So What Should Motorola Do Now?

96 Comments

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.

[digg=http://digg.com/hardware/Will_the_Nexus_One_Launch_sink_Motorola?OTC-ig]

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

96 Comments

travis huynh

I don’t get it. It doesn’t tell the price of the Nexus One for AT&T service?
“N” for the Nigel
“E” for the Elephant
“V” for the Vibrator
“E” for the… uhh…elephant
and “R” for you are Ridiculous!

emangray

My thesis is that the Palm should start offering additional services around the device. In effect creating more revenue streams. Some services that would make a lot of sense to me:

1) 411 – either free or freemium

2) Call tracking, call management – e.g Skydeck

3) Security – a subscription based service around security. Encryption of SMS, email, voice mail etc.

4) Advertising – Google is going to get a large % of the ad revenue from the web pages viewed on Palm devices, because of the Admob deal. Can palm offer advertising on the home screen in a non-intrusive manner?

5) Storage – pictures, video, sms, email

Russ

Motorola needs to focus on being the premier hardware manufacturer for Android users. They have relationships, HW skills, reach etc. This market position is still open, They can, and must, beat HTC to it. They need to assess whether HTC has an unfair advantage in this race given their coziness with Qualcomm and Google.

Moto+Palm for another integrated/vertical solution? That position is not available for Motorola. They could try it, but they would fail.

Peter

Sorry Om, but you have it backwards. Palm should buy Motorola. Motorola has lost its way in the handset business while Palm has found its way forward with an excellent product.

Se7en

“Palm should buy Motorola”

Interesting twist, but…doesn’t Motorola need a Palm more than Palm needs a Motorola?

sdp

Om,

You sounds dangerously like Sramana Mitra in this post – throwing out investment recommendations based on consultant-like arguments.

I think the MOT-PALM combination is unlikely on a couple of counts (much like the DELL-PALM, and NOK-PALM combinations that were the major stories of 2009).

1) At $12.5, PALM is priced north of $3b on a fully diluted share count. MOT (the parent company) has $7b of cash on their balance sheet. In 2008, their mobile division accounted for ~$3.5b (of $27b) in assets, $12b revenues and $2b operating losses. It’s unclear to me why they’d essentially double (or triple, according to the speculators who argue for a higher stock price) their outlay on mobile devices to purchase a company that has a track record of wasting money to overpay engineers (it’s telling that the core design comes from the team that bankrupt Helios).

Basically, you’re indicating that MOT, a company that has been focusing on network rollouts (both cable and wireless) should burn most of their their hard earned cash on supporting a failed wireless team.

2) The argument for PALM seems to be based around WebOS and the team. Well, if you consider PALM’s outlay over the past two years – it essentially cost them $400m to develop the software at the team. Even if you attribute some premium to the urgency factor, it’s hard to justify a price tag north of $800m for the whole shebang. It’s understandable that you & Mitra cut your teeth at the end of the 90s, but $3-4b on failing companies isn’t quite the way things are done nowadays.

3) You define WebOS as a success. The only proof of such is company profitability. PALM has been unable to demonstrate this. Jon R. helped develop the iPod and take costs out of the design process. He lacks the sales & marketing support that Jobs and others provided. Somehow, I don’t think MOT is a natural fit to “unlock” the value of PALM’s decent technology, given their marketing blunders.

Basically, the only people who benefit from such commentary are Elevation Partners, Goldman Sachs (by helping with ridiculous financings), and the day traders.

The people who hurt are those who have their money managed by Elevation Partners, Capital World, Fidelity, Blackrock & T Rowe. Gun slinging managers who see PALM as a mini-revival of the late 90s.

Preetam Rai

I agree with Om. You guys haven’t seen the end yet. Wait till you get Android phones made by the likes of some Shenzhen Light Electric works, Wuhan Maritime corporation and such Chinese manufacturers. That will drag the margins way way down for Androiders.

Bart

But what’s preventing Motorola from making Android OS “their own” and doing what they would do with sole ownership of WebOS? It seems like Android OS’s biggest problems are UI polish and multitouch (and hardware-specific performance issues? which Motorola should be able to help Google improve on) so why can’t Motorola make their own skin and license a multitouch patent (if they haven’t done that with their Android phones already)? Set an example with a few choice apps, produce some HIG documentation, make a better version of apps that don’t compete well with the iPhone’s. Isn’t this the whole point of Android being an open OS, to make it available to companies that are willing to invest the resources? If Motrola hasn’t taken advantage of that and are letting Google take on the majority of the burden of software development, then I don’t see how they could manage Palm better or how they can feel slighted because of the Nexus One.

Se7en

I don’t get the whole “Android costs nothing, so Motorola shouldn’t buy Palm” argument. The fact that Android “costs nothing” should be the loud warning in Motorola’s ear…it means everyone can use it, and Motorola has to compete solely on hardware. Om’s argument (and one I agree with) is that if Motorola wants to be a player, they need their OWN hardware/software solution, to set them apart. Playing the me-too game won’t work for them-they can’t compete.

alizee

o 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…

Hetal Patel

Well if google will not Selle Nexus One HTC will so it dont decrease the Competition. Google is not Manufacturing it, its just marketing it and as HTC being most Successfull Company to Sell Android Device and Being oldest Partner in Android Game i Consider Google to Pick HTC to manufacture there Second Dream Device as appropriate.

