Google’s recently announced acquisition of Motorola Mobility has profound implications across the communications and media value chain. In terms of tangible value, the key asset in the deal for Google is Motorola Mobility’s significant intellectual property.
This will help Google and its Android partners defend themselves against patent infringement suits from Apple, Microsoft, Oracle and others. Perhaps more importantly, it will also enable the development of true Google devices, ensuring that these are fully integrated with Google-led operating systems (OSs), applications and potentially other types of Google-developed entertainment content.
The game-changing implications of the acquisition are much broader: the combined Google/Motorola entity is set to become one of the major integrated solution providers that enable the delivery of a range of increasingly converged consumer communications and media services to a growing number of devices.
Through its acquisition of Motorola Mobility, Google will gain a wide range of assets that will help further its efforts to penetrate both the wireless and fixed device ecosystems (see Table 1).
Table 1: Key assets of the major integrated communications and media solution providers [Source: Analysys Mason, 2011]
• Handsets (iPhone)
• Tablet PCs (iPad)
• PCs (Mac)
• STBs (Apple TV)
• Other (iPod)
• Handsets (Motorola)
• Tablet PCs (XOOM)
• STBs (Google TV, Motorola)
• Handsets (Nokia)
• PCs (Nokia Booklet 3G)
• Other (Zune, Xbox)
• Handsets (iOS)
• Tablet PCs (iOS)
• PCs (Mac OS and various other applications)
• STBs (iOS)
• Handsets (Android)
• Tablet PCs (Android)
• PCs (Android, Google Chrome OS, Google Docs)
• STBs (Android and Google Chrome for Google TV, Dreampark IPTV middleware)
• Handsets (Symbian, Windows Phone 7)
• Tablet PCs (Windows 7)
• PCs (Windows are various other applications)
• STBs (Microsoft Mediaroom)
Content aggregation and distribution
• Music, video (iTunes)
• Music (Google Music Beta), video (YouTube)
• Music, video, games (Ovi Store, Zune, Xbox LIVE)
• App Store
• Android Market
• Ovi Store, Windows Marketplace for Mobile
1 Please note that Nokia and Intel jointly developed the MeeGo OS, which can be used on multiple device types, including mobile handsets, PCs, tablet PCs and STBs. However, it has not been included in this table because of the uncertainty surrounding Nokia’s continued involvement in MeeGo, following its strategic partnership with Microsoft.
The acquisition has the potential to create significant benefit for Google, in our view, in positioning it to extend its reach within the device/OS/applications/content value chain. It will have particular impact in helping Google to extend its reach beyond the PC, where its presence is pervasive, to other devices on which consumption of Internet content is growing rapidly – notably tablet PCs and TV sets – while further extending its understanding of, and influence in, the handset market.
Move complements Google’s strong position
Android has already become the leading mobile OS in the smartphone market. Motorola’s position in the handset market has declined in recent years – it is now the eighth-largest handset manufacturer worldwide in terms of unit sales. However, recent models such as the Android-powered DROID (known as the Milestone in some markets) have revived its fortunes somewhat.
Motorola’s handset expertise, distribution channels and clients (which include MNOs) should enable Google to better compete against Apple and Microsoft/Nokia, both of which have extensive capabilities in the areas of mobile hardware and software.
Could also give Google stronger foothold in video and TV
Google’s first foray into the STB market – the launch of over-the-top (OTT) Google TV devices in October 2010 through its partnership with Sony and Logitech – has been a failure. By comparison, Apple had shipped 2 million units of the second version of its Apple TV STB by March 2011 – within six months of launch – because of its superior content offering.
The acquisition of the world’s second-largest STB vendor by shipment volume gives Google direct access to a large number of pay-TV operators. The combination of Google’s Internet, search and metadata expertise with Motorola’s experience in pay-TV content delivery could create a seamless TV-centric user experience encompassing both types of content.
In addition, Motorola Mobility’s recent agreement to acquire Dreampark, a provider of IPTV middleware, enables it to challenge Microsoft Mediaroom, which is currently the most-widely deployed IPTV middleware.
Maintaining Google’s openness is essential
As well as its effectiveness in delivering converged services, a key factor in the combined entity’s success will be how well Motorola Mobility fits into the newly created organization. Two of the key dimensions by which an integrated solution provider can be measured are the extent to which its ecosystem is open or closed, and whether the underlying software is open source or proprietary.
Figure 1: Assessment of selected integrated solution providers [Source: Analysys Mason, 2011]
The three major integrated solution providers differ significantly on these scales.
- So far, Google has been characterized by its open source software, as well as its open ecosystem. The Android OS illustrates the benefits and challenges of this approach: although Android offers consumers and developers a high degree of choice and freedom, its openness has also led to fragmentation of the OS itself as various handset manufacturers add their own customization, and, in some cases, sub-optimal user experiences.
- Apple has taken a diametrically opposite approach to Google’s. It is the only fully integrated player that combines hardware, software and content. As a result, it constitutes a closed, proprietary ecosystem across all four screens (PC, TV, mobile handset and tablet PC). Apple’s tight control over its ecosystem is its greatest strength and weakness. The symbiosis of the different constituent elements optimizes the user experience, but also limits consumer freedom and choice, as well as interoperability with other ecosystems.
- The Microsoft/Nokia strategic partnership adopts an approach somewhere between those of Apple and Google. Nokia was the driving force behind the initially open source Symbian OS, but will abandon it in favor of Microsoft’s proprietary Windows Phone 7 OS for most of its handsets. However, Windows Phone 7 will continue to be available to other handset manufacturers, in line with the open ecosystem strategy that led to its success in Microsoft’s core business: PC software.
Following its acquisition of Motorola, Google needs to be careful not to alienate its partners in the Open Handset Alliance (OHA). It needs to dispel fears of a two-tier community, in which Google favors Motorola at the expense of its other partners. Google should certainly capitalize on its ownership of Motorola by optimizing the interaction of software with hardware, but must limit itself to using it as a ‘test bed’ for producing reference models for its partners. Such an approach would enable it to improve and increase the consistency of the Android user experience, without sacrificing the openness that has been key to its success.
Building trust with internal and external stakeholders will also be key
The acquisition provides Google with a strong foothold among operators – notably in the video segment. However, it has been a key player on the wrong side of the ‘OTT versus pay-TV’ divide, so will need to reassure operators that it intends to co-operate with, rather than compete against, them.
Google has some valuable competences as a result of its pre-eminence on the Internet, such its ability to collate, store, analyze and monetize massive volumes of data and information – which few can match. It will need to convince its new operator partners that it will use these strengths in a mutually beneficial manner in order to provide more-personalized services. Google’s lack of success in supplying devices to consumers suggests that it is likely to be far more dependent on operators as a distribution channel than Apple ever was, should it choose to go down this route.
Building trust between the two organizations will also be essential: Google and Motorola are large companies with a major cultural gap between them that, if not addressed effectively, could significantly limit the effectiveness of the acquisition.
Cesar Bachelet is senior analyst at Analysys Mason. This article was posted on Analysys Mason.