Daniel Eran Dilger in San Francisco
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Google wants to be Apple as much as Microsoft did. But can Motorola help?

Daniel Eran Dilger

Years after the tech industry unanimously agreed that Microsoft’s licensing model was far superior to Apple’s integrated hardware model, Microsoft began desperate measures to adopt Apple’s. Now Google is trying to do the same. Will buying Motorola help?
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Short answer is no

Microsoft’s attempts to copy Apple were nearly as disastrous as Apple’s early 90s attempts to be like Microsoft, proving that just because you set out to do something, doesn’t mean you’ll be able, even if a lot of people believe in you.

It took years of brutal failure to beat this harsh reality into Microsoft. Today, the company is so excited about being able to sell even a video game controller that has sought out Guinness to substantiate its ability sell hardware. My, that’s the sign of a small procreative member.

For all its carping about being open and the virtues of broadly licensed software platforms as opposed to the “closed” integration of Apple (which it likened to North Korea last year), Google is now ready to try some deep hardware integration with a mobile manufacturer it owns.

That’s a strategy that even Microsoft refused to adopt. Recall that during its partnership announcement with Nokia involving Windows Phone 7, Microsoft adamantly denied any interest in buying Nokia, making it clear it didn’t want to get into the hardware business.

This after dumping billions into its Xbox and making a big production about its long term commitment to Zune (something it contracted with Toshiba to actually build). So Google is doing something that even Microsoft has expressed zero interest in ever doing, despite rumors that Microsoft was also interested in bidding for Motorola Mobility’s patent portfolio.

Why is Google playing the Cold War patent game in the age of patent terrorism?
Microsoft’s Stephen Elop takeover of Nokia VS. NeXT’s Steve Jobs takeover of Apple

Was it all just for the patents?

One might think that Google simply needed to buy Motorola Mobility for its patent cache. But $12.5 billion is a hysterically expensive purchase for a company that just got done vilifying the practice of bidding the price of patents up into the stratosphere, back when the stratosphere was defined as being around $4 billion. At some point, having thousands of patents runs into the law of diminishing returns.

Further, Motorola’s patents are not really relevant to competing with the iPhone and iPad. Motorola has a patent trove more like Nokia’s, related to core wireless technologies and networking, not smartphone usability. Motorola’s Android business is just over a year old now. Google has had a longer time to patent things related to the modern smartphone business than Motorola has.

Further, Google’s own executives are suggesting that patents weren’t the only reason behind buying Motorola, while also indicating that they were an important component for dealing with the “anti-competitive” competition from Microsoft and Apple.

Motorola’s history of tablets shows remarkable ignorance

Upward trajectory?

Of course, it’s hard to say whether Larry Page is lying or bullshitting between all his lies and bullshit. For example, Page stated of Motorola Mobility that “we believe that their mobile business is on an upward trajectory and poised for explosive growth.” Facts indicate otherwise.

When the iPhone appeared in 2007, Motorola was chasing Nokia for second place in the mobile business. It had 18.4% of the mobile market. It then slipped behind Samsung and then LG, and by the end of 2010 was in seventh place behind RIM, Apple and even Sony Ericsson. This isn’t an upward trajectory.

From 2009 through 2010, Motorola lost half of its market share as sales fell from 58.4 million units to 38.5 million. Note that this was the Year of Android when Verizon was heavily promoting Motorola’s Droid phones. The company now faces intense competition from Samsung and HTC, both of which actually make money selling Android phones, while it continues to lose money selling smartphones.

In the first half of 2011, Motorola Mobility lost $137 million. A year prior, the company had lost $132 million over the same time period. That’s not an upward trajectory.

Microsoft suggested that Nokia had promising potential, but didn’t describe its beleaguered partner as having an upward trajectory. By flat out lying about Motorola Mobility, Google is establishing that it is now ready to say anything that sounds good, regardless of how boldly asinine it might be. Motorola Mobility might have some future potential from its Google acquisition, but it clearly does not have an “upward trajectory” using any useful definition of that term.

