Assuming that Google’s acquisition of Motorola Mobility Holdings Inc. gets approved, several strategic changes are imposed on the mobile devices market:
1. Android can now be defended effectively against IP/patent disputes by Google (which benefits all its OEM/ODM partners)
2. Android users can expected an improved user experience over the entire lifecycle of their devices (virtually enforced by Googorola upon its OEM/ODMs)
3. Android will become a safer bet for future applications like mobile payments where technology choices (e.g. NFC) are still open and non-IT partner support (e.g. banks) matter
4. Google gains access to new eco-systems critical to the Android platform: Motorola sells not just smartphones but tablets, set-top-boxes, navigation devices and deskphones
5. Google gains a Hardware Brand – Motorola has been the global leader in analog mobile phones and after losses in 2007-9 has been turned around based on (An)Droid phones
6. Google TV – not exactly winning with Logitech hardware today – potentially has a lot to gain from Motorola STBs’ #1 position in the US and its established distribution channels
7. Google can gain in the enterprise business by integrating Google Apps with Android phones & tablets and Chrome notebooks – something Apple cannot match
8. Google’s commitment to the OS & app. business – essentially anything beyond their search cash cow – has just increased materially
9. China: Motorola has an explicit strategy for China (incl. #1 China Mobile partnership) and since Nokia’s collapse good chances to grow – a great backdoor for Google
10. Culture - one can argue that the discipline required in a competitive hardware business might positively influence a company that launches products through online betas for years
Of course, these assets and benefits do not come for free! I do not just think of the $12.5bn acquisition price tag but other costs to Google:
1. Integration costs: size, industry differences, low margins, cultural differences make Motorola difficult to absorb, a potential distraction and a huge management challenge
2. Confusion in branding and partnerships, distribution channel conflicts, investor perceptions will have to be sorted out quickly
3. Strategic platform impact: by implementing Android (and later Chrome OS) itself, Google puts pressure on OEMs to follow its pace, innovation, pricing – while this makes Android more reliable and competitive, it also reduces the profit potential. The bottom-line impact in the overall smartphone competition might still be positive for Android OEMs!
Of the above benefits, the following might deserve some more detailed comments:
ad 2. Improved User Experience: besides the more obvious advantages of the vertical integration of hard- and software (à la Apple) that matter a lot in smartphones – where an OS alone typically consists of 4 parts (core, OEM/ODM, radio stack, carrier) – it is namely the various updates during a model’s life cycle that tend to dominate the actual user experience. How long does it currently take Samsung and its carrier partners to ship the Android updates to their global user base ? Due to the substantial improvements that the intense competition between iOS and Android brings about, this is more than just cosmetics and so are the security fixes whose frequency will increase. Googorola will have every incentive plus the skills and assets to produce high quality updates rapidly while its channel and partner clout should allow for quick distribution cycles.
ad 4. Non-phone platform extension: with iOS and Windows already powering additional device categories, Android can win in scale and hence relevance for developers while giving Google the power to compete for the living room, the car, the hotel room and other spots that have attractive upside potential for Google’s core advertising business. Motorola can help accelerate the link between the search/advertising and os/apps businesses which will add to Google’s differentiation in both streams.
ad 5. Hardware brand: with the obvious cultural differences, Google might opt to keep the new hardware business in a separate organisation – with defined engineering interfaces – and under separate brands. This would help avoid many internal and external challenges and keep the Google brand equity focused on search, online advertising and apps.
ad 8. Google’s commitment to its non-search-related businesses has been questioned because it could have been seen as just diluting net income. With the Motorola acquisition, the ambition of Google gets more than just a $12.5bn boost because this hardware business cannot provide the incremental profits required to avoid dilution. Hence profit growth has to come from the software business which gains various support from the hardware. Note that this is the reverse situation of Apple where hardware drives profits enabled by software!
ad 9: China is the largest single mobile market worldwide and hosts the largest mobile operator China Mobile with some 700m subscribers. Nokia is losing share at China Mobile rapidly, Motorola is winning and Apple still has no partnership which rumours say will change with the iPhone 5. Adding to this cocktail is Google’s withdrawal from the Chinese online search market in spring 2010. Seemingly, Motorola is all upside for Google in China.