Google has attempted to hit many targets with a single deal, though at last it is the outcomes that matters!!
What a bet!
Earlier to diversify itself into new territory of smartphone and wireless domain, Google bought Android OS from Andy Rubin in August 2005 in undisclosed amount which some analyst predicted at $5 million, now in same month of 2011 in the strategic move to build a new empire on the back of its Android OS Google has entered into an agreement with Motorola to purchase its Motorola Mobility in all cash transaction dealt ($40 per share) of $12.5 billion (as per Google's media briefing). The latest buyout by search giant is itself the biggest price Google has ever paid in the list of 174 acquisitions so far it has in its 12-year old journey. To pay such hefty amount might not be difficult for a company who has $39 billion (as per Google Finance report) cash to not only fence himself from mighty competitors’ lawsuits but also to fuel its increasing ambitions.
Consumption of information has been changing rapidly. People who earlier relied on their PCs then switch to Laptops are now spending their time seeking information on their mobile handsets, smartphones. Searching and sharing of information is big business now. From Youtube to Google Plus it’s increasing day by day.
Ask something from the people and they say I will ‘google’ it.
So isn’t it a logically intelligent move to purchase a company who has 80 years of experience in innovation (from first portable cellular phone to cable networks and now smartphones), running in losses ($56 million last quarter as per company report) and who has been dedicated to Android OS.
By this move Google has tried to secure its future by following the basic principle of marketing “Go where Your Customer Are” - be in the palm of those hands who are carrying those devices which not only helps them in talking, texting, searching (Google), connecting (Google+), viewing (Youtube), experimenting (applications) and many more things.
Many of us still think and discuss about Nexus and Google TV as failed attempt by Google, to realize its ambitious plan in a whole new territory in which this search and advertising company has no expertise. Now here is the big thing about this Google and Motorola Mobility deal. Google now has the expertise and know-hows of manufacturing but also has a viable carrier to materialize and monetize its GoogleTV project. Definitely it may be beneficial for Google to have a set-top manufacturer on its side to fine tune its hardware and software offering for Google TV.
This acquisition will extend the ‘advertising’ (main source of Google revenue) reach of Google into devices especially at home via GoogleTV, Tablets, set-top boxes et al.
And now a simple question which arises in minds of all business strategist, Why did Google choose to buy Motorola Mobility at such high price of $12.5 billion which itself is a loss-making entity, even when Google has many popular option like outsource the manufacturing of mobile handset from China at low price as many smartphone manufacturer are doing and purchase any small – comparatively to Motorola Mobility- set-top box manufacturer company at lesser price to reinvigorate its GoogleTV growth? The answer lies in Android success saga!
Google purchase Android in 2005 and now ever since its launch Android stupendous success can be witnessed by its 39 manufacturers and 231 carriers in 123 countries (as per market reports) are using it on their manufactured devices. Android now has change the equation of smartphone and application verticals. It has increased the choices for customers and offer entire new mobile experience to users. And it was Motorola a well-known name in mobile handset manufacturing sector that first integrated Android on its mobile handset and remain its dedicated partner. So such antecedents make business sense too and will further ‘supercharge the Android ecosystem’ as well as ‘enhance the competition in mobile computing’.
Other than Google’s aim to be an owner of mobile handset (Nexus), expand its commendable reach in IPTV segment (GoogleTV), the acquisition of Motorola Mobility will surely help to establish search-giant another project in Mobile Payments System . Google want to grab the big pie of Mobile Payments System (as it is testing HotPot service based on NFC technology) and the expertise of Motorola Mobility in leads to discover the of NFC applications on its handsets in near future.
So it is evidently clear now that Google has all set to hit many targets with a single strike.
Above all, as all it’s not enough to count the benefit of this deal, the Patent Potential. Nobody can deny the worth of Intellectual Property Rights in the contemporary business world. Increasing lawsuits and litigation of copyright infringement – in terms of reputation & revenue- has been costing a lot to the companies. From Oracle to Microsoft, Apple to Motorola, and Google to Sony everyone is accusing and dragging each other in the court on IPR and Copyright issues.
Now with this deal Google directly got the patent-ownership of 14,600 patent and more than 6,700 are pending for approval as per Motorola Mobility’s website. Acquisition of patent portfolio by this deal Google would be of great help for primarily a search-engine company with growing business aspiration amidst of well-established and mighty competitors like Apple, Microsoft in particular as they all seek to protect their interests in the competitive mobile industry through litigation as well as innovation. Google will now easily fortify itself amidst of increasing patent war and reap the benefit of pile of innovation.
Acquisition of Motorola Mobility may put Google closer to the hardware world and decisive enough to integrate itself in vertically following foot step of Apple. Being a Vertically Integrated company Apple efficiently manage hardware & software side to give customer a unique mobile experience.
As everything is really not so excited and smooth, no doubt Vertical Integration paves the path for faster innovation like Apple, but it has its pit-falls too, Nokia and Blackberry are the example how company turn blind to its customer preference and fail to catch the customer nerve in its own fervent hype. So it would be tight-rope ride for Google to go through. And the Challenges have come in the kitty of Google by-default with Motorola Mobility.
Android OS since its launch in 2007 has been free to integrate and hence installed in more than 150 million devices and is widely used by a network of 39 manufacturers and 2331 carriers in different geographies. Now the big challenge for Google is to take into confidence the manufacturer like HTC, LG, Samsung, Sony Ericsson, Acer, Lenovo and other Android device maker which are using Android OS on their device (95% of shipments today are coming from non-Motorola handset makers as per Gartner ) as now Google has pave its way in telecommunication hardware business . The deal, if not practically but in principle, has put Google in the direct competition with companies like Apple, Nokia, and Research in Motion (Blackberry) et al.
Well finally, the hard truth to swallow for companies who vouch un-organic route to grow from M&A historical literature :“Companies spend more than $2 trillion on acquisition every year, yet the failure rate is between 70% and 90%...” as per The New M&A Playbook by Prof.Clayston and others.
It’s now quiet evident that Google has taken a big stride in realizing its increasing business aspiration. But to keep Motorola Mobility a separate business entity and Android OS free-as it is reiterated the same time and again- will be the decisive factors. Best wishes for Google’s transition!
