Google, a Hardware Company?
The first big change will be to replace Motorola’s chief. CEO Sanjay Jha is out, replaced by longtime Google employee Dennis Woodside, a man instrumental in the revenue growth of Google as a business over the last several years. Now his job will be to streamline Motorola’s smartphone product line, cut out the dead weight of Motorola Mobility and deliver on the Android geek’s wet dream.
Many pundits and analysts thought that when Google acquired Motorola, it was purely a patent deal. Google had just lost out on a boatload of critical mobile patents in the Nortel patent auction and Android looked more vulnerable to being taken down in the patent wars than ever. With Motorola in its war chest, Google all of a sudden had 17,000 patents from the company that basically invented the cell phone. With patents in hand, would Google spin off Motorola Mobility or sell it piece by piece?
Selling off Motorola’s hardware division doesn’t appear to be in the plan. If the search company were going to do that, Google CEO Larry Page likely would not have enticed one of his most effective lieutenants, Woodside, to take over. Yet, while the smartphone division will likely remain under Google’s control, other hardware aspects of Motorola Mobility, such as its set-top cable box segment, may go on the block.
“Many users coming online today may never use a desktop machine, and the impact of that transition will be profound – as will the ability to just tap and pay with your phone. That’s why it’s a great time to be in the mobile business, and why I’m confident Dennis and the team at Motorola will be creating the next generation of mobile devices that will improve lives for years to come,” Page wrote.
Balancing the Ecosystem
To prognosticate the future of Motorola and Google, it is pertinent to look at the guidelines various government bodies put in place when approving the merger. For instance, both the European Commission (the European Union version of the Federal Trade Commission) and the U.S. Department of Justice concentrated mostly on the patents aspect of the merger. The U.S. DOJ was obviously thinking that Motorola/Google was a pure patent play when it approved Google’s acquisition, the sale of Nortel’s patents to “RockStar Bidco” (a consortium of Apple, Research In Motion and Microsoft) and Apple’s acquisition of Novell’s patents in the same ruling.
“The division’s investigations focused on whether the acquiring firms could use these patents to raise rivals’ costs or foreclose competition,” the DOJ stated in its release. “The division concluded that the specific transactions at issue are not likely to significantly change existing market dynamics.”
While the E.U. and the U.S. focused on the patents aspect of the deals, China had different motivations when it approved the deal earlier this week. China stipulated that Google had to keep Android free and open source for at least the next five years. China is clearly looking out for its smartphone manufacturers in this deal, with Huawei, Meizu, Lenovo and ZTE pumping out versions of Android smartphones on a regular basis.
An acquisition of this size, with so many global entities sticking their fingers in the pie, is a fascinating study on the global impact of Android. While Google does not directly profit from Android hardware (for now), there are billions of dollars wrapped up in the Android ecosystem. And this is where Google needs to tread carefully. It needs to balance its desire to streamline the Android process while also not alienating its OEM and carrier partners in the process.
One way to appease the Android ecosystem would be to spread the love when it comes to flagship Android Nexus devices. According to reports, Google will be giving early access of its next Android operating system, likely called Jelly Bean, to five different manufacturing partners that could then sell the device directly to consumers. One motivation for this would be to wrest control of Android from mobile carriers, such as Verizon and ATT (in the same way that Google originally had planned when it unveiled the first Nexus device and tried to sell it without the carriers). Another reason, and probably more important from Google’s perspective, would be that it could let Motorola create a quintessential Android Nexus device and avoid claims of favoritism.
Benefits of Motorola/Google Android Devices
The potential benefits of Google taking top-level control of the Android ecosystem are intriguing. Google benefits, consumers benefit, developers benefit. It remains to be seen if the carriers and other manufacturers will benefit, especially if Motorola and Google create an Android device that becomes a true “iPhone killer” and starts cannibalizing sales from other Android handsets.
For consumers, the benefits are obvious: an extremely high-end smartphone and likely an equally impressive tablet that are streamlined to Android software and hardware specifications. The device would receive timely Android firmware upgrades and customer support from Google and Motorola. The very best of Android delivered at palatable price points.
Google benefits from these devices as well. It is hard to say that Page and the rest of the Google executives see the revenue that Apple is making from its iOS line of devices and don’t want a bigger slice of that pie. For instance, Apple made more in profit from its hardware last quarter than Google made in total revenue.
This is not going to be easy for Google and Motorola. Google is moving into an entirely new product category and that comes with its own problems outside of the balancing act that has to be performed with the rest of the Android ecosystem. There are a lot of balls to juggle, not only in incorporating Motorola into Google, but creating a vibrant division that operates and iterates with a high degree of quality.
What can be said is this: In many, many ways, the best thing to ever happen to Android will be Google’s acquisition of Motorola. Google can now defend its mobile operating system with Motorola’s patents and create dynamic devices with Motorola’s hardware. At the same time, the E.U. and U.S. have put in measures concerning litigation around essential patents and China has ensured that Android will remain open and free. There will be losers in the Android ecosystem, among them several mobile manufacturers and maybe mobile carriers, depending on how much control Google can exercise over the sale of the devices.
When the Motorola deal was announced last August and Page said that Google wanted to “supercharge” Android, he was not being facetious. Google has a tremendous opportunity in front of it. The path is paved with daggers but the benefit to the entire ecosystem at this point outweighs the risks.