2011_Q2_Motorola_Mobility_Financials.pdf
Fortune’s Seth Weintraub calls Steve Jobs a liar, predicts Android tablets will sell

One reason for Motorola’s failure: Google

Of course, part of the reason Motorola Mobility isn’t doing better is Google itself. Its rushed delivery of Android 3.0 Honeycomb fueled a wild goose chase by Motorola to match Apple’s iPad. At the same time, Motorola also tried to do its own thing in building a convertible phone, showing off the Atrix smartphone this year with a “Lapdock” that supplied an 11.6 inch screen and full keyboard.

While the Xoom was imitative hardware hampered by unfinished software from Google, the Atrix was innovative hardware hampered by severe functional limitations, and once again, the limitations of Android as an OS. After paying $500 for a netbook-like device that requires your separately sold smartphone to have any brain power, all you could actually do with the combination was run Firefox.

Neither the Android powered Atrix nor the Xoom were attractive at all when compared against the far cheaper iPad, which actually had a range of functionality thanks to the vibrant software market Apple created around it. Google simply hasn’t been able to replicate that, despite its efforts to improve upon Apple’s iOS ecosystem by creating a more “open” alternative market for its own platform.

A key aspect of Motorola’s failures this year could be blamed on Google for not holding up its end of the hardware/software codevelopment effort. How does Google’s acquisition of Motorola enhance this partnership? It only limits Motorola from ever escaping beyond the tentacles of Android, much as Nokia could never have left Symbian until its platform caught fire and destroyed everything.

That’s not exactly the same path to success that resulted in Apple. If anything, it’s more like Apple buying NeXT and forcing the Classic Mac OS 7 to run on NeXT’s expensive old hardware, marketed by NeXT and sold through Sears.

My next segment will detail everything wrong about the Google-Motorola acquisition.

17 comments

1 John E { 08.15.11 at 9:58 pm }

“My next segment will detail everything wrong about the Google-Motorola acquisition.”

gonna be a long one.

2 kdaeseok { 08.15.11 at 11:24 pm }

I wouldn’t make a big fuss about it. After all, $12.5 billion is like pocket money to Google. Even if it fails it wouldn’t damage the company.

3 John E { 08.16.11 at 12:03 am }

$12.6 B is never pocket money. and it’s about 1/3 of Google’s cash. which means they can’t make another acquisition that big for some time. it’s more than 1 year’s worth of its profits. and Motorola has been losing money for a couple of years now, even tho its revenues went up. why will this change?

reminds me of Time Warner paying an absurd price for AOL.

4 garbi { 08.16.11 at 4:01 am }

As always, a well-written, sharp and extremely well-documented column.

What always amazes me in the IT industry is the extreme amnesia exhibited by all these self-proclaimed pundits and supposedly expert journalists. Journalists are generally known to be amnesic in general but my impression is that when it comes to IT, this is really pushed to the limits.

It’s good to see that Daniel is back writing on a more regular basis and I am really looking forward to read his next segment.

5 beetle { 08.16.11 at 5:04 am }

Great to have you writing again! Please consider a note about your time off. We will understand.

6 kerryb { 08.16.11 at 6:15 am }

Daniel, can’t wait for your perspective on this. I think Wall street has had the usual reaction when one big company gobbles up another, the champagne corks start flying regardless or what the deal really means for both businesses and the broader industry,

7 Karl Snow { 08.16.11 at 8:42 am }

Yes, nice to see that you are back writing. Like your writing best of all, really warms one up even on the coolest (almost) place on earth (Iceland)!

Take care

8 ChuckO { 08.16.11 at 9:23 am }

This purchase is one of the queerest things ever. I really can’t fathom it. It seems like a hail Mary pass of historic magnitude.

If Nokia was using a burning platform strategy. I would call this Google’s partying Rapper in a penthouse strategy. They seemed to be on top of the world: why did they jump?

