What Google Gets With Motorola Mobility

from the yet-another-IP-market-distortion dept

Having already covered the basics of the Google deal to buy Motorola Mobility, we asked Derek Kerton to weigh in with his thoughts on what the deal really means.

Some suggest that Google bought Motorola Mobility Inc (MMI) so that it can vertically integrate and produce flagship phone models that have the polish and seamlessness of the iPhone. But the real reason is a common theme here at Techdirt: Google needs to build its defenses against patent lawsuits in the smartphone industry.

On the very face of it, Google doesn't need a handset subsidiary to make a custom Google phone. They can easily commission a handset exactly how they want it from OEM brands like HTC and Samsung, and have already done just that with the Nexus models. They could easily design their own brand of phones and have it built by contract manufacturers like Foxconn (as Apple does). I've read elsewhere that Google now gets the benefit of better understanding of the challenges of integrating Android into handsets. That's also incorrect. Google has a history of sending teams of engineers to most of their handset and tablet partners to work side by side overcoming those challenges.

Perhaps Google just saw a good deal on Motorola. Its stock price has been dropping through the decade, and also the past year. The market value prior to today was just $7.3 Billion, compared to $20B for Nokia or $13B for RIM. Perhaps, like Nortel before it, the value of Motorola's Intellectual Property (IP) is being hidden by a poor operational record. A buyer like Gordon Gekko (of the 1987 film Wall Street) could have bought up MMI, divested the operational arm from the IP portfolio, and realized a gain by separating the parts (as Gekko famously did to an airline). Of course, that's a 'private equity' view on the purchase, but Google has indicated it will retain MMI for now. Still the sum of the parts might be worth more than the whole. Although not a startup, this seems similar to Masnick's post yesterday that the value of a startup's patents might exceed the value of the operation.

There is also the less-mentioned factor that Google now also owns MMI's set-top-box division, which might give a shot in the arm to the fledgling Google TV business. Bundling Google TV into every STB would be great for Google, but I would expect that, since these boxes are all bought by cable operators, the cable companies would ultimately decide if Google TV actually remained in the box once it was installed on the customer premises. Since Google TV competes with their on demand services, it may end up as popular as the built-in laptop tethering feature is on Verizon's Android smartphones - i.e. Verizon takes it out.

My understanding is that Google intends to run Motorola as independently as possible. That is, no doubt, to head off what is known as 'channel conflict'. Channel conflict occurs when one member of a supply chain, say the Android OS supplier to many handset vendors, expands into another part of the chain, in this case the handset industry. Now they are both a supplier AND a competitor to companies like HTC, Samsung, LG, etc. Historically, the other vendors start to mistrust their OS supplier, and become more reluctant to use the OS as they search for other options.

We've seen this before with Nokia's handling of Symbian. Since 2001, Symbian was, ostensibly, an openly available smartphone OS that any handset manufacturer could use. Nokia got behind this idea full force, not wanting to cede the market to OS companies like Microsoft. They pushed the idea of other handset vendors joining them, in competition against Redmond. Some did adopt Symbian, including Ericsson, Motorola, Siemens, NTT DoCoMo. But Nokia struggled with the notion that Symbian was "too controlled by Nokia" since around 2003, so they spun it off into an open consortium in 2009. Too little too late. The other OEMs didn't ever really believe that Symbian was truly independent. The end result is that very few other handset vendors ever got fully behind Symbian, even during the time when it was the best smartphone OS in the world. So Nokia just ended up buying it back again in 2010, and finally killing it off recently.

With Android linked too closely to Motorola, companies like Samsung might be driven more to their own OS, called BADA, while others like LG could seek new alternatives (Windows, QNX...) Thus, Google now must re-interpret the same dance that Nokia did years ago: "No, don't worry, Android is still open. You will have as equal access as Motorola." This may succeed, but is a precarious position. The dance partners may have changed, but the music is still the same. Let's see if they come up with some new moves.

