Economy

Motorola Acquisition Would Throw Google Into The Thick Of Mobile Hardware

Google announced this morning that it was acquiring Motorola Mobility Holdings for $40 a share in cash or $12.5 billion. It is the largest acquisition for Google and it throws Google firmly into the mobile business.

Google, of course, is already a major player in the mobile space because of its Android operating system, which it launched in 2007 and is currently on about half of the smartphones in the U.S. For a little bit, Google also tried its hand at hardware, when it made a phone it called Nexus One. That didn't work out and Google ceased manufacturing the phone, but this acquisition would give Google a second — and way bigger — entrée into the hardware business.

In its press release, Google's CEO Larry Page said the acquisition would "supercharge the Android ecosystem." Page also quickly addressed what are likely to be two main criticisms of the deal:

This acquisition will not change our commitment to run Android as an open platform. Motorola will remain a licensee of Android and Android will remain open. We will run Motorola as a separate business. Many hardware partners have contributed to Android's success and we look forward to continuing to work with all of them to deliver outstanding user experiences.

We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to "protect competition and innovation in the open source software community" and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.

From the purely consumer side, TechCrunch explains that Google's bid is an acknowledgement that Apple's model of controlling both hardware and software is the way to go, because while Android may have the largest share of the smartphone market, Apple's iPhone is the single most popular smartphone on the market.

"By owning Motorola, Google can create Android phones to its exact specifications and take advantage of the latest advances in the operating system, just like Apple does," writes TechCrunch's Erick Schonfeld. "When CEO Larry Page says that buying Motorola will 'supercharge' Android, that is what he means I suspect."

But will that mean that Motorola phones will get special treatment? Kevin Tofel at Gigaom wonders if an acquisition of this sort could hurt Google's good will with other handset manufacturers:

"No matter how Google spins this scenario, it really flies in the face of the Open Handset Alliance, currently composed of 84 technology companies. The OHA implies that partners will work together to create a better mobile experience, even though they actually do compete every day. And at the center of the OHA is Google itself, which, no matter how it tries to refute it, has entered the mobile phone hardware business. Until now, no OHA partner has competed with Google in terms of hardware.

"That means there's constant potential for an Android partner to question if Motorola is getting some type of special treatment such as a heads-up on Android changes it could adjust for prior to other Android hardware markets, for instance. Simply put, this is a door that once opened is very hard, if not impossible, to close. The situation is akin to Microsoft buying Dell: Would HP and others be happy about that?"

Finally, there's the regulatory issue. The Federal Trade Commission is already scrutinizing Google. As the Wall Street Journal reported earlier this month, one thing the FTC is looking at is whether Google prevents smartphone manufacturers that use Google's operating system from using competitors' services.

An acquisition this massive, reports All Things D, will almost certainly "spur antitrust regulators to action."

"... Page insists that owning Motorola will not only give Android a kick, but will 'enhance competition' and offer consumers 'greater choice.'" writes Arik Hesseldahl. "It will of course be interesting to see how that argument shapes up... Whatever happens, it's going to take Google some time to get this deal done, and if it does get approved, you can expect some significant regulatory concessions."

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