Google buying Motorola for $12.5 billion, proving vertical integration is the way to go 83
Google this morning announced that they are purchasing Motorola Mobility (the recently-spun-off cellular arm of Motorola) to the tune of $12.5 billion. The purchase, expected to close around the end of the year, was explained with a few reasons, including Motorola’s loyalty to Android (they are the only major Android manufacturer that didn’t jump on the Windows Phone 7 bandwagon) and Motorola’s extensive patent portfolio (which Google claims to want as a defensive weapon). It also helps the purchase that unlike HTC, Samsung, and other Android licensees, Motorola was struggling financially, failing to replicate the blockbuster company-saving success that was the original Motorola Droid.
This purchase, though praised on the patents front by competing Android manufacturers, has to be worrying to the likes of HTC, Samsung, Sony, and LG. Google’s statement says that Motorola will continue to operate as an independent company (so why buy them?), but we can’t help but think that this proves the viability and strength of the vertically-integrated model.
Think about it: Palm and BlackBerry dominated the smartphone space for years by building their own devices and operating system. Apple came along and did the same thing with the iPhone and iOS. Android’s success runs counter to that trend – it’s a openly (mostly) licensed operating system that has grown tremendously to take the lead position. But it’s done so on the backs of hundreds of Android licensees, with no individual manufacturer seeing overwhelming success. And that’s partly because Google’s goals and the OEM’s goals are different. They’re on the same ship, but they want to steer it different ways.
Bringing Motorola into the Google fold gives Google that vertical model where they can tightly integrate software and hardware the way that they want. There’s a question facing both Google and their licensees: what comes next? Google can attempt to run things the way they did when Palm was licensing Palm OS out to companies like Sony while still making their own Palm-branded hardware. It didn’t go over well with the licensees and eventually Palm split themselves into separate hardware and software companies – a decision that ultimately led to the collapse of the company several years later (and here we are now).
The other path is to treat Motorola no differently than any other Android licensee, which makes things awkward. Any time Motorola gets a leg up on the competition – such as getting to build the next Nexus phone – the competition is guaranteed to cry foul. Which then sort of defeats the purpose of purchasing Motorola: to build the Android handsets that Google wants built. It’s the reason they’ve started clamping down on modifications to Android, and it’s the reason Microsoft has such strict design requirements for Windows Phone 7 hardware (and soon enough Windows 8): they’ve been through the era of unfettered modifications to their star products, and they’ve had enough and want to bring the user experience under control.