After months of waiting, Google (NASDAQ:GOOG) finally closed its acquisition of Motorola Mobility (NYSE:MMI), elevating Dennis Woodside to CEO in place of Sanjay Jha, who is leaving the company (with a $47 million compensation package for 2011). The questions of what happens now and why Google plunked down so much cash for Motorola in the first place are just as pressing and unanswered now as they were in August when then deal was announced.
I don't have any special insight into the thinking of Google CEO Larry Page or Andy Rubin, senior vice president of mobile. However, it seems clear to me that while Motorola will be broken out as a separate business within Google, the search giant will not be running Motorola as the pure hardware company it once was.
Instead, it's likely that Google will use Motorola's engineering talent to enhance the Android platform. Google will also likely spend the next year courting and showering its beneficence on Android licensees to perpetuate support for the platform. Despite its massive market share, Android faces issues. Its licensees are beset by patent litigation. It takes a long time to get new Android innovations into device portfolios. The Motorola deal could potentially help with these issues, and Google will likely try to demonstrate how the deal will benefit the ecosystem.
"It's imperative for Google at this point in time to step up its engagement from the licensee community," said CSS Insight analyst John Jackson. A big unanswered question is whether other Android licensees will go along or will care--or will see benefit from this approach.
The first clue to what happens next is in the canned statement from Woodside in Google's press release announcing the close of the deal: "Our aim is simple: to focus Motorola Mobility's remarkable talent on fewer, bigger bets, and create wonderful devices that are used by people around the world."
This seems to indicate Motorola will not be churning out 9 million handsets per quarter in more than a dozen SKUs. Instead, Motorola's engineering talent will focus on ways to improve Android, and, as Wired recently pointed out, could then dole these improvements to other Android OEMs. In other words, despite Rubin's talk of a "firewall" between Motorola and Android, Motorola would become a de facto Android development organ. (There's already a precedent for this in Motorola's licensing of 3LM security technology to other Android handset makers; this would just make the sharing more explicit.)
"This is a big strategic 'think project' and 'do project,''' said Jackson. "We don't know exactly what it's going to be. We have a pretty good idea of what it isn't going to be: It isn't going to be the old Motorola."
This would be especially beneficial to any company working with Google on its "lead" Nexus devices. According to a recent report in the Wall Street Journal, Google will expand its Nexus program from one OEM to as many as five hardware partners for the next iteration of Android, dubbed Jelly Bean, and will sell the devices unlocked through its online Google Play store. Implicit in all of this is a greater degree of Google control over how Android develops, which some have called for in a platform that has a great deal of fragmentation (or "differentiation," as Google Chairman Eric Schmidt put it earlier this year).
But would Android OEMs accept entreaties from Google? They're already paying Microsoft (NASDAQ:MSFT) an effective tax on patent licensing. Most of them have margins that are thin or nonexistent. "It's certainly likely other manufacturers will need to weigh and balance moving forward with a Nexus brand as opposed to an exclusive brand" of their own, said Informa Telecoms & Media analyst Andy Castonguay.
I'm not sure Android OEMs will bite. Will they--especially OEMs not named Samsung Electronics--want to dilute their brand and flagship products with a Nexus device? Some, like Huawei and ZTE, probably feel they could use the greater brand visibility a Nexus device would afford. Others, like HTC, want their own brands to be strong and clearly defined. I'm just not sure Google's imperative to cozy up to Android licensees--if for no other reason than to assuage the concerns over favoritism to Motorola--will be reciprocated. "On the one hand this mitigates the OEM's complaints about preferred access," Jackson said. "On the other hand, it just reinforces the homogenization of OEMs."
Google has spent $12.5 billion to buy a hardware company. What it does with it is anyone's guess. But the future of its Android business rests upon it. --Phil