Commentary

Merger May Prove Better Bet For Google Than Motorola

Google-Plus-Motorola

A week after Google announced its $12.5 billion acquisition of Motorola, analysts continue to sift the implications of the mega-merger. There seems to be a consensus that even if the purchase is mainly a defensive move to strengthen Google in its patent wars with Apple, Microsoft and others, it will help revitalize Motorola and bolster the Android ecosystem overall.

By picking up Motorola's 17,000-strong patent portfolio, the proposed deal shifts the balance of power in the handset-patent conflict between Google and its operating system competitors, noted Ross Rubin, executive director of industry analysis for NPD. "Android's momentum has made for a large pie that is attractive to Motorola's Android rivals, even if they must compete with their operating system developer," he stated.

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Rubin also argued the Google purchase could help revive Motorola's sagging fortunes. The company's share of the smartphone market has dropped from 15% to 12%, with Motorola's year-over-year unit share of Android OS sales halved from 44% in the second quarter of last year to 22% in the same period this year. Gaining at the phone maker's expense have been rivals such as Samsung and LG.

Motorola hasn't been able to duplicate the initial success of the Droid with other models, and its version of Android -- MotoBlur -- is no longer distinctive enough to give the company an advantage over other Android handset makers. But "closer ties to the heart of Android can help inspire new paths to differentiation" for Motorola, according to Rubin.

Still, many questions remain. Rubin acknowledges Google will have to walk a fine line, working to revitalize Motorola without alienating other manufacturers licensing Android. The ability to partner with a wide variety of handset vendors has been critical to the rapid expansion of Google's mobile operating system, which accounted for more than half (52%) of smartphone sales in the second quarter, according to NPD.

Google has said it plans to let Motorola operate independently, but it's not clear how the relationship between the companies would actually play out. "The key question for industry players and Google investors clearly revolves around Google intention to actually build hardware," pointed out Macquarie Securities analyst Ben Schachter, in a research note today. He added there's a general belief Google doesn't intend to stay in the hardware business, raising uncertainty about the long-term success of the merger.

Exactly how federal regulators, already pursuing an antitrust investigation of Google that encompasses Android, will look on the Motorola purchase is yet another question.

On balance, it looks safe to say Google will benefit from the deal more than Motorola. Whether the acquisition will "supercharge the entire Android ecosystem" as Google CEO Larry Page boasted last week, also warrants skepticism because of how other handset partners might react over time to the merger. And isn't Android already pretty "supercharged" already, with a commanding share of the smartphone OS market?

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