It seems like an awful lot of work (and money) to turn Motorola into the company it needs to be for this to work if the point is to have a company making Android phones that don’t suck.

the only other reasoning I can think up is what I would call the real reason behind “protecting Android”. Which is not from Apple and Microsoft but from Motorola itself. What if this was to stop Motorola from suing other Android oem’s AND to stop Motorola from SETTLING with Apple and Microsoft and therefore setting another bad precedent for Android oem’s?

9 martimus { 08.16.11 at 10:10 am }

@ John E, I know it has been more than ten years ago now, but AOL bought Time-Warner, not the reverse. Your possible point about valuation, revenue and ridiculous thoughts from the executives involved could possibly still be valid.

@ Daniel, it seems that just about all Google does these days is dissemble and obfuscate. From Eric Schmidt to Larry Page to Andy Rubin, the incorrect and misleading statements seem to spew forth in a never-ending fashion. I wonder when it will end…

10 beanie { 08.16.11 at 2:07 pm }

Daniel Eran Dilger wrote:
“From 2009 through 2010, Motorola lost half of its market share as sales fell from 58.4 million units to 38.5 million. Note that this was the Year of Android when Verizon was heavily promoting Motorola’s Droid phones.”

So what does Motorola’s feature phone market share have to do with smartphone market share. As Dan probably knows, Motorola concentrated on Android smartphones and cut feature phones and Windows Mobile. But Dan posts feature phone numbers just to point out that Motorola Mobilility’s numbers show them in decline.

[Beanie, I wish you'd research facts when you think I'm wrong instead of just recounting "facts" as you seem to remember them, because your recollection of events is almost always wrong.

You're thinking of 2008, when Motorola sold 106.5 million phones. Its sales dropped in half in 2009 as it moved toward smartphones, and then dropped again to 38.5 million in 2010, the Year of Android.

Motorola did briefly do better after purging much of its feature phone business, but after it lost its Android 2.0 exclusivity and particularly after Verizon lost its faith in Android, Motorola returned to losing lots of money - more than $100 million in the first half of this year alone. You are simply wrong here. - Dan]

11 gus2000 { 08.16.11 at 3:13 pm }

“… My, that’s the sign of a small procreative member.”

Hmm, must be Genius Envy.

12 HCE { 08.16.11 at 4:19 pm }

Let’s take a look at some of the statements you have made:

“But $12.5 billion is a hysterically expensive purchase for a company that just got done vilifying the practice of bidding the price of patents up into the stratosphere”

Well Motorola has three times as many patents – and Google paid three times as much for it as Apple and partners did for the Nortel patents. They also got a company that makes smartphones (thus bringing smartphone manufacture in-house) and also TV set-top boxes (an area that Google is interested in but hasn’t been particularly successful in). As deals go, it wasn’t any worse than the one Apple got. Also, Google may not like these bidding wars for patents but they might feel compelled to participate. I don’t see what is so hypocritical about that.

[There's two issues here: the value of patents and Google's hypocrisy. For starters, Nortel (and Novell) were both troves of general purpose patents sitting there ready to be picked up by a patent troll and used against the industry in general. MS, APPL and others saw good reason to pool their money to prevent that from happening. $4 billion is lot of money, but that's also split across multiple buyers.

Motorola's patents were not sitting there at an estate sale. No troll could have afforded to buy Motorola Mobility. Google jumped in as a sole buyer and paid a hefty premium over what the market valued Motorola's entire business at. Google will likely layoff and destroy much of what the market valued. So it's hard to make any realistic argument that Google paid some reasonable value for Motorola Mobility and its patents.

But secondly, Apple and Microsoft weren't the ones talking about how spending billions on patents was irresponsible and dangerous to society. That was Google, just before it blew $12.5 billion on Motorola, ostensibly for its patents. Do you see the difference? It's like the difference of a single Democrat swinger being caught sexting a girl he's trying to impress, and a married Republican running on a Values campaign being caught with hookers. - Dan]

“Further, Motorola’s patents are not really relevant to competing with the iPhone and iPad.”

