Google’s $12.5 billion purchase of Motorola Mobility has set the technology and investing worlds aflutter, with much of the commentary positioning it as a play by Google for Motorola’s strong IP portfolio. But a single point of focus is incorrect and misses a bigger point: The MMI purchase is the result of Google’s miscalculations about the way value is captured in mobile computing. These strategic missteps placed Google in a position of weakness and forced it into a costly and desperate move.
To understand why that’s the situation Google is in, first we should look at the company’s mobile Android software in the context of Google’s product portfolio. There’s a great consistency with Google’s products: they are services “in the cloud.” All except for one: Android. It’s a peculiar Google product for two reasons.
1) Android is not an end-user application or service. It’s system software; the customer for Android is not the end-user but a system builder or integrator. Typically a phone or device vendor needs to license Android and then build a product which must then be accepted by another intermediary — usually a mobile operator — before sale to the end-user. System software is “plumbing” which, like Windows, enables applications that “run on top” of it. It’s a platform.
2) Android is one of many enablers for other Google services. Google offers the same services on other system software. For example, Gmail and Google Search and Google Maps work very well on iPhones (or Windows). So Google’s own platform is not the only venue through which Google’s money makers can reach the market. Although Google services can run on any platform, mobile platforms are not as open as traditional computer platforms. This means that a platform owner (e.g. Apple or Microsoft) can “turn off” Google services on a whim. By distributing its own platform, Google can thus ensure that its services will have unhindered access to users. In other words, they gain distribution. By being a plumber, Google can ensure that its services will flow freely.
Goggle is having to move outside its core business – providing services in the cloud and making money off of ad revenues – in order to try and stabilize Android.
Sure, getting lots of patents will be helpful for its position but, as the article states, Google also has a need for a handest made without the fragmentation and vendor modifications that harm Google’s business.
I agree with this author that Google will use Mototrola’s handset business to take back control of its Android destiny, having full power to create handsets that serve Google’s needs rather than handset vendors.
Just as Apple has demonstrated with its iPhone or Microsoft with its deal with Nokia, it is critical to have control ofver the hardware and the software in order to succeed in the market.
But this opens real problems for Google. As stated in the article:
The company is thus no longer just a plumber but also a house builder and real estate developer. It can now build showcases that demonstrate the value of its services. The challenge then is how it will sell plumbing to contractors while it also competes with them by building houses. Android’s big bet has yet to pay off and Google just doubled down.
And this is where IP issues enter. Android has many problems in the IP arena, some that might be devatating. Handset makers are alrready having to pay Microsoft a few to use android. Why not just license the OS from Microsoft where they will not have to deal with the IP issues?
I think that, in the long run, Microsoft might be the big winner here. In a few years, we might see the iPhone made by a single vendor, an Android phone made by a single vendor and Windows Phones made by multiple vendors.