Google’s surprise announcement that it will buy Motorola Mobility for $12.5 billion in cash caught most people by surprise and sparked plenty of debate and speculation about the market implications for the rest of the mobility industry.
The move represents a “big bet” by Google on multiple levels.
First, it is paying a premium price for Motorola Mobility, 63% above the company’s closing price on Friday, August 12. Yet, Google timed its acquisition of Motorola Mobility near the company’s 52-week low, helped in part by the market turbulence of the past week.
Second, it is betting that it can assimilate a product manufacturing business into its Internet development and advertising sales culture. Any major acquisition is fraught with overwhelming challenges, but bringing together such diverse businesses compounds the obstacles to success. However, both companies boast engineering-driven corporate cultures and have built a solid working relationship around Android, which could help to overcome these hurdles.
Third, it is hoping that the move doesn’t alienate other Android phone manufacturers that will view Google as a competitive threat rather than an innovative partner. While Samsung, LG and HTC may be uncomfortable with the competitive threat now posed by Google’s acquisition, there are few platform options for them to pursue other than Microsoft. Google is betting that the growing popularity of Android will convince the other manufacturers that there is enough market upside to offset the potential threat created by the Motorola Mobility acquisition.
And finally, Google is betting that government regulators won’t escalate their antitrust investigations in response to this move. In fact, in his blogpost outlining Google’s rationale for acquiring Motorola Mobility, CEO Larry Page suggests that the move was driven by a need to respond to “Microsoft and Apple…banding together in anti-competitive patent attacks on Android,” and its goal is to “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.”
Apple’s recent flirtation with being the highest valued American corporation probably generated some envy among the engineers at Google as well who pride themselves on outwitting traditional market economics.
There is no question that Google has a tremendous opportunity to change the competitive landscape by gaining greater control over its own destiny and the future of Android as a result of this acquisition. But it will have to navigate internal obstacles and prepare for a new round of external attacks.
As in any good chess match, Google strategists have to anticipate a series of retaliatory moves by the major players in the market. For instance, a good friend who prefers not to speculate in public predicted privately to me that he could see Microsoft acquiring Nokia and Cisco Systems buying RIM. Google is betting that Microsoft already has its hands full assimilating Skype into its operations and Cisco is too busy trying to get its core business back on track.
Google isn’t the first major tech company to make a big bet aimed at transforming its business to better position itself in a rapidly changing marketplace. I can still remember AT&T’s ill-fated attempt to move into the computer hardware business by acquiring NCR. AT&T’s equipment spinout, Lucent Technologies, bought one of my former employers, International Network Services (INS), for 12x revenues in hopes of becoming the “IBM Global Services of the telecom industry” and divested the network professional services unit for a penny on the dollar three years later. More recently, eBay acquired Skype with similar dismal results. And, even today there are varying views about whether the acquisition of Sun Microsystems has helped or hurt Oracle.
Nine times out of 10, the only people who benefit from acquisitions are the investment bankers. Google is betting that its acquisition of Motorola Mobility will prove to be the exception rather than the rule.
Jeffrey Kaplan is the Managing Director of THINKstrategies and Founder of the Cloud Computing Showplace. He can be reached at email@example.com.