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Google’s options for Motorola in light of its Android profits

08.22.2011
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Two recent steps by Google make it seem like the company is moving Android closer to Apple’s model: First it controlled the software more tightly [1]. Second, it bought the hardware vendor Motorola Mobility [2]. The post concludes by summarizing a counter-argument to this hypothesis by Joshua Topolsky.

So what is Google to do with Motorola Mobility? It has two main options. My comments are added in italics.

Motorola option 1: The costs must be recouped, become more like Apple

Quoting “Android Isn't Free – How Google's acquisition of Motorola Mobility will make it more like Apple” by Farhad Manjoo on Slate [via Daring Fireball].
Now Google has to find a way to recoup at least $12.5 billion from Android (on top of whatever else it was investing to build the OS). That looks very difficult. Earlier this year, Gene Munster, an analyst at Piper Jaffray, estimated that Google makes just in ad revenue per Android user per year. By 2012, that number could be $10 per Android user per year. Across all users, that would mean about $1 billion in annual revenue. Even if that figure grows over time, it will take a long time for Google to make back the money it spent on Motorola, let alone to turn a profit.
If you doubt that Google intends to earn money with Android, look at the following Larry Page quote:
The combination of Google and Motorola will ... offer consumers accelerating innovation, greater choice, and wonderful user experiences. I am confident that these great experiences will create huge value for shareholders. [Source: The Official Google Blog]
More corroboration: Android OEMs should hear Microsoft, Nokia out on Google-Motorola combo (Peter Bright for Ars Technica).
... the article says that "People close to the deal said one of Google's motivations was its desire to design devices, not just the software that powers them, thus giving it the sort of influence that rival Apple enjoys with its iPhone and iPad."
...
Hardware design isn't the only thing that might trouble other OEMs. Court documents released in the ongoing court case between Microsoft and Motorola showed that Google has "highly proprietary" Android-related source code that its OEM partners, including Motorola, currently don't get access to.

Open question: will Motorola get access to this code and thus a competitive advantage over the other Android OEMs?

I have always wondered about Android’s business model. So should Android indeed become more like iOS, this has pros and cons:
  • Pro: Clear business model. Cell phone owners can become Google’s customers instead of advertisers and carriers.
  • Con: Android would be less open and diverse.

Motorola option 2: Keep the patents, sell everything else

Joshua Topolsky, writing for This is my next..., argues:
It’s going to be hard to run this “separate business” honestly with the partners and goals that Google seems to have, and adding another 20,000 employees to a current staff of 29,000 is an expensive undertaking — especially when no one has explained exactly how this makes anybody more money. The sad fact is that a Motorola / Google partnership where everything stays as-is or even expands is hard to see functioning in any light. They are two very different businesses with two very different goals, joined now only by a single shared interest: keeping the wolves at bay.

If Google got what it wanted, and Motorola board members got a payday — is there anything else left?

Related reading

  1. Google is tightening its control of Android
  2. Press review: Google buys Motorola Mobility

 

From http://www.2ality.com/2011/08/google-motorola-options.html

Published at DZone with permission of Axel Rauschmayer, author and DZone MVB.

(Note: Opinions expressed in this article and its replies are the opinions of their respective authors and not those of DZone, Inc.)

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Comments

James Jamesson replied on Mon, 2011/08/22 - 1:51am

Option 2 is more like it. Google has tried hardware (even it was not the producer) and didnt like it. It is very likely that they are after the patent portfolio. Because Android will really get a knockout if they continue to go out with that only around 500 mobile patents. It is obvious that they will spin off the hardware business of the mobility.

Ronald Miura replied on Mon, 2011/08/22 - 5:21am

Option 3: Google keeps Android open, and uses Motorola to create awesome, innovative products (phones and tablets), targeting the high-end market, leaving the other vendors and the chinese to compete with each other for the low-end (although the chinese are remarkably good in absorbing new technology, and could catch up real quick).

Android's business model? Simple. As Jonathan Schwartz said, 'if you don't have adoption, it won't matter what business model you use.', and the single most important feature for Android (as was with Java) adoption is its openness. Obviously, Schwartz couldn't find a successful business model after Java got the adoption it needed, but I think Page is way better then him in this particular point :)

Cloves Almeida replied on Tue, 2011/08/23 - 5:10pm

Sell off to HP. Motorola has a strong brand in mobile market, HP knows hardware but lacks same brand recognition. Google keeps the patents.

Now that HP ditched off webOS, a strong brand in consumer mobile would do them good. Since Apple and MS had the money in cash, Google coulnd't afford any delay.

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