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Summary:

If the Nexus One is any indication, the new Android-driven connected device ecosystem is going to be a three-headed monster: Qualcomm as provider of the chips, Google as maker of the operating system and HTC as the preferred device manufacturer. So what of Motorola?

When Google announced its Nexus One phone, it appeared that the new Android-driven connected device ecosystem would be a three-headed monster: Qualcomm as provider of the chips, Google as maker of the operating system and HTC as the preferred device manufacturer. (In the PC-centric WinTel world, the infamous troika consisted of Microsoft, Intel and Dell.) The Nexus One release essentially left Motorola and the guy who bet the company on Android, CEO Sanjay Jha, out in the cold.

At the device unveiling held at Googleplex, the search giant made a big effort to dispel the notion that it’s not doing an end run around its partners. Google even got Jha to show up, get on stage and mutter some polite nothings. It didn’t go unnoticed that he was late getting there — he cited traffic — and left as soon as it was over.

Well, paint me cynical, but guys who have corporate Gulfstreams at their disposal don’t get delayed in traffic unless they want to. More importantly, his onstage body language made clear that Motorola wasn’t too thrilled about the Nexus One, especially after publicly betting the farm on Android.

Indeed, I’ve since had two very senior sources in the mobile industry confirm as much.

If I was Jha, I’d sure feel snookered. And soon, the Verizon version of the Nexus One will be available, sales of which will undoubtedly come at the expense of the Droid, which is made by Motorola. The winner will once again will be HTC, the Taiwanese smartphone maker in which Qualcomm holds a minority interest.

“We had an investment in HTC very early on. And I knew Peter Chao (HTC’s chief executive),” Qualcomm CEO Paul Jacobs told Cnet’s Brooke Crothers some two years ago. When talking about Android, Qualcomm and HTC, Jacobs said, “It was kind of like a bunch of people who had known each other for a long time in the wireless industries coming together.” I wonder if HTC will build a Qualcomm-powered Chrome based device –- smartbook or tablet -– next. (That special Qualcomm-HTC relationship is perhaps the reason why HTC is porting its Sense technology to the increasingly irrelevant BREW platform.)

In a note to clients issued yesterday, RBC Capital Markets’ analyst Mark Sue estimated that Motorola sold 12.5 million mobile devices in the fourth quarter of 2009, down from his previous estimate of 13 million devices. He blamed slower-than-expected sales of the CLIQ, which are being handled by T-Mobile USA. At the same time, Motorola is banking on the U.S. and China for the near term before eventually going after the European market. While the Droid is said to have topped the million-device mark, the company is still skating on thin ice and any disruption — such as the Nexus One — could essentially send Motorola into bone-freezing waters. The Verizon edition of the Nexus One, for example, is going to challenge a new device Motorola wants to sell to Verizon customers. It is codenamed Calgary and has MotoBlur, according to Sue.

That is why the Nexus One feels like a knife in the back. So what should Motorola’s Jha do? Call Steve Ballmer, Microsoft’s CEO? Nah, that’s a terrible idea. Microsoft isn’t capable of stopping the Android train and even then Motorola is going to be betting on someone else’s OS. Maybe use LiMo or Symbian? Again, not so smart. What Motorola needs to do is take a page from the Apple/RIM playbook and get vertically integrated.

And in order to do that, the company should buy Palm. As I’ve already noted, Palm has a great OS. It actually has a couple of other things going for it as well, including Jon Rubenstein and the team he’s assembled, many of whom are former Apple folks. The Palm team should do the software and Motorola’s engineers, the hardware. And when it comes to the hardware, again, it should be adopting Apple’s design and development principles, which Rubenstein must know pretty well.

I argued back in March of 2007 that that Motorola should buy Palm. The tactical reasons I outlined then have since changed, but what hasn’t is the strategic imperative of the two companies teaming up. Palm needs scale, while Motorola needs software. It’s the only way the handset maker will be able to take full control of its own destiny, to not be beholden to Android or any other OS. In the past three years, both companies have become pale shadows of their former selves. They don’t have a minute to waste.

Maybe it’s time for Rubenstein and Jha to have that phone call!

This article also appeared on BusinessWeek.com.http://www.businessweek.com/technology/content/jan2010/tc2010018_142926.htm

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  1. ambarish malpani Thursday, January 7, 2010

    Hi Om,
    Sorry for the strong language, but that sounds like a dumb idea. Android is a free OS (no cost to Motorola) that has great developer support.
    Motorola acquiring Palm and trying to build its own OS means it will need to keep updating it and will somehow need to convince outside developers to support the Pre – painfully hard.

    I think Nokia and Blackberry need to fight over Palm in the hopes of surviving over the next few years (I just played with the BB Storm and the apps suck).

    Motorola needs to focus on developing good hardware and getting it out there. The software game is over. Going to be hard for any phone manufacturer to come up with an OS to beat Android.

