Google and Motorola: It’s the Phones, Stupid

8/15/11Follow @wroush

At Google Ventures’ summer barbeque in the Googleplex parking lot a couple of weeks ago, I was talking with an engineer from the Android team. I confessed to him that I’m an iPhone/iPad user. But I also said that because I write a lot about Android and mobile apps in general, I feel like I should get an Android phone as well, if only so that I can try the latest apps from the Android Market. Which one, I asked, did he recommend?

“If you want to experience Android the way we intended it, you should get a Nexus S,” he replied without hesitation, referring to the phone co-developed by Google and Samsung. The Nexus S, you may recall, is the successor to the Nexus One, built by HTC, which Google attempted to sell from its own online store. The Nexus One wasn’t much of a hit—Google (NASDAQ: GOOG) shut down the store in July 2010, admitting that it had “remained a niche channel for early adopters.” The Nexus S was the first smartphone to use the improved 2.3 version of Android, code-named Gingerbread, and it’s the device that you see Google engineers and third-party Android developers using when they want to demonstrate advanced features like near-field communication.

Google’s had an amazing run with Android, going from a zero-percent share of the mobile operating system market in 2007 to the dominant share today. (Some 39 percent of smartphones sold today run Android, compared to 28 percent for Apple’s iOS and 20 percent for RIM’s Blackberry—the figures are from Nielsen for the second quarter of 2011.) But Android’s main strength—the fact that it’s available to all handset makers under a free, open-source license—is also its main weakness. Manufacturers are free to use whatever version of Android they want, and to bolt their own software and user-interface tweaks onto it. The result has been fragmentation. In contrast to iOS or Blackberry, you never quite know how an Android phone or tablet will work. And that’s the frustration the Android guy at the barbeque was implicitly voicing.

To show the world what it’s really trying to do with Android, Google has had to talk HTC and then Samsung into releasing unbranded, unskinned devices running the latest, unadulterated versions of the operating system. That’s a suboptimal solution for both Google and the handset makers, since the official “Google phone” ends up vying in the marketplace against the same manufacturers’ other phones; HTC, for example, came out with a Nexus One-like phone called the Desire, and the Nexus S is pretty hard to tell from the Samsung Galaxy S and Galaxy S II.

Today Google CEO Larry Page announced that the company will acquire Motorola Mobility (NYSE: MMI) the only major Android handset maker that it hasn’t yet partnered with to build a reference smartphone. The surprise $12.5 billion purchase, which will add 19,000 employees to Google’s existing base of 29,000, has already spawned a frenzy of analysis and punditry. Many observers are focused on the deal’s implications for the current patent arms race—and Page did emphasize in his own blog post this morning that the purchase of Motorola, which owns 17,000 patents and has another 7,500 pending, will strengthen Google’s patent portfolio and “enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.”

But if you ask me, this purchase is really about one big thing: control, and the old truism that if you want something done right, you have to do it yourself. How annoying it must be for Google’s Android engineers to depend on outside manufacturers to get Android to market, even when they promise not to muck up the latest version with their own twists. If you can afford it—and Google, with $39 billion in cash on hand, clearly can—why not just buy your own handset maker?

If you’re going to do that, Motorola is the obvious choice—and not just because of its impressive patent portfolio. The company went all-Android back in 2008. It makes both smartphones and tablets (Motorola’s Xoom is considered one of the leading Android tablets, though it has a long way to go to catch up with Apple’s iPad 2). And it already sells 28 percent of all Android smartphones, compared to Samsung’s 21 percent—only HTC has a bigger market share, at 36 percent. Just as important, Motorola is a U.S. company, and it’s affordable—even Google isn’t big enough to buy Samsung (market capitalization $104 billion) or HTC ($34 billion).

Google says it plans to operate Motorola Mobility as a separate unit, presumably with current CEO Sanjay Jha still in charge. But it would be ludicrous to imagine that Android mastermind Andy Rubin and Page himself—who’s known for his focus on product development details—won’t be closely involved in the design of future Motorola Android devices. When Page says that the Motorola acquisition will “supercharge the entire Android ecosystem,” he has to mean that Google will finally be able to set the example itself, creating devices that spur makers of other Android devices to up their games.

Of course, how Samsung, HTC, and other smartphone and tablet makers of Android smartphones and tablets will feel about about the operating system now that they’ll be competing directly against Google is the big open question. Google is like the banker at the poker game who’s suddenly dealt himself in. The other players may be too deep into the game to step away—or they may decided to cash in their chips and go to another casino.

Wade Roush is Xconomy's chief correspondent and editor of Xconomy San Francisco. You can subscribe to his Google Group or e-mail him at wroush@xconomy.com. Follow @wroush

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  • Walt French

    Google’s main strength is that it distributes a powerful OS at extremely low cost.

    You can’t have quibbles about usability from an OS that nobody uses, so just as the firm I once worked for celebrated whenever customers complained about high prices, Android users’ complaints about consistency etc are music to Google’s ears. Android HAS the users; until those users suddenly value usability over “openiness” — which, by definition, they have NOT — they are comfortably in Google’s pocket. So this is no weakness, certainly not its biggest weakness.

    The MMI acquisition is meant to soften the PR blow from potential losses and/or settlements (likely, “confidential”) with Oracle, Microsoft, Apple and others. And to prevent the black eye of the premiere Android manufacturer, inventor of Droid and Xoom, from going banko due to Google sucking all the profit oxygen out of the Android ecosystem for itself, and potentially from having to settle w/ suits because in their precarious position they could be bankrupted. Instead, Google will claim that thanks to its genius business acumen, they got “better” settlements in these cases, no matter how irrelevant MMI’s patents are to ORCL.

    Android’s main weakness is that it hasn’t been paying for others’ IP embedded in what it gives away. They’re working on it, or at least the PR aspects of it, so they can get back to business as usual.

  • http://journalofsocalledbizwoman.blogspot.com A So-Called Business Woman

    The pending merger of “Motorolans with Googlers” [Googorlas??] has caused quite a stir; the 63% premium is hefty. It is a sound decision not only in terms of forward looking innovation, but also as a defensive strategy. Nokia may be a bit too optimistic assuming this move will play into the hands of Microsoft. I find it more likely that Google will indeed maintain its commitment to the open Android platform and that is current partners will unite as loyal soldiers in the war against Apple. Considering that the latter is pretty much suing all of them…There is plenty of room to segment the market a bit more among consumers and price levels. Don’t think all Android partners will abandon ship right away.

    Google’s War against Apple http://journalofsocalledbizwoman.blogspot.com/2011/08/googles-war-against-apple.html

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