Mountain View, California — Google Inc., whose omnipresent search engine redefined how consumers and businesses access the Web, turned its sites on disrupting the mobile industry Monday, agreed to acquire Motorola Mobility Holdings Inc. (MMI) for a hefty price of about $12.5 billion, a deal that spells the end of independence for a venerable American company and reshapes the booming market for smartphones as computing shifts from the desktop to mobile devices.
The deal gives Google–which has encouraged widespread adoption of its Android mobile operating system by licensing it freely to mobile phone makers–its own in-house hardware operation, potentially enabling it to challenge rival Apple Inc. on better terms but also raising questions for partners like Samsung Electronics Co., HTC Corp. and LG Electronics Inc.
The acquisition of one of the mobile telecommunications industry’s most renowned names is Google co-founder Larry Page’s most bravest move since assuming office as CEO in April, is an attempt to buy insurance against increasingly aggressive legal attacks from rivals such as Apple Inc., by launching the Internet giant into a lower-margin manufacturing business and pitting it against many of the 38 other handset companies that now use its Android software.
However, Page assured “amazing user experiences” from the Motorola Mobility deal, which expands Google’s patent portfolio. Page said Android will remain open. An analyst said Google wants better quality.
Moreover, Motorola Inc was split this year into two: Motorola Mobility, which controls the faster-growing cellphone and TV set-top box businesses; and Motorola Solutions, which sells gear like walkie-talkies to corporate and government clients.
The proposed acquisition, which would be the biggest in Google’s history if approved by regulators, is a clear indication that the search giant intends to go head-to-head with Apple as a provider of complete mobile systems, chiefly Android-based smartphones and tablets, that feature tight integration of hardware and software. Also in Google’s crosshairs: Microsoft and its partner Nokia, and RIM.
“Motorola Mobility’s total commitment to Android has created a natural fit for our two companies,” said Google CEO Larry Page, in a statement. “Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners, and developers. I look forward to welcoming Motorolans to our family of Googlers.”
Google is paying a whopping 63% premium over Motorola Mobility’s closing share price Friday, it also entitles Google ownership of a huge trove of patent libraries that it will be able to use to defend itself amid an increasing fierce war over intellectual property among technology companies.
In a blog post, Page acknowledged that Motorola’s patent portfolio was also a factor in the deal. “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.” Both Microsoft and Apple claim Android violates some of their patents. The acquisition of Motorola Mobility could put Google in a better position to launch counterclaims.
As conventional handset makers continue to struggle, Google is swooping in to take full advantage. The company had been under pressure to build a patent portfolio since losing out to Apple, Microsoft Corp and others in a recent auction of bankrupt Nortel’s assets.
More essentially, however, the deal further toughens the battle lines in the mobile business. Apple already operates what some call a “walled garden” of operating software, mobile applications and devices like the iPhone and iPad. Earlier this year, Microsoft Corp. cut an extensive deal with Nokia Corp. that will see the world’s top mobile phone maker adopt its Windows mobile operating system for smartphones.
Besides, Google officials mentioned that the transaction, which requires approval from regulators in the United States and Europe, would not signal the end of Android as an open platform. They also said Google has no plans to end partnerships with other third-party hardware makers.
“Our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open source community. We will continue to work with all our valued Android partners to develop and distribute innovative Android-powered devices,” said Andy Rubin, Google’s senior VP of mobile, in a statement.
Furthermore, Google said more than 150 million Android devices have been activated universally–and more than 550,000 devices are activated everyday — through a vast network of about 39 manufacturers and 231 carriers in 123 countries.
“No matter how you think about this, you have to look at it through the spectrum of the Android ecosystem under incredible attack from an IP (intellectual property) perspective. And this is Google going out and trying to fix that,” said W.P. Stewart Advisors Chief Investment Officer Jim Tierney. “The biggest implication here is that Google wants Android to be one of the dominant phone operating systems for years to come.”