Mobile Sphere Oddly More Interesting...
Yesterday Google made a move to purchase the mobile division of Motorola at a 63% premium for $12.5 Billion.
Google states they wanted patents, which is probably a part truth. Nokia feels this will help WP7 and Mircosoft now claims to be the only "equal/open" mobile phone OS.
First, Why I say the patent claim is only a partial truth. Yes, Google wants patents. They want to be able to defend Android and innovation apparently, again I think this is only part of the story. So why am I sceptical about this claim? Partly the cost and partly the other claims they made that kind of argue against each other. Firstly, lets look at the cost. $12.5 Billion is in the ballpark of 3X more than what the Nortel patents sold for, and the Motorola patent portfolio is about 3X as large. Yet Google flat out refused to bid any higher on those patents. Even stranger and I will expand more on this in my next point, Google refused to join the bidding with the consortium that won the bid, oddly claiming that it was a trap. Also, as stated above, they paid a 63% premium, in other words they overpaid by 63%, which for those comfortable with math, means they overpaid by close to $5 billion. That amount alone is higher than the winning bid for the Nortel patents and effectively for Motorola it was free money. Google paid them 5 billion dollars more than they were worth. While this might have been strategic move to keep Motorola from perhaps beginning talks with someone else, that would mean that while they wouldn't bid that much in total in a fair patent war, they would waste that much just to keep this other bid from becoming a fair fight. This move, to me at least, indicates that they are not interested in simply defending Android, but I will come back to that after.
Of course, my second point on why the patent claim is only part of the truth may explain why they were suddenly willing to part with so much money. Google claims they will continue to keep as Android open to everyone as it was before, but they also allude to using this purchase to improve Android. How does a hardware acquisition that is intended not to change the hardware company in any way improve their completely separate software business? If it is business as usual with the two companies as they say in one sentence, then they can't accomplish any benefit to Android as they claim in another sentence. But if they are lying about the former, then they can work more closely with Motorola to ensure better integration of the OS to their hardware, and even provide apps that make better use of the Android ecosystem. Even if Google doesn't go so far as to "give" Motorola any preferential treatment, this cross training and engineering would provide Motorola with an unfair advantage amongst Android handset owners and could boost their sales, and thus justify Google's investment.
In fact on that last topic. I can think of one thing which Google could easily argue is not preferential treatment, but which could inadvertently result in Motorola producing a superior product vs. its competitors. Restrictions. Why are iOS and Windows Phone considered more robust than Android? Sure there are some Android devices that have that magical combination of hardware and actually perform amazingly, but if even a tenth of the reviews are to be believed, this isn't true across the board with Android. iOS and Windows Phone devices are more consistently high quality because it is easy to optimize and fully test an OS against a smaller subset of hardware. Google could simply ensure that Motorola uses only hardware that meet certain criteria, while allowing other vendors to use what they want. Other vendors will have to switch to other hardware to differentiate themselves leading a lot to select hardware which hasn't been QA'd to the same extent with the OS as what Motorola is using. Basically forcing the competition to be accused of being rip off artists just so that can maintain quality, or forcing them to produce garbage that may look good, but never work properly.
Before moving onto the next topic, I had also alluded that Android may not want the patents simply to defend Android. If they are honestly only in this venture for the patents, then why not join in with the party that won the Nortel patents? Also, by being a part of a joint bid, it wouldn't have cost Google $4.5 billion, the cost was split (perhaps not evenly I don't know) amongst those involved, so Google could likely have gotten some rights to those patents for much less than some of their other much higher bids. Anyway, Google says it was a trick and they would not have been able to defend themselves with the shared patents. That is of course flat out ridiculous. If they own the patents, jointly or otherwise, the patents cannot be used against them. In fact, the only valid advantage that would come of being the sole patent holder is the ability to use those patents to sue others. Yet Google maintains that they only want the patents to protect the Android ecosystem and innovation which they state these patent lawsuits hinder (and I can agree with that at least). A system where no one can sue anyone is a system where everyone has a stake in every patent. Google willingness to only spend money where they can be the sole patent owners seems like a move designed to protect Android and Google's innovation, while killing off potential competitive innovation.
Doesn't seem like there is any outcome from this that is good for Google. Don't think that it will be a crippling failure by any means. But the move seems odd and will have some other effects on the mobile markets.
Which brings me to effect #2 of this. Nokia believes this will actually help Windows Phone. The odd thing about this statement is that it doesn't say anything about helping Nokia. And I suppose that for now that is the truth. It could help Windows Phone, but helping Windows Phone won't help Nokia for a long while. Not until this "help" starts bringing more awareness to Windows Phone and making it a competitive market.
