Google buys Motorola and its giant patent portfolio

The official statement from Google says,

Google Inc. (NASDAQ:GOOG - News) and Motorola Mobility Holdings, Inc. (NYSE:MMI - News) today announced that they have entered into a definitive agreement under which Google will acquire Motorola Mobility for $40.00 per share in cash, or a total of about $12.5 billion, a premium of 63% to the closing price of Motorola Mobility shares on Friday, August 12, 2011. The transaction was unanimously approved by the boards of directors of both companies.

The acquisition of Motorola Mobility, a dedicated Android partner, will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing. Motorola Mobility will remain a licensee of Android and Android will remain open. Google will run Motorola Mobility as a separate business.

Meanwhile, over in the Google Blog, Larry Page explains,

Since its launch in November 2007, Android has not only dramatically increased consumer choice but also improved the entire mobile experience for users. Today, more than 150 million Android devices have been activated worldwide—with over 550,000 devices now lit up every day—through a network of about 39 manufacturers and 231 carriers in 123 countries. Given Android’s phenomenal success, we are always looking for new ways to supercharge the Android ecosystem. That is why I am so excited today to announce that we have agreed to acquire Motorola.

Motorola has a history of over 80 years of innovation in communications technology and products, and in the development of intellectual property, which have helped drive the remarkable revolution in mobile computing we are all enjoying today. Its many industry milestones include the introduction of the world’s first portable cell phone nearly 30 years ago, and the StarTAC—the smallest and lightest phone on earth at time of launch. In 2007, Motorola was a founding member of the Open Handset Alliance that worked to make Android the first truly open and comprehensive platform for mobile devices. I have loved my Motorola phones from the StarTAC era up to the current DROIDs.

The bold-faces are mine.

First, note how Larry says Google is acquiring Motorola, rather than Motorola Mobility. That’s because mobility is the heart and soul of Motorola, Inc., which has been synonymous with mobile radio since the company was founded by Paul Galvin in 1928. Motorola, Inc.’s other division, Motorola Solutions, is big and blah, selling gear and services to business and government. Now that Motorola Solutions will be 100% of Motorola, Inc., it’s an open question where the Motorola name will go. Since Larry says Google bought Motorola, I’m guessing that the acquisition included the name. Nothing was said about it in either the release or the blog post, but it’s bound to be an issue. I hope somebody’s bringing it up in the shareholder webcast going on right now (starting 8:30 Eastern). If Google got the Motorola name, Motorola solutions will probably go the way of Accenture, which used to be Andersen Consulting.

At the very least, this is patent play. That’s why Larry talked about intellectual property. In mobile, Motorola (I’m guessing, but I’m sure I’m right) has a bigger patent portfolio than anybody else, going back to the dawn of the whole category. Oracle started a patent war a year ago by suing Google, and Google looked a bit weak in that first battle. So now, in buying Motorola, Google is building the biggest patent fort that it can. In that area alone, Google now holds more cards than anybody, especially its arch-rival, Apple.

Until now, Apple actually wasn’t a direct enemy of Google’s, since Google wasn’t in the hardware business. In fact, Android itself was hardly a business at all — just a way to open up the mostly-closed mobile phone business. But now Google is one of the biggest players in mobile hardware. The game changes.

For Google’s Android partners other than Motorola, this has to hurt. (Henry Blodget calls it a “stab in the back.”)

For Windows Mobile, it’s a huge win, because Microsoft is now the only major mobile operating systems supplier that doesn’t also own a hardware company.

Unless, of course, Microsoft buys Nokia.

[Later...]

The conference call with shareholders is now over, and the strategy is now clear. From Business Insider’s notes:

David Drummond, Google’s legal chief: Android under threat from some companies, while I’m not prepped to talk strategies, combining with Motorola and having that portfolio to protect the ecosystem is a good thing.

Sanjay Jha: Over 17,000 issued, over 7,500 applications out there. Much better support to the businesses.

8:47: Android partners, a risk to them?

Andy Rubin: I spoke yesterday to top 5 licensees, all showed enthusiastic support. Android was born as an open system, doesn’t make sense to be a single OEM.

8:48: What convinced you this was optimal solution? Competencies that aren’t core to Google?

Larry Page: I’m excited about this deal, while competencies that aren’t core to us, we plan to operate as a separate business, excited about protecting the Android ecosystem.

Always watch the verbs. “Protecting” is the operative one here.

Eric S. Raymond weighs in, optimistic as ever about Google/Android’s position here:

We’ll see a lot of silly talk about Google getting direct into the handset business while the dust settles, but make no mistake: this purchase is all about Motorola’s patent portfolio. This is Google telling Apple and Microsoft and Oracle “You want to play silly-buggers with junk patents? Bring it on; we’ll countersue you into oblivion.”

Yes, $12 billion is a lot to pay for that privilege. But, unlike the $4.5 billion an Apple/Microsoft-led consortium payed for the Nortel patents not too long ago, that $12 billion buys a lot of other tangible assets that Google can sell off. It wouldn’t surprise me if Google’s expenditure on the deal actually nets out to less – and Motorola’s patents will be much heavier artillery than Nortel’s. Motorola, after all, was making smartphone precursors like the StarTac well before the Danger hiptop or the iPhone; it will have blocking patents.

I don’t think Google is going to get into the handset business in any serious way. It’s not a kind of business they know how to run, and why piss off all their partners in the Android army? Much more likely is that the hardware end of the company will be flogged to the Chinese or Germans and Google will absorb the software engineers. Likely Google’s partners have already been briefed in on this plan, which is why Google is publishing happy-face quotes about the deal from the CEOs of HTC, LG, and Sony Ericsson.

