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Will hardware makers trust Google after Motorola buy?

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Google’s $12.5 billion purchase of Motorola Mobility today shows that the company is all-in with Android, paying a 63-percent premium to acquire Motorola. Google says it will run Motorola(s mmi) as a separate business and the company will remain a licensee of Android(s goog). The deal should end speculation that Motorola will revert back to Microsoft’s Windows Phone 7 (s msft) platform, while at the same time, raising questions from other companies that build Android devices.

In 2007, Google helped form the Open Handset Alliance (OHA), to help promote and advance the Android platform. Many of the top-selling Android handsets come from OHA members such as HTC, LG, Samsung, Sony Ericsson(sne) (s eric), Acer, Asus and of course, Motorola. Here’s the official commentary from Google on Motorola’s future, which members of the OHA are surely interested in:

Motorola’s total commitment to Android in mobile devices is one of many reasons that there is a natural fit between our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers everywhere. This acquisition will not change our commitment to run Android as an open platform. Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. Many hardware partners have contributed to Android’s success and we look forward to continuing to work with all of them to deliver outstanding user experiences.

The statement is exactly what Google has to say in this situation, but I’m not sure all the other OHA members and Google partners will buy it. Whether or not Google will maintain Motorola as a separate business, member companies will always wonder if Google has provided any Android code or plans with its new hardware-building subsidiary in advance. Google has already given cause for concern by not releasing the Honeycomb source code to the open-source community back in March, which set an ugly precedent in terms of trust and code sharing.

No matter how Google spins this scenario, it really flies in the face of the Open Handset Alliance, currently composed of 84 technology companies. The OHA implies that partners will work together to create a better mobile experience, even though they actually do compete every day. And at the center of the OHA is Google itself, which, no matter how it tries to refute it, has entered the mobile phone hardware business. Until now, no OHA partner has competed with Google in terms of hardware.

That means there’s constant potential for an Android partner to question if Motorola is getting some type of special treatment such as a heads-up on Android changes it could adjust for prior to other Android hardware markets, for instance. Simply put, this is a door that once opened is very hard, if not impossible, to close. The situation is akin to Microsoft buying Dell (s dell): Would HP (s hpq) and others be happy about that?

Clearly, a key reason for Google’s purchase of Motorola is the acquisition of the handset-maker’s many patents. Samsung, a key Android partner, is currently facing legal action from Apple(s aapl) due to product and software similarities with Samsung’s Galaxy S smartphones and Galaxy Tab slate. Motorola’s Xoom tablet is also a possible target for patent violation. So with the purchase of Motorola, Google may have a better chance to help defend Android patent suits.

But the cost for such help could be too high, and I don’t mean the $12.5 billion. If Android hardware partners perceive that they can’t trust Google after this deal, the cost could be that such partners shift resources away from Android in part; perhaps to Microsoft’s Windows Phone 7 platform, which is looking better with the upcoming Mango software update. With the Motorola purchase, Google has started down a slippery slope that could be more difficult to manage than the patent problem itself.

Thumbnail image courtesy of AndroidSpin

52 Responses to “Will hardware makers trust Google after Motorola buy?”

  1. Totally Agreed with G Ragib, Motorola was the not the best but the only option for google to buy…and Nokia has ruled mobile industries for a long time and surely it will be back again in market with a bang…

  2. Google could simply license these patents to the Open Handset Alliance and all members, who then could also use them for defense. Much like how the Open Invention Network works. I don’t believe for a minute that Google will start to play Apple and Microsoft’s games. They have a record of buying companies and open sourcing the code. Android, VP8 are examples of this. Google makes their money when people use their websites. They don’t want to bite the hand that feeds.

  3. I really don’t agree about the threat of other anroid handset manufacturers deserting Android in favour of Windows phones. Android is too big, too popular and too good! Android is outselling Apple phones 2 to 1 and activating 550,000 handsets everyday! Samsumg have sold over 300 million galaxy s 2’s – surely its a bit naive to think these companies will readily turn their back on such potential revenue. Especially at a time wen Windows phone is really not good enough to compete with Android. Just my humble opinion!

  4. I agree that Android OEMs have every reason to be wary, but that’s not the same as an exodus. In the short term they are probably genuinely happy from a business point of view – this purchase has already prevented major internecine patent warfare between Anroid OEMs. If they can further prevent (or at least reduce the cost of) patent costs from outside the Android environment, then Google is literally saving Samsung and HTC tens or even hundreds of millions of dollars.

    Sure, there’s going to be some cognitive dissonance from the other Android hardware partners going forward, but starting over with WinPho would be more expensive (and there’s no current market for it…ask HTC), and there’s no evidence that those companies have the software proficiency to make their own competing OS.

    As long as Google demonstrates their commitment to protecting their partners, rather than undercutting them, I think the OHA will hold together. In other words, I think it’s still up to Google how this turns out.