    1. Not that three or four hundred engineers cost much for several years of effort! Free!

      Ultimately, it will all be mobile web and the OS will cease to matter for the most part. That is a long way off, and we perhaps have truck loads of value to kill in the market between now and then. The scenario is much like publishing. 85-90% of the publishers are about moving physical product, and yet they want to be profitable with that dead overhead. Sorry, there is much cutting to be done, and those that survive will execute on the downside.

      If I were Elevation, I would hold em for just a bit more. There are going to be some panicky folks running around by the end of summer. I would also create a tablet prototype BTW!

  2. Motorola is gunning for a sale and is not going to invest in Palm. The costs would be too high, and they are currently busy cleanly slicing a line between all pieces of intellectual property.

    If the premise is that a device manufacturer is at the mercy of the OS provider ala Windows, that should have been anticipated! This is the benefit and the curse of Android and Chrome. Services are likely more important, and Motorola is making an effort there as well on the Moto proper side.

    The question is, are we at the point were mobile web can prosper? I don’t believe so at least as far as a mobile application ecosystem. Palm is second most advanced mobile OS from a usability perspective, but we are talking 12 months before such a combined effort bears fruit, particularly with Moto on the other end.

  3. So much for “do no evil”.
    At what point is Google going to be facing legal problems? I predict sometime in the first half of the year here.

    1. For not restricting access to their “free” mobile OS?

      1. Probably for anti-competitive practices, or anti-trust violations. The history in this area is really interesting, and looking at it, seems Google’s conspicuously overdue for some review.

  4. Motorola and its investors need to realize that their time is up. Today’s mobile industry game is fundamentally different from the one Motorola is familiar with. Jha really didn’t have any other option but to go with Google. But then Google has a history of stabbing its partners in the back. Just ask Mozilla/Firefox. This is why others such as mobile carriers have always been wary of Google. They are determined to eat everybody’s lunch. Time for some regulation please (at least stop them from taking over AdMob). HTC is weak and subservient and will serve Google’s goals very well. Google really wants a true hardware commoditization of the mobile phones or for that matter any other device that connects to the Internet (just like the PC world which they know how to dominate). Whatever Motorola and Palm or others can come up with, HTC can as well. Moto-Palm combo will hardly change the game. The two are both weaklings. The only mobile maker who can challenge Google (other than Apple) is Nokia. Nokia has the reach and distribution (at least as of now). But unfortunately Nokia doesn’t have nearly as much software savvy as Google and have enough legacy hardware and software platforms to worry about to mount a relevant challenge. Bottom line: There is going to be one, probably two major vertically integrated players in the industry – Apple and Nokia. Rest will all be also-rans. Which suits Google just fine.

    1. OldMobile wrote: Google really wants a true hardware commoditization of the mobile phones or for that matter any other device that connects to the Internet (just like the PC world which they know how to dominate).

      And that is bad why? If anybody can free the hardware from the grip of carriers and make high-quality handsets freely available to the masses, they have my vote and the votes of countless enlightened techies and average public. If that anybody is going to be Google, so be it. Why should they be stopped?

    2. google did not stab mozilla. google had to pick up chrome because the folks behind mozilla/firefox visited redmond one rainy day and suddenly became too friendly to microsoft — somewhat like this blog.

    3. I agree with most of the points , but please do not bring Nokia into the mix. They were great , but they are slow now.
      I would say APPLE, PALM and RIMM will be the future players. Both know a thing or two about software and hardware.

      Google is a confused company headed by restless people. They can sing and dance as long as the “SEARCH” is making money. I am sure Microsoft will get the better of them soon.

    4. Google still pays over 90% of Mozilla’s bills. Just like Motorola still sells a lot of droids because of android. Without google both Mozilla and Motorola would be (near) bankrupt

  5. The Nexus One is by no means a revolutionary device. It’s off the shelf parts using an off the shelf OS.

    I will give you that MotoBlur doesn’t appear to be popular. Motorola is going to have to survive on vanilla Android.

    But the Nexus One is just proof that the Android phone market is going to be like the old PC market – cut throat, undifferentiated, fast moving. Not proof that HTC is going to dominate. Unless Google gives their devices exclusive access to updates, all Motorola has to do is build a better device.

    1. Don’t count Motorola out by any means. Even now, the biggest reason I would buy a CLIQ, Backflip (yet unreleased model), or Droid over the Nexus One is form factor. There are people out there who like slider keyboards, and even though one can approximate one by typing on a touch screen, there will be people who much rather have a physical keyboard than try to see if their fingers hit the right place.

      Sometimes touchscreen keyboards go off calibration, and most new phones do not have a way to recalibrate their screens. I’ve had a touchscreen phone where when I went to type a “p”, it registered an “o”, even at the edge of the screen. A hardware keyboard helps in this department.

      Don’t count Motorola out yet. They do need to catch up with HTC and start putting out Dragonball speed phones, but they did an extremely good job of getting Android devices into peoples’ hands with the Droid advertising.

  6. Interesting perspective. Not sure it’s a question scale but a question of user experience and applications. Palm should port their webkit and UI to Android. Why fight it? There is not much room for the OS platforms.

