The business world was surprised this week when Google announced it was acquiring Motorola Mobility for $12.5B – a 63% premium to its trading price ( Crain's Chicago Business ). Surprised for 3 very good reasons:
Truth is, Google had a hard choice. Android doesn't make much money. Android was launched, and priced for free, as a way for Google to try holding onto search revenues as people migrated from PCs to cloud devices. Android was developed as a way to defend the search business, rather than as a profitable growth opportunity. Unfortunately, Google didn't really think through the ramifications of the product, or its business model, before taking it to market.
Sort of like Sun Microsystems giving away Java as a way to defend its Unix server business. Oops.
Then, in early August, Google was slammed when German courts held that the Samsung Galaxy Tab 10.1 could not be sold – putting a stop to all sales in Europe ( Phandroid.com " Samsung Galaxy Tab 10.1 Sales Now Blocked in Europe Thanks to Apple .") Clearly, Android's future in Europe was now seriously jeopardized – and the same could be true in the USA.
This wasn't really a surprise. The legal battles had been on for some time, and Tab had already been blocked in Australia. Apple has a well established patent thicket, and after losing its Macintosh Graphical User Interface lead to Windows 25 years ago Apple did a better job of defending its intellectual property this time around. It was also well known that Microsoft was on the prowl to buy a set of patents, or licenses, to protect its new Windows Phone O/S planned for launch soon and fight off any other competitors (like Android).
Google had to either acquire some patents, or licenses, or seriously consider dropping Android. Google's severe intellectual property problems assured big legal expenses trying to keep Android in the market. And Android still might well fail if Google did not come up with a patent portfolio – and before Microsoft! Given the lack of profitability in Android, dropping the product really doesn't seem that bad – especially since Google has been on a run of dropping products lately!
Nonetheless, Google leadership clearly decided "in for penny, in for a pound" and bought Motorola. The acquisition gives Google some 16,000-17,000 patents. With that kind of I.P. war chest it is able to defend Android in the internecine wars of intellectual property courts – where license trading dominates resolutions between behemoth competitors.
Only, what is Google going to do with Motorola (and Android) now? This acquisition doesn't really fix the business model problem. Android still isn't making any money for Google. And Motorola's flat Android product sales don't make any money either:
Source: Business Insider.com
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