All eyes will be on Google, as it takes a sudden
plunge into the hardware business, courtesy of
Motorola.
The $12.5 billion deal, which closed today,
netted Google a healthy stockpile of patents
for legal defense and offense, along with a
historic technology brand and a multibillion-
dollar handset and TV set-top box business.
It's pretty obvious what Google will do with the
patents, given the increasingly litigious
environment in which the technology world
finds itself. Motorola's last few years of losses
also bring a clear tax benefit to Google in the
near term. But what is less clear is just how
the company will proceed with the actual
business of Motorola.
"There are so many different things they can
do, and I don't think Google quite knows yet,"
said Michael Gartenberg, an analyst at Gartner.
Google and Motorola declined to make an
executive available to comment on their plans.
Well, that's where CNET comes in. The
following are some of the options available to
Google, as well as their likelihood and
implications.
An independent Motorola
This is a certainty for now, but it could fade as
time goes on and plans change. For now,
expect Google to keep Motorola running as an
independent business. The company wants to
tread lightly and stick to its promise of staying
neutral. The best way to do this is to run the
company at arm's length.
Not that Google and CEO Larry Page don't
want to leave their mark on the newly bought
company. Page installed "longtime googler"
Dennis Woodside as its new chief executive, as
well as several executives from an array of
different companies, from Amazon to Visa.
These executives, including Woodside and
fellow former googler and marketing lead Gary
Briggs, will get Motorola e-mail addresses, not
Google ones, so the brand will remain alive
from top to bottom.
Analysts, however, warn that there is little
business advantage to running Motorola
independently. Google can't give Motorola
early access to Android, since it would anger its
handset partners. But the business by itself
isn't so great.
The company was losing money before it was
scooped up, having posted a wider first-
quarter loss in its last report as an
independent company. That's despite a
successful flagship phone at Verizon Wireless,
with the Droid Razr. If left alone, it's tough to
see the company doing much better, given its
already prominent position at Verizon.
The other carriers have largely given up on
Motorola, but perhaps the new executive team
can turn things around. Still, even in the best
conditions, the margins are much lower than
its own core advertising business.
Showcase for Android
Google could also use Motorola as a way to
ensure that there is a healthy supply of stock
Android experience devices in the market.
Android is getting fragmented, with every
handset maker opting to customize their
phones with skins or other unique features, all
in an effort to stand out in the market. It's
highly likely that Google could go this route.
"(Motorola) gives them the vehicle to deliver
the Android experience that they see fit,"
Gartenberg said, adding that Motorola could
be used as a showcase for stock Android
software without trying to dominate the
market.
Still, that's a tough line for Google to walk, and
the other handset vendors will likely scrutinize
how these products come to market.
When Android is made available to everyone
will be the key. Google is reportedly planning
to grant early access to the latest releases of its
platform to multiple vendor partners, creating
multiple "Nexus" devices at once. That would
do a lot to assuage industry concerns.
Vertical integration
Google could take it a step further, working
with Motorola directly to build its own flagship
Android phone with the latest release. The
company could take the Apple route, creating a
full end-to-end product with Google hardware
and software.
Google could finally have a line of product over
which it has complete control. Previously, it
had to rely on the designs and manufacturing
chops of its vendor partners. It has that
expertise in-house with Motorola.
This is an unlikely scenario, as it would put
Google directly in competition with a phone
that has software advantages over its products.
"If they become a competitor, the other guys
will walk," said Matthew Thornton, an analyst
at Avian Securities. "They will flee very quickly."
Despite Android's dominance now, it isn't the
only game in town. Windows Phone flopped
early for most of the vendors, but that's largely
because they were focused on Android.
Thornton said Windows Phone could thrive, if
a company like Samsung put its full weight
behind the operating system.
A slightly more plausible vertical-integration
scenario would be with Motorola's set-top
business. The little-mentioned business was
actually the more consistently performing unit
of the two. The company actually unveiled a
new interface that makes it better to search for
TV programs without searching. It's not a great
leap to see Google TV and the set-top box
business getting integrated.
Still, that could also face its own obstacles,
since the cable and telecommunications
companies purchase the boxes, and it's
unclear whether they want Google's
capabilities in those boxes (rather than their
own services).
Shed the business
Google could also throw its hands up and just
get rid of the business. There's a 50-50 chance
that this could happen.
"It's a silly place to be in," Thorton said. "You
know they're nervous, despite what you tell
them."
The best way to ease their concern: sell the
business, and keep the patents.
Thornton said he wouldn't be surprised, if the
company wasn't already entertaining
discussions with potential acquirers.
Despite Motorola's struggles to get back atop
the smartphone perch, the business still has
value. Its brand would be a boon to an Asian
vendor looking to break into the U.S. market in
a big way. In particular, the company has
strong ties to Verizon, which continues to back
it with major marketing support.
The set-top box business could be sold in a
separate deal to another set-top box maker or
venture capital fund. That's highly likely,
despite the potential of a Google TV-Motorola
box combination.
Google could take its time with a sale, though.
Motorola's past years of losses mean that
Google can apply those net operating losses to
its own profits for a tax gain. The company
would likely prefer to use that tax benefit
before moving forward with any deal.
There has been a growing camp of believers
who feel that Google should -- and will -- sell
the business.
"Ultimately, I don't think Google wants to go
the hardware route," Thornton said.
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