OEM confidence that Google will keep equal access to Android to all handset vendors is made even more precarious since the recent moves by Google to prefer some vendors of its formerly "open" Android OS. Google only released the latest tablet version of the OS (Honeycomb 3.0) to select partners, shutting out the open source community and other hardware vendors from the OS for now. The first to get exclusive access? Motorola, for the Xoom tablet. This is not the best way to ease OEM concerns around equal access, given that some may be 'more equal than others'.

It becomes clear that what Google truly needs from the acquisition is the patent portfolio of Motorola Mobility. The smartphone patent wars have been raging lately. It seems every handset vendor is getting sued by big competitors and by patent trolls alike on a daily basis. Android vendors, for example, pay nothing to Google for use of the OS... but they must pay about $5 per phone to Microsoft because MSFT had the smartphone patent leverage against Google. In another dire example of the risk of patent assault on Android device makers, the Samsung Galaxy 10.1 Tablet has been shut out of European and Asian markets by injunctions based on patent claims from Apple.

To fend off patent assaults, companies seek to build their own patent arsenals. That, for example, is why so many vultures hovered around the carcass of Nortel, and bid up its patent portfolio to 4x what the market expected. Google bid, but did not win at the Nortel auction. But with Motorola's 14,000+ patent portfolio in the mobile phone industry, Google can not only defend Android much better from the patent assault (by threatening counter-assault), but Google can thus reduce risk and uncertainty for its handset partners, thereby making Android more attractive.

Think about it. One of the biggest features of the Android OS for device makers was the license fee: free. Free, as Techdirt readers know, offers some very powerful mathematical and business implications. Suddenly, building an in-house OS for your car stereo or TV remote control may look less attractive than a more powerful, free, Android OS. Same goes for tablets, fridges, netbooks, or phones. But if MSFT and Apple (and countless others) can layer up license fees, the attractiveness of Android starts to diminish. The power of 'free' disappears, and instead, uncertainty and risk of lawsuit reign supreme.

So, the deal results in two opposing forces for the future of Google: IP cost and risk mitigation, and potential channel conflict. If Google can succeed at making the IP risk mitigation more important than the channel conflict for the OEM vendors of the world, thereby winning more handset and device partners, the Motorola purchase can be a success. If channel conflict is the more important part of the equation, Google loses big. I wonder if Google might someday sell off the handset maker, but keep the IP. Big news, either way. It'll be interesting to see how it plays out.

Filed Under: deals, handsets, patents
Companies: google, motorola mobility


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  1. identicon
    darryl, 17 Aug 2011 @ 2:05am

    Hail the value and worth of Patents !!!!

    It's funny that most here still consider patents and IP worthless.

    When in the real world, from the people and groups who actually DO THINGS and create things of value place a value on knowing how to do things.

    I will say that again for you..

    the groups that want to actually create new things VALUE knowing how to create those things

    The other option and Mikes (and co) preferred option is wait and steal.

    ie, you wait until someone else develops an idea, then you steal it and try to make a buck on it.

    Clear, this does not work, and industry (and most of the planet) understands this perfectly.

    Do you honestly think that Google would have pain $12.5 Billion dollars, if MMI did not have the number of patents they had?

    Do you think MMI's value would still be the same if patents were 'reformed' in the way Mike (and co) promotes ?

    So without IP, ie without KNOWING HOW TO DO SOMETHING, that you are capable of doing it ? if so how ??

    (by employing wait and steal ?)

    As we all know here, (or should know) a Patent is a METHOD of acheiving A RESULT.

    A patent is ****NOT**** THE ONLY possible method of how you can achieve a result.

    So you have several choices, you can be smart enough to develop your own method of achieving the result, you can buy a patent off someone who is smart enough to develop A method of achieving a result.

    Or you can wait and steal !!.

    Wait and steal sounds good at first, but in the long run it means you are always behind the curve, and allways behind the time, and you display to the world that you are incapable of creating your own method, and incable of fairly paying someone who IS smart enough to develop a method.

    Google, obviously values patents, to the tune of Billions of dollars.

    If MMI did not have those patents (that mike thinks are worthless) then there is no way on earth Google would have been interested in MMI.

    Google did not purchase MMI as a "war chest", they perchased MMI because they wanted to KNOW HOW TO DO THINGS, not being smart enough or willing to develop their own methods, they used the only tool they have in their toolbox, that being MONEY.

