The first thing that jumped to mind when I heard about Google's acquisition of Motorola Mobility was the thought that I talked a lot about Apple and Intel in my last column but if you read between the lines I was also talking about Google and more specifically Android.
Apple has been waging what looks like an increasingly aggressive litigation/patent campaign against Android as has Microsoft. I talked a lot in that column about how legal scuffles can become an unproductive distraction for technology companies but I neglected to mention the fact that your competition is eventually going to have to react if they want to stay in the game. Google has already claimed in the press that this purchase was motivated by what they view as anti-competitive practices by Microsoft and Apple.
There has been some cynicism expressed in the press over positive press releases by Google's partners and soon to be competitors in regards to the Motorola purchase. What those cynics fail to take into account is that given recent trends Android was in danger of being taxed out of existence via licensing fee demands that partners and Google were ill prepared to defend against. Having Google as a competitor probably isn't something their happy about but Google now has even more skin in the game and an arsenal of their own patents to use in defense and negotiations. It's legitimate for Google's current channel partners to fear that preferential treatment will be given to Motorola which will create an advantage that allows them to grab the bulk of the highest margin Android sales but that is a remote and manageable scenario. Android's steadily increasing litigation and licensing "tax" burden was already eating their margins. Google may become a frenemy but that is still an improvement on the current situation.
I've also read claims that this is a precursor to Google making Android a closed platform and going it alone. That is a really absurd claim for the following reasons. First, Motorola and Android wouldn't stand a chance if they took on Apple mono a mono. Android's excellent market penetration is a result of being available on a wide range of platforms that no single company could possibly create or support by themselves. Second, that model is already in place at companies like Nokia and RIM and how well are they doing right now? Why would Google want to replicate a clearly failing business model when they already have a winner?
It is possible however that this purchase will cause companies to take another look at Microsoft's current and future mobile offerings so they can hedge their bets. Microsoft's close relationship with Nokia is however very similar to how Google is proposing to operate with Motorola so it's difficult for me to understand why this would be an improvement, particularly given the minimal market penetration of Microsoft's Windows phone 7.
I'm going to go out on a limb here and say that Microsoft will buy Nokia within a year. Consolidation and increased vertical integration are clear trends in the mobile space and Microsoft/Nokia are already on their way down this path.
RIM is going to need a major turn around in the next six months if they want to continue to go it alone and be anything but a niche player.
I'm trying to think of a polite word to use as an adjective to describe Standard & Poor's downgrade of Google but failing. Seriously, their logic is absurd. Will this deal guarantee that litigation against Android stops? Of course not but patent litigation is much easier to defend against when you are armed as well. Prior to this acquisition Google was poorly situated to deal with legal challenges and had been losing ground steadily. Now they will be operating from a much stronger position.
There are no guarantees in business or life, but standing around and doing nothing in the face of challenges to a rapidly growing portion of your business is almost never a good idea. Another complaint S&P have is that this will impact Google's short term growth. Well yeah, when you spend $12 billion on something that does have a short term hit on your ability to take advantage of other opportunities. Particularly when you're going to have to wait around for the better part of a year for the deal to be completely consummated. It's not like Google is cash poor though and CEO Larry Page has made it clear that they play for the long term. That pisses off analysts who only care about a very finite horizon.
S&P's analysis in this matter is flawed at best. Every purchase is a risk and this one is no exception but Google is taking credible action to defend against a risk to both an emerging and established portion of their business as well as reacting to trends within the mobile computing/phone space.
Getting shut out of the mobile space would have meant getting shut out of the search engine space. The social networking paradigm shift is reducing but not eliminating the importance of search and Google couldn't afford to risk having that revenue stream cut off. S&P's Google downgrade feels more like an attempt to garner press than an honest and well informed assessment.
There is a risk that Microsoft or some other company will make a larger offer for Motorola Mobility. Apple is unlikely to do so since they probably couldn't get governmental approval for such a deal. Microsoft would be pissing off their channel partners but might view it as a worthwhile risk. I don't think they'll go this route but it's not outside the realm of possibility.
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