August is supposed to be a quiet month for Wall Street and the technology industry, but Google's $12.5 billion acquisition of Motorola Mobility certainly changed that. Google is picking up a venerable hardware vendor that has had some hits (Motorola Photon 4G) and some misses (Motorola Xoom). The move could also breathe new life into Google's stagnant Google TV platform—Motorola is one of the largest manufacturers of set top boxes in the country. But focusing on Motorola's hardware properties is a mistake; this deal is really about intellectual property.
To be sure, there are advantages to building your own hardware. Apple's ability to design, code, build, and even sell its products at retail have made it one of the most valuable tech companies in the world. When Google released products like the Nexus S, you can see the company appreciates the potential there. If this deal goes through, I imagine Motorola will become the exclusive builder of pure Android devices. This will bring Google some economies of scale and no doubt some better margins on the products it sells, but all this is secondary to acquiring Motorola's patents.
The math is stark. Motorola has 17,000 patents, Google has about 1,000. As Google’s CEO Larry Page said in a blog postannouncing the deal, "our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies."
Indeed, just a few weeks ago, Motorola Mobility Chairman Dr. Sanjay Jha boasted on an earnings call that its patent holdings separated it from the rest of the Android market.
"As most of you know, we own one of the strongest and most respected patent portfolios in the industry," Jha said. "We have over 17,000 patents granted and over 7,000 patents pending with particular strength in 2G and 3G essential, non-essential patents important to the delivery of competitive products in the marketplace, video particularly compression, decompression and security technologies and finally, a leading position in 4G LTE essential.
Indeed, a growing number of analysts and investors have been pushing Motorola to be more aggressive with its patents and to start targeting other Android vendors who are using its technology. Part of this is driven by the slow sales of its own products, but no one disputes that Motorola could do some damage if it went on the attack. Google, no doubt, will be much more flexible. At least when it comes to Android vendors.
Despite Google's increasing influence on almost every aspect of our digital lives, it is relatively patent poor. A rich patent portfolio takes time to build and Google is relatively young company at 13. Both Apple and Microsoft have been exploiting this fact to go after Google and its hardware partners.
Apple is suing HTC and Samsung for mimicking the "look and feel" of the iPhone. Both companies are countersuing Apple for their own claims. Likewise, Microsoft and Motorola Mobility also have open suits. Everyone, quite literally, is suing everyone. And until now, Google was the guy with a knife at a gunfight.
Much more than a hardware play, this deal is about defending the Android platform from patent attacks. For most companies, $12.5 billion is a ridiculous price for patent protection, but remember Google has about $39 billion in cash on hand. With that kind of bank, it could keep shopping. (Eastman Kodak is reportedly putting 1,000 of its digital imaging patents up for sale.) But I really hope it doesn't.
The stunning $4.5 billion auction of Nortel patents won by Apple, Microsoft, and Research in Motion added fuel to this patent hunting craze. Now that Google has its own arsenal, I can only hope a cooling off period prevails. (A lot to hope for in August, I know.) Patent trolling is about protecting past innovations not generating new ones. Instead of filing obscure lawsuits, these companies should focus their energies and considerable resources on building better products.
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