But I digress. Yes, this move might actually strengthen Windows Phone, though that is just a side-effect, what this move will actually do is weaken Android, and at the moment, Windows Phone is likely the only feasible platform for handset makers to shift towards. Basically, as argued above, there is a strong chance that Google will either show preference towards or work more closely with Motorola on Android phones, thus producing a product which other competitors either cannot match or cannot match as easily, which in turn will eat into their market share or profits. Should that happen, those other handset companies would want a fall back plan. Some may already have WP7 devices, but aren't marketing them and they aren't really making the manufacturers money, and others have no fall back plan at all at the moment. And this is the change I would expect to see. Handset manufacturers will still keep Android as their flagship platform since it is making them money. But knowing they may be betrayed, they might actually start trying to stir up some buzz for Windows Phone, getting it some attention and trying to (slowly) increase the percentage of their profits that come from an alternative OS to a point where they would have a chance of betting it all on a different horse if their current one ran away.
And lastly, what I think is the most misunderstood statement of this whole thing. Microsoft is now the most equal or open phone OS on the market. Firstly, don't mistake open here with open source. A lot articles I read the comments on immediately bashed Microsoft without thinking this one through. They do not mean that they are open source, or open to you the community, they are stating that they are the most open and equal to handset vendors. Apple and RIM produce their own phones and don't license their OS to 3rd parties. Google now owns Motorola and is in a position to treat its other vendors less equally. Where Microsoft owns no hardware vendors. However, Microsoft is in a pretty lucrative deal with Nokia. This is the only valid counter argument to their claims. By no means do I believe Microsoft is being completely equal and open amongst its vendors, but I actually have to agree that Microsoft is less invested in Nokia than Google is now invested in Motorola. Google's stock P&L statements and stock will be directly affected by Motorola in addition to the fact that they have directly invested $12.5 billion vs. the estimated $1 billion MS has invested in Nokia. And the only reason Nokia will have such a strong effect on Microsoft's financials is because once they start selling Windows Phones they are expected to be a bigger player in that niche than all of the others combined. Something could will change if other vendors start investing more efforts in Microsoft. No matter what happens to Android once that deal is closed, Google will ALWAYS be tied to Motorola.
Anyway, that was a long rant. Didn't want to waste my time posting it as a comment on someone else's article.
Google states they wanted patents, which is probably a part truth. Nokia feels this will help WP7 and Mircosoft now claims to be the only "equal/open" mobile phone OS.
First, Why I say the patent claim is only a partial truth. Yes, Google wants patents. They want to be able to defend Android and innovation apparently, again I think this is only part of the story. So why am I sceptical about this claim? Partly the cost and partly the other claims they made that kind of argue against each other. Firstly, lets look at the cost. $12.5 Billion is in the ballpark of 3X more than what the Nortel patents sold for, and the Motorola patent portfolio is about 3X as large. Yet Google flat out refused to bid any higher on those patents. Even stranger and I will expand more on this in my next point, Google refused to join the bidding with the consortium that won the bid, oddly claiming that it was a trap. Also, as stated above, they paid a 63% premium, in other words they overpaid by 63%, which for those comfortable with math, means they overpaid by close to $5 billion. That amount alone is higher than the winning bid for the Nortel patents and effectively for Motorola it was free money. Google paid them 5 billion dollars more than they were worth. While this might have been strategic move to keep Motorola from perhaps beginning talks with someone else, that would mean that while they wouldn't bid that much in total in a fair patent war, they would waste that much just to keep this other bid from becoming a fair fight. This move, to me at least, indicates that they are not interested in simply defending Android, but I will come back to that after.
Of course, my second point on why the patent claim is only part of the truth may explain why they were suddenly willing to part with so much money. Google claims they will continue to keep as Android open to everyone as it was before, but they also allude to using this purchase to improve Android. How does a hardware acquisition that is intended not to change the hardware company in any way improve their completely separate software business? If it is business as usual with the two companies as they say in one sentence, then they can't accomplish any benefit to Android as they claim in another sentence. But if they are lying about the former, then they can work more closely with Motorola to ensure better integration of the OS to their hardware, and even provide apps that make better use of the Android ecosystem. Even if Google doesn't go so far as to "give" Motorola any preferential treatment, this cross training and engineering would provide Motorola with an unfair advantage amongst Android handset owners and could boost their sales, and thus justify Google's investment.
