Android partners woke up to a very different world Monday knowing that Google (NSDQ: GOOG) was willing to pay a 63-percent premium to acquire one of their rivals. The blockbuster deal to acquire Motorola (NYSE: MMI) may very well help Google “defend Android” against the patent onslaught from companies like Microsoft (NSDQ: MSFT) and Apple (NSDQ: AAPL), but life has gotten a lot more complicated for companies like Samsung, HTC, and LG (SEO: 066570), who now have to wonder if their benefactor is now their biggest competition.
It was clear Google was going to do something big in order to give itself patent cover, but this was perhaps a little bigger than expected. The $12.5 billion deal is the largest in Google’s history by a large margin and if approved by federal regulators represents a new era for Android and the Open Handset Alliance, the industry group set up by Google and others back in 2007 to develop Android.
Patent ramifications aside (my colleague Joe Mullin has more on that angle), the deal will change the way that Android partners look at Google. Google pledged to operate Motorola as a separate business, but it will likely follow the model it used for YouTube after acquiring that company. YouTube sits at its own campus and is autonomous to a degree, but Google is very much involved with larger strategic decisions that shape YouTube’s future.
Imagine if Microsoft had bought Compaq in 2001 instead of HP’s game-changing purchase of that company. Google will inherit the second-largest Android vendor in the U.S. if this deal is completed. Motorola hasn’t had its greatest year, but phones like the Atrix and forthcoming Droid Bionic have been well-received.
It’s almost as if Google has completely forgotten its ill-fated Nexus One strategy from 2009, when it partnered with HTC to build a phone that it would sell exclusively through Web store. At the time Google swore that it didn’t want to compete with its customers, that it didn’t want to manage inventory, and that its main interest was breaking the stranglehold on distribution that carriers enjoy. When it was clear that wasn’t going to work, the Nexus program evolved into a more relaxed partnership between Google and a handset maker that produced a phone with the latest Android software updates sold through traditional channels.
Now Google will be doing everything it swore it wanted to avoid: it will be directly competing with Android partners in the most obvious sense. It will be jumping on the hamster wheel of hardware product development, a place where “launch early/iterate often” is often a recipe for disaster. And it will become another cog in the carrier distribution strategy.
Google lined up four prominent Android partners to express support for the deal in press materials accompanying its announcement, but if you believe the sincerity of the bland statements attributed to Samsung, HTC, LG, and Sony (NYSE: SNE) Ericsson (NSDQ: ERIC), I have oceanfront property in Oklahoma that might interest you.
Back when the Nexus One was announced with Android head Andy Rubin and HTC CEO Peter Chou proudly brandishing the new phone, Motorola CEO Sanjay Jha showed up late to the presentation and was clearly not comfortable at having to be the token partner of support for a deal that didn’t involve his company (he’s getting the last laugh, however). Partner discord over the Nexus One project helped kill it, and that was a far more modest proposal than what Google is now putting on the table.
This is clearly an inflection point for Android. Android was built on the premise that phone makers who wanted to compete with Apple but couldn’t handle the burden of supporting their own operating system would receive the basic underlying code with the freedom to put their own stamp on the experience. No Android partner is going to stick around if Google tries to become a full-on version of Apple, with complete control of the design and distribution of a single product.
Google said it wasn’t going to go down that road during its conference call with the media and financial analysts, but the temptation will be there. Even if Google does keep its pledge to operate Motorola separately, it’s hard to imagine that compatibility-breaking features like custom Motorola user interfaces will survive the integration. The “pure Google” marketing pitch for the Nexus devices will almost now certainly be attached to the Motorola lineup, and if Google’s intent is to operate Motorola in a way that maximizes returns to its shareholders, how could it make a conscious decision to choose Samsung or HTC as launch partners for new Android features in lieu of its own division? That would undercut Motorola’s competitive position in the market, and you’re not supposed to shun your own products in order to favor those of competitors.
“Many hardware partners have contributed to Android’s success, and we look forward to continuing our work with all of them on an equal basis to deliver outstanding user experiences,” Google CEO Larry Page said on a conference call following the announcement of the deal. But Android partners can’t afford to take Google at its word. They’ll have to consider other options from either Microsoft or HP (NYSE: HPQ) that allow them to differentiate their products out of fear of becoming a second-class Android citizen. That’s one of the main reasons why Nokia (NYSE: NOK) chose Microsoft over Google when planning its next-generation mobile operating system strategy: it didn’t want to be just another Android vendor.
Every Android partner knew Google was going to have to do something to solve its patent problems. But they probably didn’t expect Google to choose the most expensive and confrontational solution it could envision by refusing to pay $4.6 billion for Nortel’s patents yet agreeing to pay 3 times that in cash to buy a competitor. Even if Google shuts down Motorola’s handset business after closing the deal, it has reminded Android partners how much power it wields over the Android community.
It took just three years from the launch of the G1 to the present day for Android to become the world’s most widely used mobile operating system. If the Motorola-Google deal crosses the finish line, the dynamics that allowed Android to reach that point will have permanently shifted.