Google buys Motorola for $12.5 billion, changing the mobile industry dynamics one more time

Ever since Google missed out on Nortel’s 6000 wireless patents, everybody questioned Google’s commitment to Android. I guess they have their answers now. In a stunning and surprising move which no one has predicted, Google has bought Motorola Mobility for $12.5 billion. That would be $40 per share, a 63% premium on the closing price on August 12, 2011 for Motorola Mobility.

What does it mean to Android

If we do simple patent math, Nortel had 6000 patents for sale and the cost was $4.5 billion. Motorola Mobility has 17000 patents and Google paid $12.5 billion. In addition to the strong patent portfolio, Google gets a handset business too. I know that sounds twisted as Google has actually bought the handset business but got the patents along with it. If anything Google and Android needs right now then it is the patents and not handset manufacturing business. Because there are 39 manufacturers committed to producing Android phones.

A more long term observation would be in favor of Google getting into hardware business and it would put Google in direct competition with Apple and a more integrated hardware-software business.

If Google gets a dedicated Android phone manufacturing facilities along with a 17,000 strong patent portfolio, so be it. Android is facing threats from five different directions as I have blogged earlier. One of the key threats to Android has been its lack of patents. Ever since Apple and Microsoft has waged a war against Google with sole intention of killing Android, Google has been shopping for patents. Now it got a more than handful that has the potential to shut up Apple and Microsoft.

Buying patents isn’t the same thing as buying useful patents. With Motorola’s purchase Google seems to have some useful patents up its sleeve.

"It is interesting to note that Motorola asserted 18 patents against Apple, and sued Apple first, whereas Apple has asserted just six patents against Motorola," Morgan Stanley analyst Ehud Gelblum wrote in a research note last month.

You might as well read It’s the patent stupid, to see what these patents mean to Google.

Patent math

Google now seems to have more patents than Nokia and Nortel combined. Google already has its own paltry 700+ patents. It had bought 1000 patents from IBM. With Motorola’s 17000 patents, Google has close to 19,000 patents which is more than what Microsoft had on last count. Patents in general are ambiguously stated and liberally awarded, which turned patents into a numbers game.

It’s all about finding one patent a particular company infringes on.

Chart Via TheStreet

Conflict of interest

Android and the open handset alliance has been a hit because Google had everyone’s interests as its core strategy and Android was ‘open’. Now things change a little. Google was just in software business and with the purchase of Motorola Mobility it just entered into the hardware business. Larry Page, Google’s CEO, has this to say about the purchase :

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.

Though Google has agreed to run Motorola as a separate business, every other Android device manufacturer has a reason to worry. Will Google coddle Motorola? It would be gormless for us to think that Google wouldn’t. The only question is how will it affect Android in general? And what reasons do other Android manufacturers have, to stay with Android?

On the same note, Android phone manufacturers can breathe easy with Google-Motorola’s strong patent portfolio and has every reason to celebrate. Of course, that is under the assumption that Google keeps up with its side of the agreement of being ‘open’.

Is Android back?

Google’s Motorola purchase has definitely given Android much needed booster dose. Though Android has 43% market share in the smartphone OS category with 150 million Android devices out there and half a million devices being activated every day, Android is suffering from concerns like high rate of returns, uncertain future and imminent assault from Apple and Microsoft. All the threats will now be kept at bay. Android is here to stay as a dominant operating system.

With just one move Google has changed the mobile space – both hardware and software.

Which one is bigger : Google buying Motorola or Microsoft partnering with Nokia?

Via Google Blog | Market Watch