Are Free Motorola Phones in Our Future? A VC’s Take on Why Google is Buying Motorola


I was invited to go on Bloomberg West TV on Monday when news broke of Google’s plan to acquire Motorola for $12.5 billion in cash. I hadn’t had much time to digest the news before going on live television and found myself verbalizing my gut instinct: that is, I think Google will at some point give Motorola phones away for free in a profoundly disruptive move to own the mobile advertising framework.

I now have had a day to think about what I said—and I still stand by it. As a venture capitalist with investments across a number of mobile startups, my advice to my portfolio companies is simple: plan for a scenario in which Google gives away Motorola phones for free and imagine how the market would be shaped in its wake.

What Google Did and Didn’t Say

Most commentators believe it’s all about the patents. Motorola’s 17,000 patent portfolio and 7,500 pending patents could be used to defend Google’s ecosystem of handset manufacturers who embed the Android operating system against lawsuits, such as the one Apple lobbed against HTC. That’s certainly logical and a plausible position for Google to take. Google’s handset partners have been asking for relief from patent suits for some time. Pundits also point out that Motorola has a set top box business, and Google could use the acquisition to push Google TV. Another good point.

But here’s what I believe. Google’s business is search advertising. Everything they do is an effort to grow search. Why buy a handset manufacturer? Answer: To make more money on search. Google’s mobile search business is estimated to be $1 billion and growing by year end. Since mobile is undergoing the most rapid technology adoption in history, Google needs to own the “last mile” to the eyeballs. What better way to own that last mile than to control both the hardware and software environment, like Apple does with the iPhone today?

Right now, Google has little or no control. The Android ecosystem is “open” and increasingly fragmented with Android available on some very good phones as well as some cheap ones with varying quality. Google would like to control both the quality and “the deck” of services that’s embedded on the phone. They want to see all Google services baked into the phone right out of the box—from search, to maps, to their new and rapidly growing Google Wallet that allows you to use your smartphone like a credit card.

Data Fuels Advertising

Owning the consumer interface means having control over future monetization opportunities. Search, maps, and Google Wallet alone would give the company a … Next Page »

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Rebecca Lynn is a partner in Morgenthaler Ventures’ Menlo Park office, focusing on early-stage investments in mobile, health IT, Internet, and financial services. Follow @vcrebecca

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