Google Buys Motorola Mobility (Motorola’s Former Mobile Division) – Why?

In a surprise move, Google buys American phone-maker Motorola for $12.5 billion. The acquisition, which has already been approved by the boards of both companies, is set to be completed by the end of 2011 or the beginning of 2012, pending regulatory approval. Motorola Mobility will continue to operate as a separate business, rather than being rolled up into Google. The buy will cost a reported $40 per share, for a total of $12.5 billion.

The question now is that, is it because Google wants to start making phone hardware as well as the Android software that goes inside them? Google have been very successful in getting Android out there – taking about 50% of the US market but barely make money out of Android. Is it because they have noticed Apple’s enormous profit margins – $7billion out of $28billion earnings last quarter and decided to wiggle a little further into the exploding mobile market? Companies like HTC have built hugely successful businesses making the hardware for the Android OS; will Google continue to sell Android to them or will it knock out 3rd party Android phones? But if Google were to get into the handset business, they would turn their back on partners like HTC, Samsung and others.

If we think this is about Google getting into the handset business, we need to think again.

It will be difficult to believe, however, that manufacturers who were backing Google, such as Samsung, will not now be looking at Microsoft more closely. One effect of this deal will be to make them appreciate the fact that Google is not indebted to anybody, and it has the pockets to prove it. But there’s much more to this deal than mobile phones:

• Firstly, Google will gain ownership of the 17,000 patents that Sanjay Jha, Motorola Mobility chief executive, said the company owns around the world, and 7,500 pending patents – a massive armory Google can use to defend the mobile phone producers using its Android operating system against a steady stream of legal battles over infringements of intellectual property. That will make a serious impact on the ongoing patent litigation that is threatening to swallow up every major technology companies. Microsoft had already successfully sued to get $5 per handset from some Android devices. According to Larry Page, CEO of Google, “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.”

• Secondly, key to Motorola Mobility’s business is its home and lifestyle products. Google knows it must find its way into the living room, and Motorola’s business with set-top boxes is significant potential to offer a boost to Google’s on-demand service, Google TV