Google is buying Motorola Mobility for $12.5 billion, largely for Motorola's rich patent portfolio, largely to protect its Android OS business. Of course, Google is now getting directly into the handset business, a problematic proposition, and it also gains a firmer stance in the customer premises equipment (CPE) market.
But with the acquisition, Google is also now in completely unfamiliar territory: the business of selling cable network gear, including CMTSs and QAMs, and a variety of CPE specific to multichannel video programming distributors (MVPDs), including set-tops and gateways.
The key to the acquisition is Motorola's intellectual property (IP) trove, which includes more than 17,000 patents. Google's CEO explained in a blog post: "Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies."
After losing out on an auction of Nortel's patents, Google had been searching for ways to protect Android in an environment in which patent-rich companies hobble competitors lacking their own IP portfolios (or that have holes in their patent coverage) with patent infringement suits, while negotiating cross-licensing deals with patent-rich competitors to avoid being similarly targeted.
Google has some experience with set-top boxes, in the form of its struggling Google TV business. Google TV could not secure enough content to stand with the many other competitors in that business. Motorola Mobility could represent new avenues to pursue, working with MVPDs rather than in competition with them.
On the call announcing the deal this morning, Motorola Mobility CEO Sanjay Jha was quoted by GigaOm affirming that handsets and CPE have a common future, though he provided no details: "There is great convergence between the mobile world and content that comes to the home through set-top boxes. Working with the carriers, we'll be able to accelerate that convergence, which will excite customers."
In his blog post, Page said: "Motorola is also a market leader in the home devices and video solutions business. With the transition to Internet Protocol, we are excited to work together with Motorola and the industry to support our partners and cooperate with them to accelerate innovation in this space."
That was the single mention of CPE in Page's blog. There was no mention whatsoever in that post of Motorola Mobility's network equipment business.
Motorola's CMTS business is lagging, but the company remains a popular supplier of QAMs.
So what happens now in the cable business is purely speculative, but the possibilities are very, very interesting.
If Google chooses to renew its focus on Google TV, Motorola's installed base of set-top boxes could present an interesting opportunity for expanding cable's ability to provide over-the-top services.
Google might pitch Google TV as the OS for set-tops, according to a number of technology watchers, including GigaOm. This might be a way to get popular apps into the cable environment.
Even more interesting, a tie-in with Google Advertising could be an extraordinary boon for cable companies in their quest to provide Web-like targeted advertising in their broadband video offerings.
The boards of both companies unanimously agreed to the proposed deal, which Google said it hopes to complete by the end of 2011 or early 2012. Google said it will continue to run Motorola Mobility as a separate company and that the Android ecosystem will remain unchanged. Motorola will remain an Android licensee, and Android will remain an open platform.
Effects on the wireless business
In the wake of the news, many wondered how other partnering OEMs, such as Samsung and HTC, reacted to the deal. In a conference call this morning, Andy Rubin, senior vice president of mobile for Google, said he had talked with five of the top Android OEMs and "they all showed very enthusiastic support for the deal."
Page said he was excited about the acquisition, calling it an "extremely important" event in Google's evolution.
Kevin Burden, vice president and practice director of mobile networks at ABI Research, says the deal could be a double-edged sword for other Android OEMs. "Google has been relatively silent through the many legal problems its licensees have faced in defending Android. All its licensees are now feeling their legal positions have just been reloaded, but their allegiance to Android may be more at risk," Burden said in a statement.
Analysts were generally positive about the deal. Carl Howe, director for Yankee Group's consumer research group, says the acquisition dramatically improves Google's position within the handset market overnight. "With this one purchase, Google picked up roughly 30 percent market share of all Android phones," Howe noted.
Howe said the deal is utterly unique within the industry. "There is not a single example of a company both running a platform for a large number of manufacturers and manufacturing for that platform," he said.
Howe also noted that Motorola's strong carrier relationships will be a boon for Google, which currently has very few inroads with operators in the United States.
James Brehm, senior strategist with Compass Intelligence, said his initial reaction to the deal was that it was going to anger competing Android OEMs but after a closer look, he said little will change, as HTC and Samsung will continue to develop for multiple platforms, as well as Android.
While Brehm said the implications of the deal are far-reaching, including integration of Motorola's home-based technologies like set-top boxes, he expects Google will be satisfied with its new patent holdings for the time being, remaining relatively hands-off on day-to-day operations.
Google and Motorola are set to file a proxy statement with the Securities & Exchange Commission (SEC) in the coming days that will further outline details of the deal.
– Wireless Week's Andrew Berg contributed to this report