Quick and easy fix for all Android patent problems. Google should buy Motorola

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?

 

Author: Stasys Bielinis

While I like to play with the latest gadgets, I am even more interested in broad technology trends. With mobile now taking over the world - following the latest technology news, looking for insights, sharing and discussing them with passionate audience - it's hard to imagine a better place for me to be. You can find me on Twitter as @UVStaska'

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  • http://www.staska.net Staska

    Interdigital is a very interesting possibility. The problem is – if Google goes after it, the bidding war might be even worse then what happened in Nortel patent deal. 

    Apple will come in, Microsoft and othesr will join them, just to keep Google out of it. 

    With MMI takeover Google excludes Apple from the start on anti-trust grounds, MSFT will also have a much harder time to find a reason to outbid Google. 

    Making MMI a much more cost effective acquisition 

  • http://www.staska.net Staska

    Interdigital is a very interesting possibility. The problem is – if Google goes after it, the bidding war might be even worse then what happened in Nortel patent deal. 

    Apple will come in, Microsoft and othesr will join them, just to keep Google out of it. 

    With MMI takeover Google excludes Apple from the start on anti-trust grounds, MSFT will also have a much harder time to find a reason to outbid Google. 

    Making MMI a much more cost effective acquisition 

  • http://www.staska.net Staska

    Interdigital is a very interesting possibility. The problem is – if Google goes after it, the bidding war might be even worse then what happened in Nortel patent deal. 

    Apple will come in, Microsoft and othesr will join them, just to keep Google out of it. 

    With MMI takeover Google excludes Apple from the start on anti-trust grounds, MSFT will also have a much harder time to find a reason to outbid Google. 

    Making MMI a much more cost effective acquisition 

  • http://www.staska.net Staska

    Interdigital is a very interesting possibility. The problem is – if Google goes after it, the bidding war might be even worse then what happened in Nortel patent deal. 

    Apple will come in, Microsoft and othesr will join them, just to keep Google out of it. 

    With MMI takeover Google excludes Apple from the start on anti-trust grounds, MSFT will also have a much harder time to find a reason to outbid Google. 

    Making MMI a much more cost effective acquisition 

  • Motoxer

    Moto pretty much made the first mobile phone. So Im pretty sure they have some sweet patents up their sleeves. They should partner up with Google, kick the mess out of Apple and the looser alliance, and then make a phone called….erm “the Droid Bionic.” A real phone I mean…

  • http://www.staska.net Staska

    Google does not have to keep any of Motorola’s smartphone/phone business. They can turn around and sell it to Huawei or ZTE the next day after Moto deal closes. And keep all the patents

    Or they may keep Moto R&D part for Nexus line, and explicitly tell OEM partners that it won’t go beyond what it is doing now with Nexus, if they keep making top of the line Android phones. And sell the rest

  • http://www.staska.net Staska

    I agree that U.S. patent system sucks. But until it’s reformed – it’s the game that Google has to play. Hence Moto acquisition

    As for fixing it – the first step is easy. Just abolish software patents. Almost nobody else have them. And U.S software business was doing pretty well without them until 1997/98 (I think) when your courts, not congress made them legal. 99% of programmers will tell you that software patents is a huge pile of crap. Little guys are too busy programming to care about patents. The only ones who do care, and are ready to spend time and money to get a patent, are the ones who know their stuff might be not good enough to make it in the market. This business is too fast for patents to make a meaningful difference, except as a tort thing

  • Rgwinn

    IDCC has better IP and could be had for less than 10 to 12 billion.

  • http://www.staska.net Staska

    IDCC has a better IP then Motorola? That’s a very bold statement. 

    Well, unless you can point me to some sources that do Moto vs IDCC patent portfolio quality analysis, excuse me if I remain skeptical. 

  • Anonymous

    how is motorola’s patent portfolio in M2M and how are they progressing on Video Compression, (bigger pipes) ?

  • http://www.staska.net Staska

    Sorry, IDCCs PR to prop their share value on the backs of Nortel deal is not really interesting. 

    Unless you can point me to some comprehensive comparison of Moto’s vs Interdigital patent portfolio – it’s just empty bragging to prop IDCC share price. 

    And, btw, no idea about M2M, but Moto’s patents in video compression are just fine. In fac,t Sanjay Jha excplicitly said that video encoding/decoding and security are among the strongest parts of Moto’s portfolio.  . 