  7. Hey with all this new gadgets. Whats the future of Apple Tablet I Slate. Is it even ture? http://bit.ly/8N5zEv

  8. If andriod is truly open source why can moto create a fork and go with it.

    Or is it truly open

  9. Wow ,
    Om I hope you didn’t come up with this from thin air.
    On a second thought , there is a fair possibility of this happening. But who will be the boss of the combined company, clearly not Jha.
    If he wanted to do one good thing , he should kick the other CEO out get Jon as co -CEO.

    That ,in my book is a perfect revenge. Besides , take my word for it, SAMSUNG will stab (they stab every company they partner with for that matter) Google once they get a hold of the inner workings ofthe android to their own BADA (or whatever)(

    Overall, this deal will keep Google in check. APPLE might be happy about it too.

    Folks write good things about android, but I will go on one limb and say , the whole android thing will fail in two years.
    Period.

    1. I’m pretty sure BADA is it’s own entire “new” thing: their developer kit is C++. Android is all about the Java.

    2. Sure , but can they support JAVA in the future?
      I guess it can be done may be difficult.
      SAMSUNG has a habit of partnering with companies , learn the tricks of the trade then dump them for good. They did it in the TVs to SONY. They made chips for iPhone, and now planning to use them for their own phones.

      The are the best match to Google.

      1. You are a moron, please don’t comment anymore. You are too stupid to understand these matters. Stick to trying to tie your shoelaces without your mommies help.

      2. Thanks cak,
        I will have my mommy here with me.
        What do you want to discus ? heap size ?
        or low level interpretation ?
        Perhaps may be allocating the memory ?
        Or may be how the chip interpret the logical expressions ?

        Hokay, you are smart.Cheer up intelligent human.

  10. Om,
    There are a couple of key assumptions in this piece I question.

    1) You site Dell, MS, and Intel as the past model – but it isn’t that simple. HP, Acer, and others have done well with hardware. There is no reason to assume HTC will be the only major hardware vendor for Android.

    Motorola could easily share the market with HTC and others. The Nexus got plenty of attention this week, but it is primarily the processor that did it. The Droid already has a better screen and a (stupid) keyboard. But the next generation will no doubt be better… HTC’s G1 certainly leave folks assuming HTC will own this market. The Droid is effectively Moto’s first Android phone and they did pretty darn well with it. Better than anyone prior and since on a first gen Android phone.

    The second question is can the market support Palm and yet another phone OS? I suspect not. As many before commented, Android is free and has some strengths. iPhone is more polished and has a headstart. RIM? Microsoft? strong players with some key strengths that make their products matter. Palm? no.

    Plus we are probably near the peak of the appstore frenzy. Future apps will move toward HTML5 cloud apps and live in the browser. That is what Google really wants. The OS actually becomes less important and “valuable” and keep in mind it is free now.

    1. Dave

      Point #1: All the money in the PC boom went to Intel/Microsoft and then to Dell, which for a long time was king of the hill. I was there. I covered them and they were printing money.

      Point#2: Motorola can be Acer or whatever of the phone world and start to live with low single digit margins. Good luck and good night.

      Point#3: If Motorola seriously wants to play, it needs to control its own destiny.

      Point#4: So the OS you backed is being used by a device made by a rival and is promoted by the OS creator on its website that is visited by hundreds of millions of people. Tell me if you don’t have a disadvantage.

      Think of it this way — you are focusing a lot on features of their products. Long term, they are going to be at the mercy of Google. Seriously — they need to be thinking long and hard if they want to bank of a partner, as someone earlier said is know to shank their partners.

      I am on the other side of this equation. Google wants to suck all the profits out of the mobile ecosystem and good for them. In the case of Motorola, they need to be thinking about the world with eyes wide open.

      1. Great points !!! Om. Motorola needs to define it’s own destiny.

        What happened to the motorola set-top box biz. Is it a separate company now ?

        Keep it up Om !!

      2. This is completely different from Microsoft approach. Microsoft always stayed away from hardware and build a ecosystem for its Windows OS.

        What is google trying to do over here. Build it’s own Services biz and keep hardware vendors on it’s mercy.

      3. Om,
        Thanks for the detailed response.

        The PC boom was long ago, Dell changed the model to indirect and did quite well – but so did many others. Packard Bell (acquired by NEC), Compaq, HP, and many others.

        The advantage of open source is they don’t have to be dependent on Google. They can take the source and run it it. (though I do see that as the Appstore model declines for the more open html5 web, the OS becomes less important).

        They have so many wifi devices at Moto – radios, phones, etc. Why not leverage that Android expertise into something very broad for Moto?

      4. Sure, it’s a disadvantage at this point. If however the next Nexus is a Motorola one, that would reverse, wouldn’t it? So perhaps this setback would motivate Motorola to come out with a better phone than Nexus One. May be that’s what Google wants as well? to push the Android eco-system ahead at faster pace?

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