They aren’t about competing. It is about protection. So long as you’ve got patents in the mobile space, you have something to threaten other companies with when they try and sue you. Right now Google has very few patents in the mobile space – so they are very vulnerable if an Apple or a Microsoft decides to sue them. With the acquisition of Motorola, they are no longer nearly as vulnerable as they used to be.

[How does Apple have some trove of mobile patents that Google lacks, given that both have been in this business since 2007 (privately since about 2005), and that Google purchased Android, a mobile platform company run by the Danger founders? What's up with this fallacy that Google has zero patents and Apple has some lock on the mobile world? - Dan]

“Google is now ready to try some deep hardware integration with a mobile manufacturer it owns.”

That may very well be but I don’t see how you can say that for sure. There is already speculation out there that Google might either sell Motorola’s smartphone unit (minus the patents and the TV set-top box division) to another company or spin it off.

[I wonder who is interested in buying Motorola Mobility for $12.5 billion minus the value of its patents. Hmm. I bet nobody. ]

“Microsoft adamantly denied any interest in buying Nokia, making it clear it didn’t want to get into the hardware business.”

So they say – and maybe they mean it. However, I won’t put it past Microsoft to try and buy Nokia at some future time when the company has been slimmed down and is worth less than they are today.

[You can speculate, and that might happen, but the point is that Microsoft has never seen mobile or PC hardware as a viable business it wants to be in. It could buy Dell at this point, but hasn't. There is no indication that Microsoft wants to sell PCs or mobile phones of its own. The closest it came was the disastrous KIN, and those were being built by Sharp.]

“For example, Page stated of Motorola Mobility that “we believe that their mobile business is on an upward trajectory and poised for explosive growth.” Facts indicate otherwise.”

Well – they are growing unit sales – even if they are bleeding market share. Plus, they have to put a positive spin on things. What did you expect Page to do – issue an Elop-style “this company sucks” memo?

[Like I said, one can make glowing suggestions of optimism without simply lying. You can say "the US will someday pay off its debt," but you can't say "the US is paying off its debt!" That would be inaccurate, because it is not. Motorola Mobility does not have an upward trajectory. ]

“From 2009 through 2010, Motorola lost half of its market share as sales fell from 58.4 million units to 38.5 million. ”

This is because they are abandoning feature phones and shifting to smartphones. Lumping all phone sales together to make Motorola’s current situation look terrible is a little disingenuous of you – and there’s no need to resort to such tactics. Even if you consider smartphones alone, Motorola’s results are none too flattering.

[No, you're thinking of 2008, when Motorola sold 106.5 million phones. Its sales dropped in half in 2009 as it moved toward smartphones, and then dropped again to 38.5 million in 2010, the Year of Android. If you're going to call me "disingenuous" and suggest that I'm fudging facts to exaggerate things, you better have your facts in order. You are simply wrong here. ]

It isn’t as if I disagree with you entirely. On the contrary, I am also somewhat dubious about the benefits of this acquisition. However, sometimes I feel you are going too far in your negativity. There is an upside to this merger and I think you should also consider that instead of sticking to a one-sided partisan approach.

– HCE

[When I say a series of things that are true and accurate, and you attack me for being a "one sided partisan," it makes me wonder if you think the truth should be a lie just to appease people who like hearing pleasant sounding things. Do you really think that, particularly in the context of explaining what companies are doing?

Because that's scarier than Google's silly acquisitions and egregious waste of money and boldfaced lying put together. Also, "partisan" only makes sense in the context of politics with two parties. There are not parties of affiliated political opinion reporting news, unless you really think that Fox and Conservapedia are part of a "party" with opinions on facts that balance out the liberal bias of reality.

Also, I think you owe me an apology- Dan]

13 The Mad Hatter { 08.17.11 at 9:31 am }

Dan,

You’re missing one point. We don’t know what Motorola has in the pipeline.

Look at Apple six months before the IPad was released. No one knew what was happening, and whether Apple was was going to release a winner, or a clunker. Maybe Google likes the look of some product in Motorola’s labs. We don’t know. But I bet we’ll find out.

