China is expected to rule soon on Google’s proposed acquisition of Motorola, with the deal already approved in the U.S. and Europe. When Google announced its intention to spend $12.5 billion on Motorola — one of its own Android hardware partners — the purchase was considered to be a play for Motorola’s mobile patents. There’s additional opportunity as well, in the form of Google’s having direct control over Android hardware. One research firm suggests this aspect is key for Google to have any success in the tablet market while also improving its revenue stream on mobile search.
Goldman Sachs published a detailed research note on Thursday suggesting how critical the Motorola deal is for Google to battle both Apple’s iPad as well as Amazon’s Kindle Fire tablet, which is actually built on the Android platform. Google gains no benefit from the Fire, however, as Amazon has created its own browser and curates an app store specific to the device. And although Google is the default search engine on the top-selling iPad, it actually pays Apple for that privilege, which offsets Google’s revenue from ads on Apple’s tablet.
The research report explains it this way:
On a tactical level, while we estimate mobile queries account for just 20% of searches, we believe they are growing 4-5x as quickly as desktop queries. Thus, MMI’s patents would be important for protecting Android and improving mobile economics, as we estimate Google pays Apple roughly 75% revenue share to be the default in the Safari search bar, which we estimate accounts for roughly one-third of all mobile queries.
The issue then is fairly simple to understand: Although mobile search volume is up, Goldman Sachs thinks it is costing Google too much — more than on the desktop — to acquire mobile search and ad revenues. In order to reduce this expense and boost net revenues in mobile, Google has to get consumers to buy more Android tablets.
The Motorola buy can surely help this: I explained why in a GigaOM Pro report (subscription required) last month and took it one step further recently. Aside from Google using Motorola to develop tablets, it could even take advantage of Motorola’s LapDock hardware, which uses an Android handset to power a notebooklike shell. Instead of a proprietary Motorola software environment, Google could use Android or even the Chrome OS for such a device.
However, some of these arguments could be moot points now. Or they could be part of a larger strategy. Earlier this week, the Wall Street Journal reported Google is considering working with several hardware partners on Nexus phones and tablets. That would help ease the mind of Samsung, HTC, LG and other Android partners that might be concerned over the Motorola purchase by Google. In either case, these types of strategies are ideas I had hoped for when I adamantly suggested Google find a way to take more control over Android.