY BROWN: What — what — can you give me an example of the kind of patents we’re talking about, to help people understand this?

CHARLES GOLVIN: Yes, I will give you an example of a very simple one that people might not even think about as a patentable idea.

But, for example, when your phone — when you receive a call, the network delivers a phone number. And there’s software inside your phone that looks at your address book, looks up that number and says, oh, that’s so-and-so and then presents so-and-so’s name to you or maybe even a picture of you.

Nokia owns a patent on that concept. So any phone that wants to do that, any phone manufacturer who wants to deliver that service has to license that patent from Nokia in order to be able to do that legally.

JEFFREY BROWN: Now, Staci Kramer, what about another aspect that I mentioned in the introduction, which is this potential problem that Google would be competing with its current partners in some sense?

STACI KRAMER: Well, it will be.

And, you know, I think it’s still not clear to me that — how Google is going to run this as a separate business, which it intends to do, which helps protect its partners, which helps protect all these other ideas, but at the same time achieve that kind of Apple-like integration, that ecosystem, that gives it control over so many things.

I don’t see how exactly they’re going to pull this off yet. But it does give — you know, it makes Google both a competitor and a protector at the same time. If they can manage to walk that line and do it, it will be quite a feat.

JEFFREY BROWN: Well, Charles Golvin, it was interesting to be reading the tech — tech blogs and information today. There was all sort of debate about whether this was a good idea or a colossal mistake. So, it’s things like that about how — whether they will be able to carry it off, that’s what — that’s what is driving this debate?

CHARLES GOLVIN: That’s part of the debate, certainly.

I think much of the same analysis pertained to Microsoft’s deal with Nokia, forming a strategic relationship, and questioning whether other licensees of Microsoft software, again, Samsung or LG, might see themselves at a disadvantage because Nokia might get special access to the software or unduly influence the design of Microsoft products.

And the same questions pertain here when it comes to Google and its Android licensees, whether they will be treated equally and have the same access as Motorola, who is now part of Google.

JEFFREY BROWN: Now, Staci, you — you started talking about how this is Google and others trying to reach us in a lot of new ways. So, this is more than just — I mean, eventually, this is more than just about smartphones, right?

STACI KRAMER: Absolutely. It’s more about smartphones.

Now, some people have suggested that really the cable business is an afterthought in a sense and the broadband business to what Google is acquiring in terms of the patents and the Android side, but it is a significant moment, because Google has not been able to get Google TV to take off, its own real entry into the living room.

By acquiring Motorola Mobility, it has instant entree to living rooms all over the U.S. Whether they’re Comcast, whether it’s Charter, whether it’s Direct — any of the other major cable operators, it has some way in.

In my own house today, I just picked up a cable modem with the highest level of potential. And my first — the only option actually that I was offered when I went to Amazon was a Motorola broadband modem. So, they are already there. And what they do to take advantage of that is the next question. Can they put Google TV — can they make that set-top box an entree, not only into the living room, but actually into partnerships with the cable operators?

JEFFREY BROWN: Well, so, Charles Golvin, that means this is sort of part of a much larger tech war among a number of companies, right, Google, Apple, Microsoft, others. Where are we now in that struggle?

CHARLES GOLVIN: Well, it absolutely is a struggle for people’s digital lives. More and more consumers today own multiple connecting devices, not just a smartphone, not just a tablet, but P.C.s and other devices that connect to the Internet and the services that are critical to their daily lives.

And every one of these companies, whether it’s Apple or Google or Microsoft, they want to be the brand and services behind that experience, no matter which device you happen to pick up. And Motorola does have presence in all of these categories, in phones, in tablets, in television set-top boxes, even in some home products like security cameras and the like.

And so this is really about being the brand that you go to and the services that you need, no matter what screen you might be looking at.

JEFFREY BROWN: And, Staci Kramer, just briefly, this does have to go through some antitrust — gets a look at least from the Justice Department, right?

STACI KRAMER: Well, I think it will get more than a look, although I don’t think we’re looking at anything quite as intense as AT&T/T-Mobile, for instance.

But it does need a look. It does need approval. And that is one of the reasons that you will hear the constant stressing of, this is a separate operation. They want no mistake. They want this to be seen as something that doesn’t — that enhances them, but doesn’t given them, like, world domination.

JEFFREY BROWN: All right.

Staci Kramer, Charles Golvin, thank you both very much.

CHARLES GOLVIN: Pleasure.