You may not know it from the meteorically rising device sales, but right now Google’s Android is in deep trouble.
It is being besieged by various patent holders, demanding licensing fees or an outright stop of Android device sales. Furthermore, those suing Google right now are no ordinary patent trolls. The biggest challenges come from such tech giants as Oracle, Microsoft and Apple.
And there is very little Google and Android OEMs can do about it. Except to try and drag the whole process in courts for as long as they can, searching for some other way out. Google is a young company, with very small patent portfolio to use in a fight. And there are some indications that they have played fast and loose with IP issues, while creating Android. In the end, anyone putting Google’s mobile OS on their gadgets, might end up paying $60 or more per handset in patent fees.
But Google has a way out. An easy fix, that could solve all their Android IP troubles at once:
Google should buy Motorola Mobility Holdings (MMI).
Motorola’s mobile device and home entertainment unit has been spun off of into an independent company at the beginning of this year. And it is not doing too well.
Motorola’s CEO bet their whole company on Android, and they have had some early successes, including the launch of the original Verizon Motorola Droid, which started the Android growth explosion. But now – due to an un-inspiring product mix and execution blunders like the delays of LTE device releases, Motorola is being killed in the market by HTC and Samsung. While Motorola’s 80% Android device unit growth this year might seem impressive on the surface, it is actually very low. Their main Asian rivals are now growing much faster (HTC at 124% a year and Samsung at 400%) and from a higher initial unit base. Thus eating away at Motorola’s market share and profits. After a few profitable quarters MMI started losing money again.
The way things are unfolding in mobile, the future of Motorola Mobility as independent company is very much in doubt. Motorola’s management is already showing a signs of fatigue. And they are signaling their readiness to sell to Google.
I first noticed interesting undertones in Sanjay Jha’s (Motorola’s CEO) interview with Fortune a month ago. Here are the interesting tidbits:
“I expect consolidation to occur. Our customers are consolidating, and our supply base is also consolidating. But my view is that consolidation occurs in some interesting ways. I’m not convinced that handset manufacturers acquiring other manufacturers is the best way for value to be created for shareholders. Consolidation across content manufacturers and hardware and software manufacturers — I see a bunch of different ways for this consolidation to occur, to create shareholder value and create different structures to the industry… Do we expect Motorola to be an independent company? I don’t know yet. I hope very much that we are. I believe our strategy is the right strategy and will deliver the shareholder value we’ve promised.
Q.It sounds as if Motorola consolidating possibly with a software outfit of some kind is not unimaginable?
A. There are lots of opportunities for us to combine different resources and create more shareholder value.
Sanjay Jha does not sound like a CEO who strongly believes that what he is doing will make Motorola a success and keep them independent, does he? Any chance of Peter Chou (HTC’s CEO) saying anything remotely like this? And that “software outfit” they are talking about – can they mean anyone BUT Google here?
Last week Motorola provided another interesting hint. During their earnings conference call, Sanjay Jha started touting Motorola’s patent portfolio – 17000 granted U.S. patents, 7000 pending. And said that they plan to start monetizing it more aggressively, by going after “new entrants to mobility industry with big revenue streams”. The problem is – all those new entrants are predominantly using Android. By going after them, Motorola will be hurting ecosystem on which it depends 100%. Why would they do such a thing? One reason might be that they do not really care, as long as they can get some additional cash from their patents, and make their own Android devices a bit more competitive, at least on price.
But there might be another reason – Sanjay Jha might be sending a veiled hint/threat to Larry Page: “Just buy us, or else!”.
Recently Google was ready to spend upwards of 4 billion dollars for Nortel’s 6000 strong U.S patent portfolio, but have been outbid by a consortium led by Apple, RIM and Microsoft. Currently Motorola Mobility’s market value is around $6.5 billion. And it’s 17K patent strong portfolio is probably of much better quality to anyone in mobile, then Nortel’s was. So just by offering $10-12 billion for Motorola, Google will actually spend less per relevant patent, then it was willing to spend on Nortel.
And, by buying Motorola, Google will get a world class mobile device hardware R&D team, that can help push Android limits with a Nexus line. They then could use their Nexus devices as a state of the art reference models. And send a clear signal to OEM partners like Samsung and HTC, that Google is not interested in getting into mobile sales biz, if partners continue to do a great job with their own Android gadgets. I think OEM’s will be more happy with such arrangement, then with what Google is doing now – giving one of them early exclusive access to latest versions of Android, thus leaving others at a considerable disadvantage.
As for the rest of Motorola business – the sales&logistics organizations, set top box business, etc; – they can sell it in pieces and make some nice profit in the end. Who knows – Google may even find something good and interesting there for their fledging TV initiative.
And, if Google made a serious offer for MMI – there is no danger of a bidding war like the one over Nortel’s patents, erupting. The key player – Apple – is out of the game on anti-trust considerations. Microsoft is now firmly in bed with Nokia, and there’s too little synergies with what Motorola does today, for MSFT to put up a serious fight. The rest in mobile industry are simply to weak to win.
Android is a key strategic asset for Google, and it is now in a serious danger due to Google’s weak intellectual property portfolio. By letting Palm to go to HP, and losing out on Nortel bid, Google has already squandered two great opportunities to address a key vulnerability of one of their most precious assets.
With Motorola deal, which will probably be cheaper then what they were ready to pay for Nortel portfolio, Google can now solve most of their intellectual property problems at once. They might still have to reach accommodation with Oracle, but with Motorola’s IP, nobody in mobile industry will be able to seriously impede Android growth via patents anymore.
The more I think about it, the more Google buying Motorola makes sense. I’m actually struggling to find any reason for Google not to buy Moto.
Can you name one?
If you liked the post, you might find these interesting too:
- Motorola’s Sanjay Jha openly admits they plan to collect IP royalties from other Android makers
- Motorola confirms it’s working on a Google phone – Nexus Two?
- Motorola: 4.4M smartphones in Q2. Defy+, 2 tablets, 4 more handsets for Christmas, Droid Bionic in September
- Did Motorola just hint they are ready to join Android IP racket with their own patent fee demands?
- Google buys Motorola to get some patents. Samsung, HTC, LG and other Android OEMs rejoice