Why did Google spend $12.5 billion dollars to purchase Motorola Mobility? It's been nearly two years since the deal was announced and close to a full year since it closed, and the questions keep piling up while the answers keep getting worse.
The biggest problem is that Motorola's patent portfolio doesn't appear to be worth anything close to what either company assumed: the judge in the Microsoft vs. Motorola patent case ruled yesterday that Redmond owes a paltry $1.7 million in annual royalties
for using Motorola's standards-related Wi-Fi and video encoding patents
in every Xbox 360 and Windows 7 PC sold, not the more than $4 billion
Motorola had originally demanded.
To put that in perspective, it
would take 3,235 years for Microsoft's royalties to pay off Google's
$5.5 billion valuation of Motorola's patent portfolio.
"They're 0-for-Motorola."
"These rulings show that the
portfolio isn't nearly as valuable as Google thought it was," said a
source connected to the trial, who pointed out that Motorola has lost
other cases around the world on patents unrelated to standards as well.
"They're 0-for-Motorola."
That's a significant blow to
Google's interest in Motorola's patent portfolio as a defensive measure
against an increasingly-litigious Apple. With the value of Motorola's
patents now coming into focus, the complete implosion of a previous suit
against Apple, and increasing domestic and international pressure
against using standards-related patents to block competitive products,
it's not unreasonable to say that any patent-related benefits to the
purchase have vanished. Google may have wanted to buy a bulwark against
future Android lawsuits, but it ended up with a fairly anemic
patent-licensing business instead.
And that patent-licensing
business certainly isn't enough to offset quarter after quarter of
losses as Motorola's current products fail to compete against strong
devices from Apple, Samsung, and HTC. Google has repeatedly said that it
inherited an 18-month pipeline of products
from the company that it needs to flush out — CFO Patrick Pichette went
so far in February as to say that current Motorola phones like the
Droid RAZR Maxx HD aren't "wow" by Google's standards,
but that the company is building "the next wave of innovation and
product lines." In the meantime, Motorola has lost over a billion
dollars since being acquired, laid off nearly 30 percent of its workforce, and had its cable box unit chopped off and sold to Arris for $2 billion amidst rumors Google was struggling to find a buyer.
"Andy stood behind the deal and thought it was important to Google."
Motorola's struggles may have even played a role in Andy Rubin's departure from Android: Rubin sponsored the acquisition
within Google, and sources say that he went so far as to vet Motorola's
upcoming roadmap and personnel. "Andy stood behind the deal and thought
it was important to Google," one source with deep ties to the mobile
industry told The Verge. "As [new Motorola CEO] Dennis Woodside started to look into the details, he couldn't see what Andy supposedly saw, which added more fuel to the fire to oust him."
"We acquired Motorola to level
the playing field in patent attacks against Android and draw on
Motorola's long history of innovation," a Google spokesperson told The Verge.
"In just under a year they've accomplished a lot, with impressive
velocity and execution. We're excited about Motorola's future." A
Motorola spokesperson declined to comment.
That future now lies ahead —
it's on Woodside to bring Motorola back to relevance, both within Google
and the larger market. Rumors of a new "X Phone" have circulated since
December, Google chairman Eric Schmidt has promised "phenomenal" devices
that are "phones-plus," and Motorola design chief Jim Wicks told PC Mag earlier this month that the company is working on devices that run stock Android and are "just the right" size. Larry Page, for his part, has emphasized durability.
New phones can't be Motorola's only contribution to Google
But new phones can't be
Motorola's only contribution to Google — the company's Nexus program
already allows the Android team to build high-end reference devices. And
entering a full-throated competition with Android market leader Samsung
might further impact a relationship that's already seeing the Korean
company relegate Google's operating system to second place behind a
thick veneer of Samsung software and services. Samsung dominates the
mobile market in a way that no other company save Apple has managed to
achieve — there's no apparent reason Google would risk severing that
relationship just to enter a cutthroat hardware business that requires equally complex carrier relationships simply for the sake of it.
Which again leads to the question: why did Google buy Motorola? The real answer is worth $12.5 billion.
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