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Summary:

Motorola wasn’t the albatross many feared (or hoped) it would become for Google, but it was a wedge issue between Google and Samsung, its most important Android partner. Soon, that will be resolved.

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In the nearly ten years Google has been a public company, it has been defined by a curious mixture of ambition, futurism, and unpredictability. This week, Google showed that it also knows when to move on.

The big announcement was Google’s decision to offload its Motorola handset business to Lenovo for $2.91 billion. Snap reactions were easy to come by Wednesday afternoon. Those aligned with Google rivals Apple and Microsoft were quick to hoot at the bargain-basement selling price compared to the $12.5 billion Google agreed to pay for Motorola back in 2011. Those more inclined to support Google pointed out that Motorola’s patents helped Google defend Android against patent attacks (to some degree) and that Google’s intervention likely prevented an iconic mobile phone maker from folding completely.

(L to R): Google CEO Larry Page, Lenovo CEO Yang Yuanqing shake hands on the $2.91 billion Motorola deal.

(L to R): Google CEO Larry Page, Lenovo CEO Yang Yuanqing shake hands on $2.91 billion Motorola deal.

There are some nuggets of truth and gaping holes in each of those arguments. But a fundamental problem created by Google’s Motorola acquisition is now solved: Google is no longer an operating system licensor that is also engaged in direct competition with its customers.

Let’s look back at the week in full.

The dawn of a new Android?

On Sunday, Google and Samsung, which was the company arguably most offended by Google’s Motorola buy, worked out a global patent licensing deal. Earlier on Wednesday, Re/code reported that the companies had worked out an agreement in which Samsung would dial back its own software ambitions — attendees at Samsung’s Galaxy S 4 launch last March could have been forgiven for not realizing it was an Android phone — and described the deal as “a sea change” in the relationship between the two companies.

What was the biggest obstacle to the relationship between Google and Samsung? Motorola.

It wasn’t so much that Motorola’s handsets were competitive: Samsung is dominating the Android handset market and leading the overall market for mobile phones. But the perception that Google intended to be a viable contender in the mobile phone business forced Samsung’s mobile group to reconsider its dependency on Google.

Blurred lines

Operating system developers who have tried to have it both ways — licensing their software for a fee while also making hardware that competes with those customers — have not done well. This was one of the (many) factors that sent Apple into a near-fatal tailspin in the 1990s, and forced Palm into a disastrous spin-off of its OS group in the 2000s. Once Microsoft absorbs Nokia’s handset business, it’s going to have some tough decisions to make about the future of its Windows Phone licensing model.

Competing with your customers is a delicate dance. Your customers are naturally suspicious of your intentions, and the division of your company engaged in direct competition with the customer starts to wonder why it’s being treated like any other customer by the licensing department. There’s a conflict of interest inherent in such an operation, no matter how many times you insist that you run the competitive business as a separate concern.

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Eventually those customers make contingency plans, which threatens the reason you got into the original business in the first place. Android has always been a way for Google to dominate mobile search and advertising to the same degree it dominates desktop search and advertising. If Samsung had found a way to control its own software destiny — a tall order, no doubt, but not impossible — Google would lose out on a huge source of mobile traffic.

The secret to survivin’

With this series of deals, Google has rid itself of a money-losing operation while keeping the patents it wanted in the first place (at quite a steep price, to be very sure), strengthened its relationship with its most important Android partner, and given Lenovo a way to spread Android even further. Google even held onto Motorola’s advanced R&D unit, which could pay huge dividends for its Google X projects.

Sure, by the standards of most companies, this was a rather expensive adventure. But the cash machine that is search advertising allows CEO Larry Page to make mistakes and chase unicorns for years to come.

Always remember one thing about Google: it does not intend to become a conventional company. Yet sometimes even unconventional companies have to acknowledge that some conventional wisdom — such as the lessons learned from competing with your customers — makes an awful lot of sense.

This post was updated late Thursday to correct a really stupid licensee/licensor mistake.

  1. Google sold the set-top box division for 2.35B, sold the manufacturing facilities for an undisclosed amount ,there were some tax benefits and Moto had some 3.5B in cash if i remember correctly so not very sure why everybody insists on some very loose math that is miles away from reality. All in all Google didn’t payed all that much for the patents.

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    1. 1) Google said their original intentions were more grand than patents; 2) the patents aren’t worth $5 billion. They’re getting tiny revenue in comparison to what they paid; 3) they incurred additional costs scrapping the unit they sold; 4) I don’t think they’re keeping the cash Motorola held; 5) there were far better ways to use 12.5 billion in cash.

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    2. Yeah, plus Moto came with a $1.7bn tax write off for previous losses

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  2. 12.5 billion buying Motorola + 2.5 billion in losses – 3 billion sellout to Lenovo = 12 billion dollars flush down the drain, innovation all right.

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  3. “…Motorola’s patents helped Google defend Android against patent attacks (to some degree) …”

    Actually, judgements reached against Google didn’t happen before The acquisition, are soon unlikely after and when Google tried to loan or transfer patents to others the courts rejected the effort. During google’s ownership neither Apple nor Microsoft were visibly slowed or blocked from major wins against OHA members.

    I can’t imagine, even with a very favorable spin, a shred of actual evidence backing the claim. Plus, owning Motorola put Google on record as AN adjudged infringer with obligation to pay for having ripped off others’ IP.

    Finally, now that Google is no longer a Practicing Hardware Entity, any “defensive” phone patents are useless to them. (The threat of countersuits was always Irrelevant against NPE trolls.)

    Google is wise to put this whole episode behind them for only a few billion of loss to their empire’ bottom line.

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    1. Even if the purchase of the intellectual property didn’t pay off, Google arguably kept that weapon out of the hands of the anti-Android forces: WP, BB, and Apple…

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  4. This sale makes sense for google. They are not a hard ware company, and Lenovo now has more muscle to take on Samsung in the hardware space. Lenovo is huge in China and emerging markets. Motorola gives them solid footing in devloped markets and established carrier contracts. I think it is a win win for both companies. I fear though HTC is going to be further diminished in the android market. How can they possibly compete with Samsung, Lenovo, Sony and LG? Those companies have scale and diversified income streams. I will be shocked if HTC is not bought within the next 6 months. LG perhaps?

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  5. from all the pieces of news re: motorola being sold by Google to Lenovo, i think this article is a very good summary. thank you +GigaOM.

    as a user i am worried. i think moto x is the best smartphone out there and i was betting on further improvements and software innovations beyond stock android (without changing the stock UX, it’s brilliant) to come. i don’t know if lenovo will screw it up or not.

    as a business person, it all seems to make a lot of sense in the grand scheme of things. Lenovo now can repeat its PC domination plan now for mobile phones and Google will be benefited in the end if they succeed while leveraging a better relationship with samsung.

    but let’s admit it, it was hell of a tall order, i am pretty sure it wasn’t an easy decision for +Larry Page.

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  6. Nice snapshot Tom, but I find it disturbing that Google is making overtures towards a walled ecosystem that funnels everything through them and they are doing it by bullying Samsung and letting China into this market when they close their own to outside innovation.

    To be honest that sounds a whole lot like doing evil to me. I may have to turn my back Google until its clear what kind of crazy crap they are into.

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  7. Google’s initial purchase kept the MOT IP out of the hands of Google’s competitors, any one of which could make life miserable for Google and the Android ecosystem. Google has systematically sold off pieces of MOT MOB (set top box, facilities, now even the brand and remaining “talent) while retaining the advanced research and patent portfolio.

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