Google's $12.5 Billion Blunder
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
No, It's not Youtube, Youtube is supposed to finally be profitable this year (fingers crossed).
Last year Google (NASDAQ: GOOG) announced their intention to purchase Motorola Mobility (NYSE: MMI) for a cool twelve and a half billion dollars. The Gauntlet was thrown down. The planned acquisition was the biggest tech news since the last Facebook privacy policy change. The acquisition has now cleared US and EU regulators and looks like Motorola Mobility will become a division of Google (The Chinese regulators are still dragging their feet but it shouldn't be too much longer at this point). This acquisition is by far the largest Google has performed in its history. Google purchased Youtube for $1.65 Billion and a few years later DoubleClick for $3.1 Billion. Prior to the acquisition of Motorola Mobility these were Google's largest purchases. Google does purchase companies regularly, for a time last year they were acquiring a company per week. Unfortunately unlike these smaller shopping sprees, this takeover of Motorola Mobility is a mistake.
Motorola Mobility is a ninety year old tech company and one of the largest makers of Android smartphones in the US, thanks in large part to the Verizon Wireless 'Droid' line of phones and Motorola's early support of Android with the Droid 1. However Motorola is not as successful overseas where Samsung dominates and domestic low priced manufacturers provide tough competition. Android as a platform is much larger for Google, than the single company of Motorola. Android has crossed the 50% mark in worldwide smartphone OS market share and Google would like to grow Android even more. However, Google risks their entire mobile strategy and Android platform with the purchase of Motorola Mobility.
Other Handset makers have operating systems they can choose from to run on their smartphones including Windows Phone by Microsoft (NASDAQ: MSFT) or Bada which is being developed by Samsung. Baidu, the Chinese search engine is also developing its own mobile phone operating system and there's always WebOS devoloped by Palm and now Owned by HP. Google’s Android success has come because Android smartphones are everywhere; on every carrier, at every price point, from many manufacturers, in many form factors. By purchasing Motorola, Google loses its role as an unbiased Operating System maker, despite their claim that Motorola will be run as a standalone branch of Google.
The argument is made that Google needed Motorola Mobility for its sizable patent portfolio (of over 19,000 patents). However Google’s handset makers still face a tsunami of Intellectual Property related lawsuits from Apple, Microsoft, Oracle (who is suing Google Directly) and others. Now Android handset manufacturers will feel that they are in a second tier to Motorola. Google could have joined a consortium like Microsoft, Apple and others did when they purchased the Nortel patents, or Google could have continued to purchase or license smaller patent portfolios from IBM or other companies as they have before. Both of these alternative strategies would have boosted Google’s Intellectual Property arsenal without any perceived conflict of interest or potential weakening of their hardware manufacturer relationships. Instead Google purchased an entire Hardware Manufacturer, putting their mobile strategy in Jeopardy.
If Microsoft had purchased Dell or HP it would have destabilized the Windows platform and jeopardized all of Microsoft’s other manufacturer relationships. Google risks this with their purchase of Motorola Mobility. Apple has iOS, Research in Motion has Blackberry OS, Microsoft and Nokia have Windows Phone, and now Google has Motorola, so other manufacturers will be pushed into researching and developing alternatives to Android, which Samsung is already doing. Google’s place as a leader in mobile operating systems and the billions Android promises to bring to Google are all at jeopardy with the purchase of Motorola. Google should consider spinning off the hardware manufacturing arm of Motorola to eliminate this conflict of interest, perceived or not.
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