Google's Decision To Pay $12.5 Billion For Motorola Looks Even Worse This Morning

Dennis Woodside Google Motorola

Google’s $12.5 billion acquisition, Motorola, is finally ready to actually deliver a product. 

Motorola started advertising the Moto X, its smartphone which is going to compete with the iPhone, HTC One, and Galaxy S4. 

Unfortunately for Google, it might be too late to matter. 

The market for high-end smartphones appears to be topped out, which is hurting Samsung, HTC, and Apple. This morning Samsung slashed it earnings, and HTC reported an 83% drop in earnings on a year-over-year basis. 

It’s hard to see the Moto X making much of a dent in the saturated high-end smartphone market any time soon. 

Which means Google’s big acquisition of Motorola looks even worse. 

Before we move on, we should note that the final cost of Google’s acquisition was less than $12.5 billion. It got some cash, it sold off some Motorola assets. Jefferies analyst Brian Pitz estimated the final bill was $4 billion, which he thinks is fair for the Motorola patents. 

Maybe Motorola was worth $4 billion to Google. We could argue even at $4 billion it overpaid.

The patents haven’t done much to change the patent warfare landscape. And if Google waited a bit, the price of Motorola was likely to drop. Just look at what happened to Blackberry’s value. 

Beyond the final value, buying Motorola complicates things for Google. It now owns a smartphone company putting it in competition with its biggest partner, Samsung. It also has to deal with firing people at Motorola and changing the culture. 

It’s also redundant. Google started making its own hardware, doing Nexus phones and Chromebooks. Motorola is another company making all new hardware for Google. Google could have just started a hardware division from scratch without the baggage that comes with Motorola.

And, as we said, there’s the problem of the market Motorola wants to compete in. The smartphone market for the U.S. is largely saturated. If Samsung, with a bottomless marketing budget, and decent brand is struggling, what hope does Google’s Motorola have? 

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