In fact on that last topic. I can think of one thing which Google could easily argue is not preferential treatment, but which could inadvertently result in Motorola producing a superior product vs. its competitors. Restrictions. Why are iOS and Windows Phone considered more robust than Android? Sure there are some Android devices that have that magical combination of hardware and actually perform amazingly, but if even a tenth of the reviews are to be believed, this isn't true across the board with Android. iOS and Windows Phone devices are more consistently high quality because it is easy to optimize and fully test an OS against a smaller subset of hardware. Google could simply ensure that Motorola uses only hardware that meet certain criteria, while allowing other vendors to use what they want. Other vendors will have to switch to other hardware to differentiate themselves leading a lot to select hardware which hasn't been QA'd to the same extent with the OS as what Motorola is using. Basically forcing the competition to be accused of being rip off artists just so that can maintain quality, or forcing them to produce garbage that may look good, but never work properly.
Before moving onto the next topic, I had also alluded that Android may not want the patents simply to defend Android. If they are honestly only in this venture for the patents, then why not join in with the party that won the Nortel patents? Also, by being a part of a joint bid, it wouldn't have cost Google $4.5 billion, the cost was split (perhaps not evenly I don't know) amongst those involved, so Google could likely have gotten some rights to those patents for much less than some of their other much higher bids. Anyway, Google says it was a trick and they would not have been able to defend themselves with the shared patents. That is of course flat out ridiculous. If they own the patents, jointly or otherwise, the patents cannot be used against them. In fact, the only valid advantage that would come of being the sole patent holder is the ability to use those patents to sue others. Yet Google maintains that they only want the patents to protect the Android ecosystem and innovation which they state these patent lawsuits hinder (and I can agree with that at least). A system where no one can sue anyone is a system where everyone has a stake in every patent. Google willingness to only spend money where they can be the sole patent owners seems like a move designed to protect Android and Google's innovation, while killing off potential competitive innovation.
Doesn't seem like there is any outcome from this that is good for Google. Don't think that it will be a crippling failure by any means. But the move seems odd and will have some other effects on the mobile markets.
Which brings me to effect #2 of this. Nokia believes this will actually help Windows Phone. The odd thing about this statement is that it doesn't say anything about helping Nokia. And I suppose that for now that is the truth. It could help Windows Phone, but helping Windows Phone won't help Nokia for a long while. Not until this "help" starts bringing more awareness to Windows Phone and making it a competitive market.
But I digress. Yes, this move might actually strengthen Windows Phone, though that is just a side-effect, what this move will actually do is weaken Android, and at the moment, Windows Phone is likely the only feasible platform for handset makers to shift towards. Basically, as argued above, there is a strong chance that Google will either show preference towards or work more closely with Motorola on Android phones, thus producing a product which other competitors either cannot match or cannot match as easily, which in turn will eat into their market share or profits. Should that happen, those other handset companies would want a fall back plan. Some may already have WP7 devices, but aren't marketing them and they aren't really making the manufacturers money, and others have no fall back plan at all at the moment. And this is the change I would expect to see. Handset manufacturers will still keep Android as their flagship platform since it is making them money. But knowing they may be betrayed, they might actually start trying to stir up some buzz for Windows Phone, getting it some attention and trying to (slowly) increase the percentage of their profits that come from an alternative OS to a point where they would have a chance of betting it all on a different horse if their current one ran away.
And lastly, what I think is the most misunderstood statement of this whole thing. Microsoft is now the most equal or open phone OS on the market. Firstly, don't mistake open here with open source. A lot articles I read the comments on immediately bashed Microsoft without thinking this one through. They do not mean that they are open source, or open to you the community, they are stating that they are the most open and equal to handset vendors. Apple and RIM produce their own phones and don't license their OS to 3rd parties. Google now owns Motorola and is in a position to treat its other vendors less equally. Where Microsoft owns no hardware vendors. However, Microsoft is in a pretty lucrative deal with Nokia. This is the only valid counter argument to their claims. By no means do I believe Microsoft is being completely equal and open amongst its vendors, but I actually have to agree that Microsoft is less invested in Nokia than Google is now invested in Motorola. Google's stock P&L statements and stock will be directly affected by Motorola in addition to the fact that they have directly invested $12.5 billion vs. the estimated $1 billion MS has invested in Nokia. And the only reason Nokia will have such a strong effect on Microsoft's financials is because once they start selling Windows Phones they are expected to be a bigger player in that niche than all of the others combined. Something could will change if other vendors start investing more efforts in Microsoft. No matter what happens to Android once that deal is closed, Google will ALWAYS be tied to Motorola.
Anyway, that was a long rant. Didn't want to waste my time posting it as a comment on someone else's article.
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