Weekly Update

How Googarola could propel Android tablets into contention

Now that the dust is settling after the announcement of Google’s acquisition of Motorola Mobility, it has become clear that the deal primarily centered on patents rather than Motorola’s hardware business, which was reportedly valued at “next to nothing.” But the move also provides a chance for Google to give Android tablets a much-needed boost.

Nearly 18 months after Apple launched the iPad, the rest of the tablet world is still stumbling out of the gate. Apple’s tablet dominance is so thorough that Android’s recent 20 percent market share is seen as a victory. And no single model has found much of an audience, despite the fact that dozens of Android tablets have come to market over the past year. Meanwhile, Research In Motion’s PlayBook is getting the cold shoulder from carriers, and Hewlett-Packard has already slashed the price of its TouchPad in an effort to spur sales.

There are several reasons for Apple’s dominance, of course: Apple’s superior supply-chain management allows it to sell the entry-level iPad for $500, which is a price point many competitors have had trouble beating. Cupertino also enjoys immense developer support that has resulted in a library of roughly 100,000 tablet apps – far more than any other platform. And Apple is effectively leveraging its strong patent portfolio to slow – or even halt, at least temporarily – the sales of Android tablets.

Those are all problems that Google can address, though, now that it owns Motorola’s hardware business. As Eric Bleeker of the Motley Fool points out, meeting the iPad’s price is difficult for hardware vendors, who typically need to see tablet margins of 25 percent or more to be profitable. But Google’s business is advertising: Its business isn’t built on hardware margins, so it can offer tablets at lower prices simply to grow its share of the market and boost mobile data consumption. Google took a similar tack last year with its flagship Nexus One handset, which generated an estimated margin of between 10 percent and 15 percent.

In addition to the 14,600 patents included in the acquisition, 7,000 more are pending worldwide, which should arm Google against Apple as the tablet space heats up. And Google could spur app development if it worked with Motorola to produce a tablet that fully integrated the upcoming version of Android (dubbed Ice Cream Sandwich) to deliver a top-notch user experience without the bloatware that many manufacturers embed on their devices.

Google could also use its newfound status as a provider of both hardware and software to target the enterprise, which is fertile ground for the tablet market. Apple’s iPad has owned that market, but Google now has a chance to produce a business-class tablet that is specifically designed to showcase its enterprise-focused offerings like Google Apps and Docs. And as ZDNet’s Larry Dignan pointed out, Motorola Mobility “was Android’s champion in the enterprise,” marketing corporate-centric devices to IT executives for the past year. Google could leverage Motorola’s enterprise sales staff to offer tablets as part of larger solutions that could include smartphones and Chromebooks and that feature integration with Microsoft Exchange and other existing business systems. The iPad is gaining traction in the enterprise almost by default, because Microsoft has no tablet to offer and RIM’s PlayBook has failed to impress. Googarola has a chance to change that.

Some pundits are already suggesting that Google plans to spin off the hardware business, keeping the “rat poison” — the patents that keep the lawyers at bay. And it’s true that Google CEO Larry Page is already vowing to run its new hardware operation as a stand-alone business. But Mountain View suddenly has a chance to play catch-up in a tablet market where Apple has a tremendous head start. It would be a shame to let that opportunity pass by.

Question of the week

Will Googarola target business-oriented tablets for the enterprise?