    They use that money, and say to MMI, "please show us how to do things, so we can do them too, and we will PAY YOU for that IP for that knowledge.

    it is the way the world works, if you do not know how to drive a car, you hire someone to drive for you, or you take a taxi, or a bus.

    Or you can acquire the skills to drive and buy your own car.

    Google has hired a huge taxi, they are not capable of driving themselves, therefore they pay money for value in return.

    That VALUE is the knowledge of how to do things, its A METHOD of achieving a goal or result.

    This is proof that patents are highly valued in industry, and that industry correctly places high value on being able to do things.

    they dont "wait and steal", if they want to lead, or innovate, but they have the option (as we all do) to purchase the IP and skills and knowledge off others to achieve our goals.

    it is really that simple, clearly it is not the patent that has value, it is the information regarding a specific method to achieve a result that has value.

    Industry sees that, and acts upon that.

    Those who cannot innovate, immitate, or acquire innovations from other sources (mmi).

    If it was a 'war chest' then they would immediately release all those patents into the public domain, and destroy the patent system in that area, do you think Google is going to do that ?

    Do you believe that Google is just going to sit on those patents for a rainy day, too attack other companies trying to enforce their patents ?

    Or do you believe that Google will use those patents those methods of acheiving a result and put that IP into products and add value to their company ?

    Google knew what they did not know, they knew that they are not capable of developing methods by themselves, they knew what they did not know. So they found a company that knew what google did not know how to do, that Google WANTS to do, and they purchased that company.

    Mike and other anti-patents appoligists must be crying themselves to sleep every night now, knowing how much more value is placed on what mike calls "junk" and worthless patents.

    Do you believe that there will be major (or any) patent reform that will risk the massive loss of value industry places on knowing how to do things ?

    How from now on Mike (and Co) do you think the perception of the value of patents will be seen by industry, governments and the general public ?

    If you got patents, if you know how to do something in a way no one else can do, that is highly valued by industry.

    Because industry likes to do things !!!! does that surprise you ?

    I would surprise me if you thought they dont !

    Or do you take Mikes mantra to heart, and the best thing industry can do is wait and steal?

    What happens if everyone decides to "wait and steal" ?
    They will all be waiting for a very long time ! forever.

    No patents no IP, no progress, no products and no future.
    (and no hope).

    But if you happen to KNOW how to do something, that is value, because if you know how to do something, that others want to have done for them. THEY WILL PAY YOU.

    But if you do NOT know how to do it, ANY WAY, then you cannot crate something someone will pay for.

    If you cannot do anything, you cannot sell anything.
    If you cannot do something, you cannot sell something.

    knowledge is the only value you have, and patents are knowledge.

    A motor car, is $50 dollars worth of steal, but it is the application of IP, of knowledge that transforms that $50 dolars of steal into a $50,000 dollar motor car.

    If you do not have the knowledge to turn steal into a gearbox, you can have as much steal as you like but you will never build a car with it.

    it is the knowledge that is of value, no one would find a use of a lump of raw steel, but everyone can find a use for that steel if IP has been applied to it.

    Google see's this fact, as does every other successful industry or company.

    Everyone who creates things or who uses the product of their knowledge to survive and make a living understands this.

    That leads me to conclude that most people who follow Mike (and Co) idea's are the small group that adhears to the wait and steal principle.

    Mike, this Google things just shows the world how wrong you are !.

    Do you believe there will be patent reform and a devaluing of patents (even for software) now ?
    Good luck with that.

    Mike, you have stated before that in responce to your Google adds you get very little money from Google, YOU Mike paid to Google to buy MMI.

    Google had that money because you screwed you Mike !!!.

    Just imagine how much extra income you could of gotten if Google did not have to save up to buy knowledge of how to do things ?

    It must be very upsetting Mike to know you helped promote so effectively how good patents are for the economy and for industry.

    And ensuring patents remain as valid and strong as they have allways been.

    All thanks to money Google extracted from you !!! :)
    That must REALLY piss you off!!!! All that money you should of received being spent on purchasing PATENTS !!!!!.

    That is so very amusing !!!...

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