  5. Google definitely needs to beef up their patent portfolio but it’s crazy not to think that Google won’t show motorola some sort of preferential treatment because at the end of the day, while google may be a rich company, 12.5 billion is a lot of money and like any business, google wants to maximize the value of the investment. As to whether or not other hardware makers will abandon android remains to be seen. Quite frankly, there is no real viable alternative and OEMs won’t go out to make their own OS’s due to the prohbitive costs involved. Whether or not they embrace microsoft depends on whether microsoft can generate the type of momentum with consumers that IOS and android have had. Until then, everyone will be viewing their relationship with google with suspicion.

    • That sounds rather circular… they won’t adopt Windows Phone unless/until Windows Phone gets a lot of traction with OEMs?

      Either they will or they won’t. If they’re waiting for Windows Phone to be a success first, I wouldn’t expect it to help them much when they eventually jump in. They either need to jump in and try and take some early share if Windows Phone does something, or they need to hope that this Motorola deal doesn’t screw them over.

  6. HTC, LG, Samsung, Sony Ericsson – dont really have option. Windows , if you consider it an option, is also very close to nokia. HTC, LG, Samsung, Sony Ericsson have seen the success of android and they cant even retract now from the market.

    • Jeffrey Sullivan

      Android is such a success largely because it is free. Even a token licensing fee for the OS would have led to much slower uptake. It will remain free, and its market penetration is already there, but being placed into second-class commodity position can’t be a promising future for the OHA.

      • And it may not really be free anymore, even if they don’t have to pay Google. Microsoft for example is apparently getting $5 from HTC for every Android handset they ship as part of their patent settlement, and Microsoft is now asking for more than that in subsequent suits. I’m not sure yet how Google’s acquisition of IP from Motorola changes anything for these other vendors (HTC, LG et al).

    • True, but things might have been very different had Nexus One been a top seller. It wasn’t for various reasons and Google later killed the direct sale model / online phone store. I don’t think we can dismiss Google as a hardware partner because of the Nexus One situation. Bear in mind that Google didn’t build the Nexus One nor did it own the company that did, i.e. HTC.

  7. 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. Forget about trusting Google, how will they handle this huge shift in the ecosystem as a whole

    • thorntondw

      Don’t forget RIMM (yet, anyway). I think you are right. Also, I think Samsung, HTC & LG will probably add WF7 phones to their product mix just to keep Google in line.

  8. Dilip Andrade

    The irony is that of all the hardware manufacturers, Motorola was the one that always seemed to get the short end of the stick.

    The launched the first Android 2.0 handset, and then in the blink of an eye there was the Nexus One (made by HTC) that seemed to get all the Google love.

    They were the first tablet to run Gingerbread, and they seem to be a bit stranded there.

    The combined corporation will be a bear. Hopefully Google can integrate the acquisition, and will adopt the IP culture that made Motorola so appetizing.

  9. Douglas McDonald

    Apart from the patents – let’s not forget that Google were missing out on a lot of profit by not playing in the handset space. It’s not like they hadn’t noticed the iOS HW/SW profits.

  10. So is it possible they will buy the company, transfer the patents from the subsidiary to Google, move a bunch of software engineers from MM to Google, and then spin off MM in one or more companies? No matter what Google says or does, there is no way their subsidiary will be trusted by the other android device mfrs.

    Even if they only get half of what they pay when they spin out the HW company, they will end up with an enormous patent portfolio, with a lot of them directly related to handsets. Which they will license freely to Android device vendors. But not to Microsoft, or Oracle, or Apple. Those companies will have to do a cross-license agreement with Google, where all Android mfrs get a license to use their patents. Or they get sued for infringing Motorola patents.

    • Mukesh Aggarwal

      Funny.. that’s exactly what I was thinking. Google has admitted its failure in hardware market. although I would love a google phone with same integrated (h/w and s/w) testing as an iphone but I don’t think that will happen. If google just keeps the patents and spins out the h/w manufacturing then it will be able to keep all partner happy while getting ahead in patent war.

    • Ex-cash and patents, MMI is at best a $2 billion company. Without cash, patents, gutted of its senior talent, and waylaid by 2 separate spinoffs, who wants to buy them at even that price? All Google would accomplish is after a couple years of expenses, lots of negotiating, and a whole lot of lying, they prove that MMI was nearly a $8-10 billion patent deal.

    • thorntondw

      You mentioned Oracle. Oracle has a very strong case against Google’s unlicensed use of Java in Android. That may end up with Oracle charging a stiff license fee for every Android (free) license.

  11. i wonder if google has considered buying a carrier such as sprint or maybe t-mobile(if the AT&T deal fails.) it would make a lot of sense for a company already supplying hardware and software to bundle in the network to support everything.

  12. Travis Henning

    Good analysis of the situation Kevin. The issue for the other hardware makers is huge. Since they are all using the same OS, the primary differentiator they have is the tweaks they make to the OS. The hardware becomes a commodity item. All hardware makers have access to the same bits and pieces that make up their devices. Now that they think Google will give privileged info on the OS to Motorola, they could be in a difficult spot. On the one hand this is a move Google had to make from a patent perspective. On the other, they now have a minefield to negotiate with the other members of the open alliance. I think this probably impacts HTC the most. Samsung has the advantage of vertical integration, from cpu to memory to displays to the complete device. Motorola now has the advantage of Google ownership. The rest are also-rans.