  • http://pulse.yahoo.com/_K3MVOVHEK4AZY777NI5KWHGL5U David Jenkins

    Um, yes. It is pathetic that someone who publishes these kinds of articles doesn’t know how to use the word “its” appropriately.

  • http://www.facebook.com/schramk Kevin Schram

    Uncanny, Staska.

  • http://twitter.com/wasiaFuse Vasiliy Mescheryakov

    I think that you should be named this year num. 1 prophet.
    ++

  • Gregory Miller

    Dude… you are a genius and I’m forever a fan.

  • Paul Thompson

    Staska — I remember reading this last week and being amazed at how great of an idea this was. Now I am amazed that this has actually come through. Wow! :)

    Btw, are you on Google+? I’d love to add you to one of my circles if you are so I can see what other prophetic predictions you might have! :)

  • http://www.staska.net Staska
  • http://www.mobileinfoplanet.com MIP

    We may not always have agreed about every article you have written, but in this case we did – congratulation on your prediction, as you well know it’s rare to be so spot on!

  • http://zomgitscj.com/ Clinton Jeff

    Awesome prediction on this man :o) Just had to come back and say that lol.

  • GrasaMan
  • Anonymous

    Was not easy to find your post again, from which I just saw the title at google news ;-)
    But it was worth it. ^^

  • http://twitter.com/UprisingMobile Uprising Mobile

    I just came back here to leave my congrats to you. I did not see anybody else in tech saying what you said.

    Now, with the great news of Google acquiring Motorola, you can enjoy the sweet taste of profetizing it.

  • http://twitter.com/UprisingMobile Uprising Mobile

    I just came back here to leave my congrats to you. I did not see anybody else in tech saying what you said.

    Now, with the great news of Google acquiring Motorola, you can enjoy the sweet taste of profetizing it.

  • Robin

    This is the part where you say “I told you so.”

  • Robin

    This is the part where you say “I told you so.”

  • Shane Hudson

    Well done for predicting correctly!

  • Shane Hudson

    Well done for predicting correctly!

  • sw

    well, well….someone must be feeling pretty good now.

  • Jam

    Wow. You totally called this. Very impressive!

  • http://www.winrumors.com Tom W

    Good work on predicting this :)

  • Simon

    Prescient!

  • Tad

    Can you be my stock market analyst?

  • Sbadri

    Wow Amazing call including the price!

  • Cory

    Just Google searched to find this article, which I read sometime last week. It’s the first thing I thought of when I read the news this morning!

  • Theupboat

    what is this wizardry

  • Guest

    Um, except that Motorola’s patents didn’t stop MS or Apple from going after them already.

  • Guest

    Um, except that Motorola’s patents didn’t stop MS or Apple from going after them already.

  • http://www.facebook.com/brian.gillespie Brian Gillespie

    I know they bought Moto, and it sounds like a good thing, but the bigger problem is Java and Oracle. I see no reason they shouldn’t buy Oracle. You heard it hear first.

  • Tassada

    ??????.

  • http://www.facebook.com/DroidArmy Musa Abu Ayyoub

    You called it. Awesome!

  • http://www.facebook.com/DroidArmy Musa Abu Ayyoub

    You called it. Awesome!

  • http://www.linkedin.com/in/decisionscience Rick Mueller

    Staska, if you can predict stuff like this – why are you still working?
    Or maybe Mr Page got the idea from your blog.
    Either way, this was a stupendous call – NICE WORK.
     
    By the way, since I know that you understand the concept of Disruptive Innovation (many people speak of it but few understand) – what if I were to append to your prediction with an analysis which indicates that Android will quickly dominate as a result of Microsoft AND APPLE having been already disrupted (and just not realizing it, as is generally the case with disrupted incumbents).

    There’s a report at bit.ly/rix2n5 which describes how Huawei is disrupting the cellular market in Kenya with a $80 smartphone. At http://lnkd.in/3W539i  I have taken the liberty of recasting that strategy into one which when viewed from the perspective of Disruptive Innovation makes the disruption of Microsoft a foregone conclusion and (as facilitated by Google’s newfound ability to defend Android by way of the purchase of MM) foreshadows the disruption of APPL on the very same basis.

    Looking forward to reading your thoughts.

     
     
     
     

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