Motorola Mobility Acquisition May Better Position Google to Compete with Apple

Aug.16.11 | About: Alphabet Inc. (GOOG)

Falling squarely in the Monday morning 'wow, that's a surprise,' category, Google (NASDAQ:GOOG) announced that it intends to acquire Motorola Mobility (NYSE:MMI) for $12.5B in cash. The obvious move to compete head to head with Apple (NASDAQ:AAPL) also helps Google offset the recent acquisition of the Nortel patents by a consortium that included Microsoft (NASDAQ:MSFT), RIM (RIMM) and Apple, but excluded and significantly outbid Google. Motorola, which uses Android for both its smartphones and tablet devices, seems like a natural fit for Google from a technology perspective. Cultural fit is an open question of course, but that one will have to stay open until the deal is approved and the companies integrated.

A big part of Apple's success in computers, smartphones and tablets is its control of both the hardware and software, thus engineering the devices together for more complete integration. This completeness translates to a much better user experience in my opinion, and has hindered other mobile OS vendors, particularly Microsoft, but also Google to some extent. The diversity of device manufacturers that has produced Android devices has on one hand led to a broad selection of devices that adds to consumer choice, but one could argue that on the other hand also led to variability of experience. Many of the handset manufacturers created their own UI on top of Android, for example, which makes the experience across devices inconsistent. While this acquisition won't eliminate this issue, Google has stated that it plans to keep Android open and available on a variety of manufacturers devices. It presumably will produce a line of smartphones and tablets engineered with Android, much like Apple does with its devices. If the experience will be better and if these devices become more popular remains to be seen.

In the smartphone market, Apple, while not the unit leader, is by far the profit leader worldwide, garnering over 66% of profit among the top 8 manufacturers. This move by Google could put the combined company in a much better position to compete with Apple in the profitability race.

The big question is how will this acquisition impact Google's other handset manufacturer partners? The press release tries to quell fears that this will disrupt these other vendors, but you have to wonder what the reaction will be from the likes of Samsung (OTC:SSNLF), HTC, LG and Sony Ericsson. Samsung and HTC in particular have a lot invested in Android devices and have been very successful with the OS. Perhaps this drives some of them closer to Microsoft, which needs more handsets on the market quickly to try and turn around its market share in the smartphone market. One might even speculate that Microsoft could feel compelled to buy a mobile hardware manufacturer itself. Lots of open questions of course and only time will provide more answers. Up next, clearing regulatory hurdles and getting the acquisition closed. Oh and apparently Motorola will continue to operate as a separate company post acquisition.