    • Yup, I think Google had to something along these lines, Travis, due to the patent issues. And in that sense, it does potentially help all Android hardware makers. But I’m wondering why Google didn’t license the patents from Moto for cash, which would still keep Google out of the hardware business and not give any partners cause for concern.

      • maybe they want to subsidize the hardware on the theory they can make the money back through mobile advertising. can’t wait for the super cheap but powerful motoogle android tablets and chromebooks.

        • LOL! I actually thought that’s what Google might do with the Nexus One at one point. In December 2009, I wrote: “Then there’s the cost of the Nexus One. I have no idea what it is, but if Google sells it without a carrier subsidy, it will either be cost-prohibitive for most consumers or Google will lose money on each. Of course, I’ve said in the past that Google’s currency is information, which could be a subsidy on it’s own.” My thought wasn’t just mobile advertising, but the important consumer preferences and information from using the handset.

      • How can you use them as weapons against potential aggressors if you just license them, Kevin? I don’t think you can license patents, and then counter-sue others with them. Google has to own the patents in order to do that, in case Microsoft tries suing other Android manufacturers.

        As for what the other manufacturers think, so far they’ve said they welcome it. And Microsoft’s deal with Nokia is not much different either. They didn’t buy them, but do you actually think the situation is that different? Nokia is now Microsoft’s manufacturing arm. How do you think that makes the other WP7 manufacturers feel? At least Android is very successful and on the rise right now, helping those manufacturers sell millions of handsets, while WP7 has less than 2% market share, and dropping.

        Sure, it’s a matter of concern, but I think you’re reading too much into it. Google wouldn’t jeopardize 50%-60% market share for 12% (or whatever Motorola has), so I’m sure they’ll try to be as transparent as possible with the others.

      • Bernard Moon

        Because there is a different between licensing and owning them. And then which of the tens of thousands do you really license? It’s a defensive move that was needed. And I think you’re overblowing the concerns with other hardware providers. Google is going to ride the lead horse for Android, which is Samsung, for a long time, and this move was to help protect it’s relationship with Samsung and others.

        • Bernard, you’re right; I should have said bought Moto’s patents with the agreement that it would license them back to the company. That would have sufficed as well, I think, and wouldn’t give anyone reason to even question if Google is in the hardware business.

      • Bernard Moon

        Yeah, but Motorola would have never agreed to such a deal. Anyway, sort of funny that Lucian and I posted at the same time and said basically the same thing, but his was more detailed and eloquent.

    • @Kevin – regarding your comment about subsidizing Nexus One or another Android phone, I still think Google should try this model. Since the release of the original Nexus One, Google has actually ventured into this model with the Chromebooks, which Google leases out to businesses. How many people wouldn’t be willing to lease a phone from Google for 5 or 10 bucks a month, if it meant getting a brand new and advanced phone every two years? I know I would.

      • Google appear happy enough to blow $12 billion on a company with a quarterly loss of $53 million, so why not sell the Nexus at a loss? Sony did that for years with the PS3!

    • Which of course raises the question of how this actually protects Android ODMs. Even if Google freely extends all partners a license to MMI patents, Apple can still sue each individual partner and Google doesn’t have much recourse but to sue Apple. They can’t keep suing Apple over and over and over for the same patents. I don’t (and never did see) much of a patent umbrella that Google could extend over its partners. Can it make it a little more challenging for its competitors? Yup. Can they actually immunize their partners from competitors? Not without indemnification.

      • And if they haven’t been willing to indemnify their app developers against the Lodsys lawsuits, why do we think they’re going to jump in and bear the huge expenses of defending Android licensees against Apple, Microsoft, Nokia et al? I have to say I certainly didn’t hear Google say they were going to do that today.

  13. The Gnome

    They need to give up the whole “open” meme and admit they are moving toward a model more like Apple and Microsoft. They have too… fragmentation is destroying Android. If I were Samsung I’d look to another OS… maybe they could blatantly copy iOS like they did the iPhone…

    • When you say they should give up the ‘whole “open” meme’, do you mean that they should stop open sourcing Android? FYI, Apple’s and Microsoft’s model DOES NOT include an open sourced phone OS. So, how does purchasing Motorola in any way or form pertain to not keeping Android open sourced? I know how… by your deliberate obfuscation of logic. That’s how.

      • Marcos_El_Malo

        It depends on whether any Linux copyright holders (who haven’t assigned their rights) decide to enforce it. If the copyright holder’s contribution isn’t significant, a work around would probably be created before the violating OEM suffered too much damage. If the code was significant and non-trivial to replace, this could hurt the OEM a great deal.

  14. G Ragib

    Look at it this way: Google needs to bulk up on patents to defend Android. The easiest way to do so is to buy an existing hardware vendor. A few that come to mind are Nokia, Motorola and RIM. What’s common between these? They have lots of patents, they’ve been in the wireless industry for a long time, and they are suffering in terms of profitability. Motorola was the cheapest to buy. Plus, the other two aren’t committed to Android.