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Google to buy Motorola for $12.5 billion

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Google (s goog) is delving into the Android hardware business and plans to buy Motorola Mobility (s mmi) for $12.5 billion. The news is a shocking turn for the fast-growing Android ecosystem, which was built on Google’s operating system but didn’t include any actual hardware built by the company. Soon Google will have a hardware platform it controls and could offer the sort of integrated hardware-OS package that Apple (s appl) is famous for. Google said it will run Motorola as a separate business, but the acquisition raises a lot of questions about how partners will react.

Larry Page, CEO of Google, said the move will supercharge the Android platform but doesn’t change Google’s commitment to keeping the operating system open. The acquisition, however, appears to be a bid to bulk up Android’s patent strength, which will benefit from Motorola’s deep portfolio of mobility patents. Apple, Google’s rival in the smartphone sector, is suing Motorola, but the deal does provide much more protection because it provides Google with more patents — a weak flank for the search giant. He said:

We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to ‘protect competition and innovation in the open source software community’ and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies. The combination of Google and Motorola will not only supercharge Android, but will also enhance competition and offer consumers accelerating innovation, greater choice, and wonderful user experiences. I am confident that these great experiences will create huge value for shareholders.

The boards of the two companies have approved the deal, which provides a 63 percent premium over the closing price of Motorola on Friday. The transaction is expected to close by the end of this year or early 2012.

The sale provides a big exit for Motorola Mobility, which was spun out from Motorola and has struggled in the face of growing competition from Android manufacturers. Motorola was one of the earliest supporters of Android and helped kick start the momentum for the OS with the Droid handset. Sanjay Jha, CEO of Motorola Mobility said:

This transaction offers significant value for Motorola Mobility’s stockholders and provides compelling new opportunities for our employees, customers, and partners around the world. We have shared a productive partnership with Google to advance the Android platform, and now through this combination we will be able to do even more to innovate and deliver outstanding mobility solutions across our mobile devices and home businesses.

Again, will this supercharge Android or will this give Android partners another reason to hedge their bets and perhaps look at Windows Phone 7 (s msft), the polished operating system from Microsoft that has failed to catch any traction so far?

Andy Rubin, who leads the Android effort, tried to assure partners that Google was still committed to them, but how will they react when their OS vendor suddenly enters the hardware business? Some partners haven’t always been happy with Google’s efforts to build a Nexus One smartphone. And some handset makers grumble that they have to work with Google to get early access to Android releases. But this also gives Google a chance to build very integrated devices that combine hardware and software well, something Apple products are known for. But it will, again, pit Google against its manufacturing partners.

Now, we’ll have to see how if this adds momentum to Android or saps it. Will it be worth it ultimately for Google to get more patent protection and its own hardware maker, or could this slow down the Android Express?

14 Responses to “Google to buy Motorola for $12.5 billion”

  1. J.Stewart

    Motorola’s patent portfolio wasn’t enough to stop Apple suing, or Microsoft strong-arming it to take a Windows Phone license.

    Windows Phone sales have, after a year on sale, been abysmal. After the Google-Motorola deal, Windows Phone sales will still be abysmal – a total failure.

    With Google + Moto, and Nokia jumping into bed with Microsoft, the winner may be MeeGo.

  2. Massimo Brazil

    Hey, Why is this any different than yesterday. Google was selling handsets, someone else made it for them (Was it HTC?) now they have the burden of having to compete. What I read between the lines is fear of competing, well not to worry, Samsung, HTC, LG and alike are sharks… This is a welcome news for Motorola share holders who were looking at the prospect of the company going out of business a couple of years back.

  3. This is awesome news, for several reasons. Consumer and manufacturer confidence through major IP acquisition; an injection of innovation to mobile device manufacturing; the potential for genuine choice when it comes device vs. carrier; and so on.

  4. So then, we have 3 major software platforms in mobile… Apple, Android and Windows Phone… and each one of them now makes their own hardware… Apple itself, Microsoft with Nokia and Google with Motorola… wonder how the other OEMs and ODMs will handle this

    • Ryan Kim

      Yeah, it seems like Google has impressed upon them that this is about bulking up on patents and that MMI will be run separately. So they will presumably get more in broad patent protection and less in the way of direct competition. That may work initially, but the promise here is in Google building more integrated products that are more like Apple’s, a great blend of hardware and software. When that starts to come together, Android manufacturers may not be as happy.

      • Tyler Rey

        Ryan, patents aside, perhaps Google has felt restricted in the design of the Nexus line so far (HTC for Nexus One, Samsung for Nexus S)? Its now a slam dunk that the next iteration of Nexus will come from Motorola. Even so, it still might not work out to be as polished as Apple because, as Steve Jobs has noted in his recent keynotes, Apple’s philosophy is to intersect science and technology with the liberal arts (putting Google engineers in the same room as Motorola engineers does not necessarily get you the requisite *art* part of the equation)!

  5. Brendan Lane Larson

    Awesome news. This will create real options for Google, for example they can offer a UMA Wi-Fi calling Android app on an open handset like the Nexus S without being handcuffed by T-Mobile (T-Mobile USA will only give you their Wi-Fi calling Android app if you buy their Samsung Galaxy S with two year contract but they will deny you of Wi-Fi calling on the same hardware, the Google Nexus S phone). Go figure!