Motorola DROID is good Device but hard to conrfigure. We in a Test lab of CDMA Operator in India have ask Motorola to give some Handset to test in Operator and was not Successfull even to get 1x Data or EVDO Data Network configure. Nether Motorola have help. We still after 2 month only activate Voice calling on it and SMS. But in case of HTC all Device can be Programed in CDMA like cutting Cake.

Motorola have to Develop fine Software for CDMA Configuration and more Vibrant Distribution Model. and Atleast some Good Looking Handset. Where is that Motorola who Produced RAZR V3. We want RAZR type look with some Good Configuration tool which can enable Programing CDMA device to activate it other then USA network.

gbp

Interesting insight.
Making a true world phone (GSM + CDMA) at a cheaper price is probably the key to MOTO’s future.
I highly doubt they will sell a million Droids in any part of the world other than USA.

anselm

This idea of a marriage between Motorola and Palm is one that I don’t really understand. As a maker I haven’t seen a lot of adoption of the Palm Pre platform and that is a relief – having yet another platform to try to develop for may help exercise emerging ideas in mobile app development but largely it is just a frustration. Motorola seems to be on a safer track by concentrating on the hardware – even if they can’t have their own little fiefdom. They do benefit from Android more than it hurts them – although likely as not they will be losers anyway in the end. The other scenario of moving to yet another platform would marginalize them in the same way that it will soon marginalize Nokia. I still can’t quite forgive Motorola for the Razr in any case :-). I went straight from that to the iPhone.

Mr. Zee

What about the possibility of Google Acquiring Moto? Makes lot of sense for Google to acquire its own handset manufacturing & distribution channels to make its Vertical integration complete.

Hardeep Singh

It seems Motorola forgot that it also joined Symbian Foundationa an year ago. Mr. Jha needs to hop over to symbian.org and check out how Symbian^3 has shaped up.

A User

You simply have no idea what you’re talking about. Motorola doesn’t need software – it has Android, which doesn’t cost them a cent. The fact that another manufacturer (this time Google, or HTC however you see it) has come out with a device with that same software is a BONUS not a setback.

Everything in the mobile arena is about apps, and there is only so much room for mobile OS’s if you want to attract developers. This is why Palm is dead – no one is going to develop for an OS that runs on so few devices. That is the power of Android, and Motorola merely needs to step up and create excellent hardware. If they want to differentiate on software, they can create a theme on top of Android like Sense from HTC. All the strengths still remain.

I’m sure Motorola is pissed off that Google released their very similar phone so close to their release date. However, that’s life regardless of whether you’re running Android or not. Competition’s a bitch. The Droid is still quite a different phone (hardware keyboard for one, if you’re into that) so I’m sure they’ll still sell.

Oh, and people who have their own Gulfstreams to fly around in still need to get from the airport to the venue, hence the traffic part.

Cam

This is such a great debate. I have been of the opinion of late that Nokia needs to buy Palm to resurrect their business by making a serious Smartphone. Those here who have suggested that Palm and RIMM belong together… I don’t see that one. RIMM needs to be more open. It may take 5-7 years, but I don’t see a long term future for BB/RIMM.

Motorola and Palm together is an interesting idea. However, unless they can divide dev over two platforms, I’d say Android has a much better chance for long term success.

I have to ask – did Google really “screw” Motorola by also partnering with HTC? I’m a MotoDroid owner and I like the product but perhaps Motorola needs to look at it’s designers and compare to the elegance that other company’s like Apple and HTC have produced. Motorola hasn’t produced an edgy design since the RAZR. Yawwwwn. If HTC beats Motorola because they are producing sexier designs faster – Motorola deserves their fate.

gbp

I agree with the long term future for RIMM. They can still be back in the game if they have a solid browser, 3D gaming support and a decent touchscreen phone (STORM is not a good example). I was thinking Nokia might buy PALM, but Om came up with this rather “New Strategy”.
Motorola should pull the plug on Android. Android as a platform will be a mess in two years. They still haven’t created a decent SDK for gaming support. PALM did that in less than a year after releasing their Pre. Folks should understand that PALM has some serious talented folks at present. And looking at the way they are keeping on top with updates/ features / releasing in multiple countries only APPLE can match them. Google for all its brainy folks still operates as a testlab.

rmxz

There’s an opportunity for someone to fork Android and make a more open community-supported version.

In much the same way that a desktop Linux distribution as tightly controlled as Android couldn’t survive long, I think we’ll soon see Android forking and community-based versions outperforming google-based ones.

I think Motorola should partner with Red Hat to make the community-friendly Android fork. If nothing else it’ll send a message to Google that if they backstab their partners, it’s even easier to stab them right back with F/OSS forks.

Colbert Philippe

Part of Motorola’s problem’s is that it is perceived by many to be a hardware company. It lacks software endurance credibility. I would suggest to Motorola to create a very strong programming platform along with a good software download server for their mobile phones like Apple and Google do. Regardless of the phone Motorola is selling, it should be compatible or have a clear migration path from the old. Right now Motorola lacks creditibility on that front.

Wifiguy

Om, your dead on. Everyone needs to be kept honest. Apple doesn’t want to push Googlewear but will have to because Google is in the hardware biz. Verizon never wanted to give this much power to Google but it needed a partner because of Apple and At&t joining forces.

By buying Palm it could dedicate more $ to compelling hardware to match the beauty of Palm’s software. That would be compelling.

NB

Nokia is promising an iPhone (plus all other smartphones) killer in 2011. Just dont hold your breath on that one ):

Comments are closed.