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When Google (NASDAQ:GOOG) announced last year it would buy Motorola (NYSE:MMI) the assumption was this was a deal for patents. And Google has since used Motorola patents aggressively, trying to keep Android devices in the market against Apple (NASDAQ:AAPL).

But recent events have shown that the deal only makes sense if Google, which now has U.S. approval to proceed, and is hoping for European approval next week, aggressively brands Motorola equipment with the more valuable Google name, and (perhaps) makes some other moves that transform the main company.

Why? What has changed since the announcement?

  • Motorola is now losing money and will put a drag on Google's earnings starting with its March quarter report.

  • Motorola is being killed in the tablet space and only Google's brand, and full support, has a chance of changing that.

  • To get the deal done, Google is having to promise a back-off on Motorola's efforts to get big royalties from Apple on technology that's part of industry standards.

But there are more compelling motivations for Google to transform itself:

  • Google is losing control of its Android system to OEMs Amazon (NASDAQ:AMZN)and Samsung (OTC:SSNLF) . The Kindle Fire cuts Google off completely, and Samsung's latest updates replace its user interface.

  • Google's new strategy of immersing consumers into Google through their own data, implicit in its new privacy policy, makes no sense without a mobile strategy.

  • Google's strategies in shopping, currency and mapping make no sense without a mobile platform that can show the value, and through which it can capitalize on that value. The OEMs alone aren't going to do it.

The implication is that Google needs to introduce a Google phone and a tablet soon after it's allowed to put its brand on what had been Motorola equipment.

But I will predict that's not all.

Google has already gotten planning permission to build a retail store alongside its offices in Ireland. My guess is it will use this to test concepts that could evolve into a chain of Google outlets selling Google hardware and services in direct competition with Apple.

While I have, in the past, pooh-poohed the idea of Google buying a mobile carrier, both the strength of its own network and Motorola's own line of cellular networking equipment make that seem like a natural fit.

A $10 billion bid for Sprint (NYSE:S) could be done for cash, and a $3 billion bid for Clearwire (CLWR) would be sofa-cushion money, at huge premiums to what those companies are now worth. With Google's fiber as the backbone, and Motorola equipment in the networks, a Google build-out would have a much better shot at profit than what anyone else in the wireless space is now offering.

That last paragraph is pure speculation. But a Google that sells bits, that sells hardware, and that has a retail presence is quite a different company from the one that investors can buy today. And the way to that transformation looks like a clear set of logical steps.

Source: Google Turns Motorola Into Google, Is Transformed