Google Acquiring Motorola Mobility: Hardware Matters

Google announced a friendly takeover of Motorola Mobility less than a day ago as I write this. No fewer than seven law firms have already announced civil lawsuits against Google and Motorola Mobility in relation to the acquisition, which only reminds us that anyone can complain about anything, with or without legal merit. Instead of lawsuits I'll offer some quick analysis, similar to my previous HP Itanium meltdown analysis.

Mobile competition is turning out to be much more interesting than the PC-related battles of the 1980s and 1990s. Most of our planet's inhabitants don't have PCs or PC-like devices, most probably never will, and it's even possible that PC penetration will diminish over time. These trends are disturbing to some incumbent vendors, notably Microsoft. The one-two punch of the Internet followed by mobile computing have upended the technology world, with some potential winners and losers starting to emerge.

Apple is clearly a winner. Michael Dell famously recommended that Apple's management liquidate the company and give the proceeds to shareholders. Fortunately Apple rejected that free advice. Apple has recently surpassed Exxon Mobil as the world's most valuable publicly traded company, depending on which trading day you check. Apple is now over ten times more valuable than Dell. Most of that shareholder value derives from the tremendous success of the iPhone which has spawned the largest and most popular mobile application ecosystem that now rivals the PC. Later this year, Apple is cutting the cord for good: iPhones, iPads, and iPod touches with iOS 5 will no longer require a PC or Mac for keeping in sync and for updating their operating systems. Inevitably that means many people who don't yet have PCs won't buy them, and people who do have PCs will use them less and less. Mobile computing is just more...mobile. (One of the PC's few remaining distinguishing characteristics, the full-sized keyboard, doesn't offer much advantage for Asian languages such as Chinese and Japanese. And if you really want a full-size keyboard you can add one to your iPad or iPhone via Bluetooth.)

Apple is one of the best examples of the newly rediscovered maxim that "hardware matters." Like Exxon Mobil, which is a vertically integrated energy supplier, Apple is the ultimate vertically integrated mobile computing supplier. (IBM mainframes represent the ultimate expression in vertically integrated hardware and software in the business server marketplace. IBM i systems represent another excellent example.) Google has emerged as the other serious participant in mobile computing with its Android operating system and its related application ecosystem. In effect, in the shift to the mobile world Google replaced Microsoft as the dominant client software provider. I think Microsoft has already lost that fight, and the company's partnership with fast-fading Nokia won't work. Microsoft is to mobile computing what Digital Research was to microcomputers in the early 1980s — an odd irony.

In making this acquisition, Google has acknowledged that, as with mainframes, "hardware matters." Oracle has also come to that realization, but I think Oracle could have solved their problem at much lower cost than its acquisition of Sun. Oracle didn't need Sun to build Exadata-type products. I think Oracle was just petrified that IBM would acquire Sun and reacted accordingly. IBM wisely walked away, leaving Oracle with the carcass — and angry Sun customers. Google mostly solves an immediate problem: the attempted intellectual property-based attacks against Android. Google dramatically beefed up its patent portfolio thanks to a big patent purchase from IBM, and now Google picks up Motorola Mobility and its rich patent portfolio in mobile communications. That's smart when faced with the ongoing stupidity that is the patent system.

But Google has also come to realize that hardware and software integration matter, to deliver a smooth, trouble-free customer experience. Google is one of the few companies, even in the technology sector, that's just crazy enough to build its own servers to support its unique in-house software. Google's purpose-built software has co-evolved with its hardware over time. Likewise, Google should be able to take Android to new levels of ease-of-use and function thanks to Motorola Mobility, its most loyal Android partner.

It'll now be interesting to see what Samsung, LG, ZTE, HTC, Sony-Ericsson, and other mobile device manufacturers do. So far they have simply followed the fads, meaning that they've built a lot of Android devices, quite successfully. I don't view any of them as credible software companies. (No, Samsung's Baidu really doesn't count, except perhaps as insurance for Samsung.) Google has proven to be a good partner in many competitive situations. Despite competing in the Web browser arena (with Chrome), Google continues to fund the bulk of the Mozilla Foundation's budget in return for preferential search engine placement in Firefox. Likewise, despite some tension, Google and Apple maintain their partnership in search and in mapping. Google says that they will continue to improve Android and supply new Android versions on a business-as-usual basis. I believe Google, because Google's business model is and will remain based on maximizing eyeballs, i.e. based on advertising revenue. In the early U.S. television industry, NBC's parent, RCA, manufactured televisions, but NBC was also very happy to have viewers tune in using their DuMont and Philco sets. Google's business model is quite similar, and that'll continue.

So, fundamentally, Google's move is about protecting the Android ecosystem from attack and "getting their feet wet" in developing practical Android innovations that they will also readily share with other device makers to maximize their advertising revenue. I'm not the first to say it, but if you want to develop better software you should also build hardware. I think Google made a very smart move here, and I think Motorola Mobility's talents will accrue to the benefit of Android and of all Android partners. Those Android improvements will help widen the gap between Android and, in particular, Windows Phone and Blackberry, both of which seem to be fading fast. Rival handset makers might get a bit nervous, but I think they'll stick with Android and sell a lot of new, much improved devices. They'll also still be free to innovate atop Android if they wish, and they'll have a more powerful partner in terms of fending off IP-related FUD. Google is paying about $12.5 billion for Motorola Mobility which seems like a much better value than Microsoft's $8.5 billion for Skype.

It'll be interesting to see whether Microsoft buys Nokia now. That would be the obvious competitive response, and Microsoft certainly has the cash. It looks like Microsoft could pick up Nokia for about $30 billion. The trouble is, I don't know what Microsoft can do to establish Windows Phone as a significant mobile platform even with Nokia.

This post was updated with additional detail on Motorola, Skype, and Nokia acquisition prices.

by Timothy Sipples August 16, 2011 in Future, Systems Technology
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Comments

Motorola is more popular in USA but i think they need to re design there hardware circuit to became popular in other countries.

Posted by: pcb design | Nov 25, 2011 1:33:33 AM

I would like to understand why it's important to know what software (games) and hardware (consoles) they buy, does that make a difference in knowing what's better and what's worst?

Posted by: excel training | Dec 23, 2011 8:28:40 AM

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