I don’t think that the deal is:

1) Simple
2) Rushed

In fact I’m willing to bet that everyone is missing the essence of the deal. No matter how you look at the deal, it doesn’t make sense. And when something doesn’t make sense, it means that you don’t understand it.

Wayne

14 HCE { 08.17.11 at 10:08 am }

“I wonder who is interested in buying Motorola Mobility for $12.5 billion minus the value of its patents. Hmm. I bet nobody. ”

Well, nobody is going to buy it for $12.5 billion. However, Motorola’s smartphone business is strong in North America and China – and there could be some interest from other vendors in picking it up for significantly less than $12.5 billion.

“When I say a series of things that are true and accurate, and you attack me for being a “one sided partisan,” it makes me wonder if you think the truth should be a lie just to appease people who like hearing pleasant sounding things.”

I am not saying that you should lie but as I said before, there is a potential upside to this deal. For the most part, my view of this deal matches yours but I am trying to see the upside here. All that I am requesting is that you try and do the same. Whatever else Page and Brin are, they aren’t idiots. They are not going to blow this kind of money unless they felt there were some significant potential benefits.

“Also, “partisan” only makes sense in the context of politics with two parties. ”

I meant “partisan” in the sense of Apple vs anyone else. In this instance Apple vs Google.

“If you’re going to call me “disingenuous” and suggest that I’m fudging facts to exaggerate things, you better have your facts in order.”

There’s no use in claiming that Motorola’s sales are falling by looking at their overall phone sales. They are not interested in feature phones and they want to switch to being a primarily smartphone player (as an aside, Google is not interested in Motorola’s feature phones either). It stands to reason that their feature phone sales are going to drop and lumping them together with smart phones is misleading – which is why I called it “disingenuous”. Here are their smartphone numbers for the last 6 quarters (all numbers in millions)

Q2 2011: 4.4
Q1 2011: 4.1
Q4 2010: 4.7
Q3. 2010: 3.8
Q2 2010: 2.7
Q1 2010: 2.3

As you can see their smartphone sales are definitely increasing. I am not claiming that everything is hunky dory – quite the opposite in fact. Other smartphone makers are growing faster than they are and they are losing money. However they are growing smartphone sales and I object to your lumping their feature phone and smartphone sales together to make their situation appear to be worse than what it actually is.

– HCE

15 beanie { 08.17.11 at 1:16 pm }

Daniel Eran Dilger wrote:
“From 2009 through 2010, Motorola lost half of its market share as sales fell from 58.4 million units to 38.5 million. ”

No you are wrong. If you know how many smartphones Motorola sales a quarter, then you can quickly see your numbers include feature phones. 38.5 million divided by 4 quarters equals 9.6 million a quarter. I recall Motorola sells around 4-5 million smartphones a quarter. HTC sells around 10-11 million.

Anyway, Motorola Mobility’s 4th quarter 2010 earnings release says they shipped 4.9 million in the quarter and 13 million for the year compared to 2.0 million in quarter and year in 2009. So Motorola only sold 13 million smartphones in the year of Android probably averaging 3 million a quarter.

16 gus2000 { 08.17.11 at 3:39 pm }

“…and when something doesn’t make sense, it means that you don’t understand it.” – Enron CFO Mad Hatter

Hatter, you’re correct that none of us know what Goatarola has in the development pipeline, but I have little need for “faith-based” business analysis. The suggestion that the presence of unknowns makes anything unknowable is a little too nihilistic for my tastes.

17 The Mad Hatter { 08.17.11 at 8:45 pm }

Gus2000,

It’s like when Apple bought that unknown chip company, P.A. Semi, and most analysts thought they were crazy. Now we have the A4, the A5, and next year probably the A6.

Google isn’t stupid. I can’t see them tossing this much money out the Window without some idea of what they could get for it.

Microsoft is another issue. Microsoft seems congenitally unable to spend money without wasting it.

Wayne

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