There’s no denying that Google’s maneuver this morning to acquire Motorola for $12.5 billion in cash is remarkable. Everyone is talking about every possible angle of the deal, as they should. The summertime is usually the doldrums when it comes to tech news. Not this year. Google is pulling off an acquisition that is larger than any that Microsoft, Apple, or any of their other main competitors ever have. Larry Page, wartime CEO. Larry Page, maverick.
As the resident Apple enthusiast around these parts, many of you want my take on this — and many of you probably don’t want my take on this, but will end up reading it twice as much as those who do. But don’t worry, I’m not going to go all Dan Lyons and immediately run my mouth without thinking. I actually took the entire day to think about this, read over the insane amount of coverage (though I didn’t get through even half of it), and form some thoughts.
But my main thought is the same as my initial one: this is either the smartest thing Google has ever done, or the dumbest. There is no in-between.
Many people seem to be tripping over themselves trying to explain why this is not just about patents. Okay, yes, there are some interesting potential side effects of this deal, such as in the broader consumer electronics space. Motorola could help Google turn around the disaster that has been Google TV. Motorola makes a huge percentage of the set top boxes that the cable companies use to push their over-priced content at you. And those cable boxes are absolute pieces of shit. But they’re highly profitable pieces of shit. While Google TV is a nightmare, it’s still a considerable upgrade from almost all set top boxes. The two sides could help each other here.
Or it could be a case of two wrongs making a very big wrong. We’ll see.
The much more interesting angle is what this means for Google’s control over the Android ecosystem at large. I’ll get to that in a minute.
First, let’s not kid ourselves. This deal is clearly about patents. If Motorola didn’t have thousands of patents, there is no way this deal happens. Zero. This is a company that lost money last quarter, despite revenues of over $3 billion. They have over 19,000 employees. This nearly doubles Google’s workforce (Google has about 25,000 employees). This is a company in the midst of several of their own lawsuits — some of which are by Google adversaries Microsoft and Apple.
This all sounds like a big, logistical mindfuck for Google. A company, which remember, is trying to simplify and focus their business. It’s the equivalent of me saying I’m going to clean my house today, then going out and buying a fraternity house just as I’m getting started. And keeping both.
But those patents. Those glorious, wonderful patents.
In losing the Nortel patent auction to Apple, Microsoft, RIM, and others, Google lost out on 6,000+ patents. With a battle over the InterDigital patents just getting started, there was a pretty decent chance they were going to lose another 8,800+ to their rivals. But with the Motorola buy, Google gains at least 17,000 patents. And if some other applications go through, perhaps as many as 25,000 patents. In one fell-swoop. Crazy.
It raises Google’s patent pool from around 2,000 — over 1,000 of which are from a deal they just did with IBM — to around 20,000. That’s around what Microsoft has. And nearly double what Apple has. Deterrent obtained, right?
Well, not so fast. As FOSS Patents points out, Motorola’s patent pool may not go far enough to cancel out some key patents owned by Google’s main rivals. Remember, both Apple and Microsoft were suing Motorola well before this new deal was born. Those cases remain ongoing, but FOSS’ Florian Mueller believes that Apple and more so, Microsoft, have the upper hand in each.
He argues that this was more of strategic buy for Google in order to exert more control over the Android ecosystem. It’s a compelling argument, but I’m not sure I buy it. At least not yet. Even more compelling is his thought that Google may have bought Motorola to stop them from settling with Apple and/or Microsoft on the patent issues. Such a settlement would have been a big blow to the entire Android ecosystem. Perhaps not quite as bad as Samsung agreeing to license patents from Microsoft (joining HTC and others), but bad.
Would even that be bad enough for Google to spend $12.5 billion? Again, I’m not convinced. But the fact that Motorola was threatening to attack others over IP itself just a few days ago, does suggest something was brewing. They sounded like an animal backed into a corner. (Or, as it turns out, perhaps one just playing some last-minute hardball with a would-be acquirer.)
What we do know is that leading up to Google’s deal, Microsoft was also negotiating to buy at least Motorola’s patent portfolio, as Om Malik reports. Unsurprisingly, Google’s negotiations kicked up shortly after the Nortel loss. Again, patents, patents, patents. If Microsoft had purchased Motorola’s patents, Android would have been at Defcon 2, if not Defcon 1. Google could not let that happen. And they didn’t.
But let’s turn to the broader ramifications here. The antitrust cops are obviously going to scrutinize this deal. But already some are predicting it will go through. Obviously, Google is as well. Motorola? Well, the fact that there’s a $2.5 billion breakup fee — which is absolutely insane — that Google will have to pay Motorola if the DoJ breaks up the deal, doesn’t project too much optimism, to say the least. But for the sake of argument, let’s assume the deal is approved and closes at the end of this year or early next year.
