[credit provider=”Illustration: Ellis Hamburger”]
Google’s $12.5 billion proposed purchase of Motorola Mobility could end up being a disaster for the company, thanks to integration headaches and the addition of a business that is way out of its core.But the bid was absolutely necessary.
By buying Motorola, Google neatly addresses a bunch of problems that could have stopped Android’s rocket-ship momentum.
- Fragmentation. For all of Andy Rubin’s dismissals, a lot of Android developers see fragmentation as a serious problem — there’s no set of standard hardware specs, there’s a split between the handset and tablet versions that won’t be resolved until later this year, and although Google has encouraged handset makers to release updates to current Android versions for at least 18 months, there’s no requirement that they do so. Google knew fragmentation was a growing problem — that’s why it started cracking down by holding back some source code and making requirements stricter earlier this year. Now, the problem is gone — whatever version of Android is released on a Motorola handset or tablet is the canonical version of Android. That’s the version developers should target — and that’s the version other handset makers will have to have if they want full app compatibility.
- Lawsuits. Microsoft, Oracle, and Apple have all sued Android handset makers for patent and copyright infringement, and Microsoft in particular has managed to extract licensing fees from HTC and others for every Android handset sold. Google hasn’t been stepping in to indemnify Android handset makers from these suits, in part because it didn’t have nearly the storehouse of patents. That problem is gone — Google now gets more than 17,000 patents and automatic status to intervene in all the suits Motorola is involved in.
- Feature phones. Android’s biggest potential growth market is developing countries in Asia, particularly China. But those markets are being flooded by low-cost feature phones from hundreds of Chinese manufacturers, sometimes called bandit or shanzai phones. But Motorola has a strong feature phone business that Google can now use as a bulwark against these competitors — as Horace Dediu of Asymco pointed out a few minutes ago, Motorola sold more feature phones (6.6 million) than smartphones (4.6 million) last quarter
There’s also another nagging issue with Android: for all its market share success, Google has made very little money from Android — the operating system costs nothing, and last fall Google said that mobile advertising from all sources (not just Android) was on a $1 billion run rate.
That’s not a huge problem from a financial perspective. Google can afford it to make sure that it’s not locked out of the mobile Internet explosion.
But it’s also a reminder of the biggest criticism outsiders have of Google: it’s still basically a one-trick pony. After more than seven years as a public company, one business, search advertising, still makes up the bulk of its revenue and profit.
With Motorola, Google suddenly gets at least $12 billion a year in new revenue, including at least $8 billion in mobile handset revenue, and the chance to build a real, long-lasting, and highly profitable second business.