The biggest loser, of course, is Apple; it’s going to have to settle for an armed truce in the IP wars now. This is also a bad hit for Microsoft, which is going to have to fold up the extortion racket that’s been collecting more fees on HTC Android phones than the company makes on WP7. This deal actually drops a nuke on the whole tangle of smartphone-patent lawsuits; expect to see a lot of them softly and silently vanish away before the acquisition even closes.

I don’t think anybody has paid more attention to this whole thing than Eric has, and he brings the perspective of a veteran developer and open source operative as well. (Without Eric, we wouldn’t be talking about open source today.)

On August 17, Holman Jenkins in the Wall Street Journal added this bit of important analysis:

Android has been hugely advantageous for everyone who is a successful phone maker not named Apple. Remember, Apple’s premium smartphone holds up the pricing structure for the whole industry. Samsung, HTC and the rest have been selling phones into this market and pocketing huge margins because they pay nothing for Android.

Google wouldn’t be human if it didn’t want some of this loot, which buying Motorola would enable it to grab. But that doesn’t mean, in the long term or the short term, that other hardware makers will walk away from a relationship that has lined their pockets and propelled them to the top of the rapidly growing and giant new business of making smartphones. Let’s just say that while having Google as a competitor is not ideal, handset makers will learn to live with it.

Jenkins’ columns often rub me the wrong way, but this bit seems spot-on.

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8 comments

  1. Andrew Leyden’s avatar

    Wow, where to begin on this one. At the very least it’s a patent play as you noted, but you have to start wondering if the open source model of Android across multiple hardware platforms just wasn’t cutting it. Android Hardware Fragmentation has been an issue, perhaps something that Google has decided now has to end. It will be interesting to see what becomes of Android and whether there will now be a flavor of ‘Motorola Android’ that becomes the new de facto Android standard (remember ‘IBM Compatible’ as a buzz word?).

    The reactions from HTC and other hardware manufacturers was basically like a bunch of guys reading off the same script (it’s almost eerie what they all said). One has to wonder if the lines of communication between HTC, Samsung and Microsoft is now elevated a notch or two.

    Anyway, it’s only hour two or three of what is going to be a major shakeup in the device markup that’s going to echo on for years. Can’t say I have all the answers just yet. Will be fun to watch.

  2. Doc Searls’s avatar

    I think for sure that “Motorola Android” will be the gold-standard flavor. As for the rest, who knows. In any case, “going vertical” is a sex change for Google, and it’s not clear what that means next. I think it raises the possibility they’ll buy Sprint too (as I talk about in my next post), but that’s sure to set spinning the heads of lawyers, lobbyists and legislators. And it will probably be tied up for years.

    Clearly patent warfare is a vertical game. The cynical way to look at it is: Google had no choice. And the marketplace is worse off for it, imho.

    And Microsoft may end up winning, if HTC, Samsung and the other screw-ees in this deal bolt from the Android camp. But then, it may also be a question of who innovates fastest and best: Microsoft, Apple or Google? Hate to say that Apple is the way to bet, as long as Steve Jobs lives.

  3. PXLated’s avatar

    So Doc…What do you think of this…

    The Google/Android licensing/IP problems just keep piling up – Now they’ve lost their GPL Linux license – http://t.co/urlOKPA

    Sounds like gaining the Moto patents doesn’t begin to solve their underlying problem – They’re getting hit from every direction because they were so sloppy to start.

  4. Doc Searls’s avatar

    The woeful complexity of that post, and the many many variables it brings in, shows just how wacky the whole intellectual property mess has become.

    This isn’t just Google’s problem. It’s everybody’s now.

    I’ve already spent lots of time on the phone today talking about the chilling effects of this whole thing on all kinds of new development. The unintended consequences are innumerable.

  5. Doc Searls’s avatar

    One other take, from a developer friend, is that this actually provides patent cover for all the Android developers, while also opening up a few new opportunities, for example with mobile video.

    Also heard that the GPL license issue will be handled like others have in the past. Not sure what that was, though. (Heads-down on other issues here right now. No time to dig.)

  6. B Masterson’s avatar

    “…Motorola, Inc.’s other division, Motorola Solutions, is big and blah, selling gear and services to business and government…”

    Yeah, I get so tired of everyone saying that. Moto Solns. actually contains more of the core of the old Motorola than Mobility. They have equal rights to the patent portfolio – it didn’t all magically go to Mobility. Those patents (esp. the radio-related ones) are showing up in some really cool stuff from the Solutions folks – e.g., LTE for Public Safety.

    And I guess it’s unimportant that Solutions’ income completely DWARFS that of Mobility – 4Q 2010, Solutions vs. Mobility, $290M vs. a NET LOSS of $56M.

    Even with Google buying Mobility, don’t write off Solutions just yet. And it’s only boring if you don’t know anything about radio.

  7. Doc Searls’s avatar

    Motorola has a way of naming their divisions terribly, and that’s one problem with Motorola Solutions. Can there be anything more downbeat than making your last name “solutions” and using your brand as an adjective?

    And the company has an amazing ability to confuzz their offerings. I worked with them in the late ’80s, when they had two different competing divisions, with almost identical names, in Cupertino and Tempe, selling identical computer systems with two different names. Both would be advertised in the same magazines, with little or no coordination. It’ was wacky.

    You’re right about the size and heft of the division, though. And as an old radio guy I appreciate much of what they’re doing. Also, much of the company’s soul has always been tied in with Big Customers, Defense and other government bodies.

    If they keep the name Motorola Solutions, it will be confusing, but in keeping with the corporate legacy.

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