Google says they will continue to run Motorola as a separate business. Again, given its size, that’s about all they can do. Google also says that this will not change their commitment to Android being “open” and to their other OEM partners.
While that will sound like a load of horse shit to some. I actually believe that Google believes that (or at least that many higher-ups at Google believe that). I just don’t believe it will be possible. And I think that eventually, Google will recognize that it won’t be possible. And I think many of their partners are being disingenuous with their positive statements
Just look at the issues Google has been having keeping their carrier and OEM partners in line when it comes to Android software updates. The issues have gotten so bad that Google had to get on stage at their I/O conference this and promise everyone that a new initiative is underway to ensure timely updates. You’ll notice we haven’t heard a thing about that initiative since it was unveiled. ”Over the next few weeks, we’ll figure it all out,” Android head Andy Rubin said at the time. It’s been three months.
But with Motorola in their back pocket, Google now has another stick to use when the carrots don’t work. And the carrots rarely do in the Android ecosystem, it seems.
Is an OEM not releasing updates quickly enough? Okay, screw you, we’ll release a Motorola Droid update right now. Are you telling me Google isn’t going to do that? I mean, are they going to hire some new, un-fireable people at Motorola in charge of ensuring that bullshit bureaucracy remains in place after the deal?
What about Nexus negotiations? Andy Rubin humorously seemed to confirm that bidding occurs over who gets to make the next Nexus devices during the Q&A call today. Given the other backchannel deals Google strikes while maintaining the nonsense “open” moniker for marketing purposes, this is not surprising at all. What happens if Google isn’t getting the terms they want on a new Nexus device? Will they also hire someone to thwart Motorola’s Google-backed bid? Ridiculous.
There are dozens of other potential situations like this. One way or another, the existence of Motorola as a Google company is going to affect Android.
Here’s another, more straight-forward scenario for you. What happens when the iPhone 5 launches and everyone wants it? That includes many people currently using Android phones. After a few months of this, Google grows frustrated that none of their OEMs can release a device that matches the build-quality that Apple puts out there. But wait, they now have their own company they can at the very least use to apply to pressure the other OEMs to force them to do better work! Does Google also not play that card? Are you really telling me that they won’t try to get Motorola to make the best products possible? Why the hell wouldn’t they? This is a business, after all.
Maybe the iPhone 5 doesn’t trigger that, but maybe the iPhone 6 does. Or maybe the iPad 3 does. Or maybe a Windows Phone does. At some point down the line, Google is going to run into this scenario. And there’s nothing wrong with that. The tight control over both hardware and software is what allows Apple products to be Apple products. And now with webOS, HP appears to be moving in the same direction.
In the same way that Google used to not care about design, but now is starting to, I suspect they’ll start to care more about full control over their products — both hardware and software. They’ll see that the overall consumer experience is tied to both — they’re not mutually exclusive. And Motorola gives them the opportunity to fully explore this. Why not use it?
All of this is why the partner statements are disingenuous today. I mean, just look at them. They all say the same thing! And what they say is really nothing at all, beyond the positive statement that Google can now defend Android better.
I won’t even bother including who said what because it doesn’t matter. They’re all the same statement. “Defending Android”, “defending Android”, “defending Android”, “defending Android”, “defending Android”. Every. Single. Time.
In other words, “patent protection”, “patent protection”, “patent protection”, “patent protection”, “patent protection”. These guys aren’t happy Google is buying a competitor, but what are they going to say about it right now? “Fuck you, Google, we’re ditching Android!”? Given their massive commitments already in place, such a move could force any of these companies into the ground.
What will be more telling are the actions taken over the next weeks, months, and years by these guys. Do they warm to Windows Phone as a result? Do they turn elsewhere? Do they force Google to spin off the Motorola hardware division? It’s certainly all on the table right now, I’d imagine.
Google’s acquisition of Motorola today either just saved Android or subverted it. It was either brilliant, or really, really stupid. Unfortunately, the truth is that we simply won’t know the answer for a while.
But credit where credit is due, Google just did something decidedly un-Googley. On paper, as a math equation, you never do this deal. The upside is potentially high, but there’s way too much downside potential. A $12.5 billion deal in cash, with a $2.5 billion collapse clause? Who are you and what did you do with Google?
But as I’ve argued for months, Google has been in need of a wake up call. They needed something to shake them out of a state of malaise. With this Motorola deal, they just got something. It won’t make them any new friends, but this is business, not personal.
And it is a shit-ton of patents