Why Did Google Buy Motorola?

It was shocking to hear that Google bought Motorola Mobility Inc. by paying USD 12.5 Billion which is considered as big money in today’s terms. The trend in the modern business world is such that manufacturing organizations shift towards service industry to safe guard their profit margins from competitive forces.  Fine.. Then Why did “Google” ; one of the most innovative service firms in the world, acquire Motorola  which is an old fashioned handset manufacturer..?

There are many reviews criticizing Google’s decision to buy Motorola Mobility for USD 12.5 Billion which is at 63% premium on its current traded share value. May be it is sort of over valuing the firm. Nevertheless, lets talk about the good side of the acquisition rather than criticizing a every acquisition that is happening in the industry. .

In January 2011, Motorola Inc. was split it into two companies namely Motorola Solutions Inc. (service firm) and Motorola Mobility Inc. (handset manufacturer) In April 2011, Google submitted its bid to buy 6000 mobile/wireless patents owned by Nortel Network which is loss making Canadian firm. However, Google lost its bid to a group bidders comprising of Apple, Sony, Microsoft, RIM, EMC and Ericsson who submitted a quoted their bid at USD 4.5 Billion. It is strange to see competitors like Apple and Microsoft getting together to form a joint venture and it said that their main intention was to outperform Google. Once those group of bidders won the bid, they started suing Google using their patent rights. To counter attack this  threat, Google wanted to own some mobile patents and easy way out was to buy patents from an existing player. Therefore, they have decided to acquire Motorola Mobility who owns 17,000 approved mobile patent portfolio and 7,000 pending mobile patents.

Google acquiring Motorola is a forward integration which carried out with the intention of controlling the user experience. Android is an open source mobile platform owned by Google where there are 150 Million Android users around the world with 550,000 new installations per day.  There are 39 manufacturers using Android as the platform for their mobile phones and Google does not control the manufacturing process or user experience of the handset. In comparison, players like Apple own fully integrated process where they produce the handset (iPhone) as well as the platform (iOS) and thereby fully control the user experience. Thus, Google now wants to fully control the user experience (from mobile platform to handset experience) of Android users by acquiring Motorola to produce handsets which uses Android as the platform.

Additionally, Google has the option of entering into in-house video solutions market by expanding the video solution product range of Motorola Mobility which includes digital security equipment, video CPE and broadband equipment.

With this justification, it is reasonable to say that Google made a viable investment in Motorola Mobility. The mobile phone/platform markets are still at its growth stage of the product life cycle where every player in the market tries to be the market leader using different strategies. Decades ago similar situation was experienced by the PC market which is now more or less stabilized. However, in the past it took years for firms to come out with counter attacks for the competitive actions where as nowadays counterattacks are planned and executed within 2-3 months.

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• Mobile