There’s never a dull day in tech, and digital media in particular! Just when you think there’s enough to handle with questions around who’s going to end up with Hulu, what Netflix’ price hike will do to its subscriber numbers, or whether startups can do a run around over traditional media models as in the case of Zediva doing ‘DVD streaming’ – (if only it were that easy), the big ‘black swan’ event happens out of the blue – pardon the mixed colour metaphor.
I am referring to Google buying Motorola Mobility.
The speculation and analyst machinery went into redline territory almost instantly. And why not, Motorola Mobility is the segment that has the mobile and cable/broadband business lines of the once illustrious Motorola. If there are two tech industry segments that are going gangbusters it is mobile and video – and both these are represented in Google’s initiatives across Android, YouTube, and GoogleTV. These are also represented in Motorola Mobility, albeit the company has been lagging in both these categories of late – having lost its mantle in the top 5 handset vendors some time ago and losing its position as the number one set top box manufacturer last year. But that’s Motorola for you, and a discussion for another day – how a once enviable company dropped to such lows.
Nevertheless, while Motorola Mobility has been losing ground for some time, it is still the 2nd largest set top box supplier to PayTV operators and the leading supplier of IPTV set top boxes. It is also the system supplier to Verizon FiOS in the IPTV space. That’s reason enough to give rise to speculation of what this means for Google’s video and TV initiatives.
This announcement has a special significance for me. Motorola Mobility is only the second public company that Google has acquired. The first was On2 Technologies whose acquisition closed at the beginning of this year. As it turns out I have been an employee – and perhaps the only employee to bear this distinction – of both these companies.
Other than making me long on GOOG (On2 was primarily a stock based transaction and so will the Motorola Mobility deal if it goes through, and I was/am a stock holder of both companies) – it gives me some insight. And if history is a teacher, I would tell all the speculators on what is going on here: not much to speculate about! Google is buying Motorola Mobility for its mobile patent portfolio. That in itself is important enough and worth the $12.5 billion price, period. The idea that Motorola Mobility’s overall business has a great strategic fit with Google, and will somehow change the landscape of video, GoogleTV and PayTV is perhaps a nice exercise in scenario analysis, but if that happens it will be evolutionary and opportunistic, and not the driver for this deal.
That said I will go out on a limb and suggest that Google will shed these parts of its business or shutter them over time. If they can open source set top boxes, CMTS, and other network plumbing, they would but it does not make much sense. The value of these businesses, while seemingly significant, are actually not that attractive in the long run. In the case of On2, Google shut down the encoder business lines that were On2’s primary revenue streams. Google is building its bulwark against the likes of Nokia, Microsoft, Apple and others in the mobile IP space. Motorola is a giant when it comes to IP (almost three times as many patents compared to Nortel’s 6000 patents which a consortium of Google’s competitors acquired for $4.5 billion – albeit value of patents and number of patents can be unrelated.) That is justification enough.
When Google acquired On2, there was similar speculation. What did it mean for Skype, Adobe Flash, and so many other considerations given the large footprint On2 had in the video landscape? I am a fan of Occam’s razor – the simplest explanation is most likely the correct one, or as a graduate schoolmate used to say, there is no fifth leg of the cat. Google just needed a video format because they cannot be beholden to the likes of Microsoft, Adobe or Apple (WM, Flash and H.264 respectively.) I wagered they were going to open source it, dilute the value of MPEG LA’s licensing initiatives for H.264, and try and make technology ownership a non-issue, which is in the best interests of Google.
Similarly, the grand plan for Motorola Mobility is the simplest solution (and what Google has stated) -having an IP portfolio to counter the growing threat of IP litigation against Android, an extremely important pole in Google’s tent. This is all the more important given the IP issues that MPEG LA is raising about On2’s technology and VP8 codec.
If this deal turns out to be anything more than building IP defenses for Android, it would be serendipity, or icing on the cake, at best for Google. Given Google’s discipline about sticking to their knitting, I am of the opinion that they will shutter or divest extraneous parts of this business over time. Meanwhile, it is rich fodder for fortune telling and speculation that will keep the blogosphere and media buzzing for a while.