Business Watch: Is Google about to become the new Nokia?

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Dominic White explains how Google’s move to acquire Motorola Mobility mirrors one once made by Nokia, and that it may have been made due to Apple’s increasing success

The search engine giant’s audacious move on fallen mobile maker Motorola Mobility means that in the space of three short years Google has moved into mobile operating systems and now handsets.

It was exactly this uncomfortable combination that contributed to the downfall of Nokia’s operating system Symbian after the Finnish giant bought the venture out.

It is the very independent nature of Google’s Android that has allowed it to become the leading operating system in just three years, with companies from Samsung to HTC, LG and Sony Ericsson all using its software.

But now those companies, all rivals to Motorola, will be watching extremely closely, as Tony Cripps, analyst at industry watcher Ovum, pointed out.

“Google’s rhetoric about ‘supercharging’ the Android ecosystem implies that Google plans to work extra closely with the Motorola team,” he said.

“This is a delicate balancing act for Google; any hint of favouritism or signs that Motorola is getting an unfair advantage, and other key Android vendors will not be pleased.

“We may see Samsung, HTC, LG, Sony Ericsson and others reinvest in alternative mobile platforms, most likely Microsoft’s Windows Phone ecosystem, to keep Google honest.”

One irony here is that Nokia, having decided to ditch Symbian, has got into bed with Microsoft itself to use its Windows Phone system.

That move has been heavily criticised by many investors, but perhaps it has helped in some way to force Google to think again about its position in mobiles.

Big Apple
A far more pertinent reason behind Google’s bid for Motorola, however, is the rise and rise of Apple.

Earlier this month, the Californian company briefly became the world’s most valuable business.

It has performed that remarkable turnaround due to the success of the iPhone, helped by the iPod before it and the iPad since.

And it makes more money than anyone else in smartphones, certainly more than Google makes from Android.

Hardware, it seems, is where it’s at – and now Google wants a slice of the action.

At $12.5 billion (£7.6 billion), Google’s bid for Motorola sounds like a heck of a lot of money in these tough times.

But when you consider that the company, founded out of Stanford University, had £25 billion cash sitting on its balance sheet at the last count, it actually looks a bit like small change.

The temptations are obvious for Larry Page (pictured), Google’s co-founder, who took over as chief executive in April.

Here is a chance for Google to create something entirely new, in the form of handsets made by Google itself – just like Apple.

That’s one of the reasons that Google has offered a 63 per cent premium to the prevailing Motorola share price.

The philosophical conundrum for Google, however, is that its Open Source approach to mobile software will now come under scrutiny from the rest of the industry: customers with whom it will be in direct competition.

Steve Jobs, on the other hand, has made a virtue of the proprietorial nature of the iPhone operating system: the phone is simply more attractive than other phones and easier to use, says Apple, so why give its secrets to anyone else?

Page says Motorola will remain a separate company and be kept at arm’s length, but the temptations to meddle will surely be huge.

And then there is the question of whether it can sprinkle fairy dust onto the Motorola brand.

It has been done before, of course: Motorola revived itself some years back, with the RAZR phone (although it has yet to produce a convincing follow-up).

Apple remains the choicest of all the mobile brands and Google will have to be very smart at marketing its new devices if the deal goes through and gets regulatory approval.

Patents
The other big reason for Google to snap up Motorola, as experts were quick to note, is its incredibly long list of patents.

Anyone following the industry closely will know that barely a week goes by without a device manufacturer suing another over its intellectual property.

HTC has just started suing Apple, for instance, claiming that the iPad maker infringed three of the Taiwanese group’s patents through its sale of devices including smartphones.

In the devices industry, companies are almost as keen to defend their intellectual property as their lawyers are to mount legal challenges on their behalf.

Employees move from one company to another a lot, so the risks, and the levels of suspicion, are constantly high.

Motorola may be struggling when it comes to handsets – but it boasts some 17,500 patents and has a further 7,500 pending approval.

That is a mighty armoury that Google might be able to call on to defend itself against any litigation aimed at Android or its vendor partners.

“Motorola has a strong patent portfolio and a long history of producing advanced devices and technologies, but has been struggling financially for a number of years, making it an attractive target,” said Ovum’s Cripps.

It’s difficult not to agree with him.

The question is whether it will prove to have been a truly attractive deal in five years’ time.

The smartphone industry is moving at such velocity that, to be frank, it’s anyone’s guess.

Last Voda mess
Finally, having exited China and France, and squeezed a much-needed dividend out of its US business, Vodafone is busy trying to clean up the remaining mess in its other big problem country: India.

It’s found a new local investor, Mumbai company Piramal Healthcare, which has agreed to shell out £390 million for a 5.5 per cent stake in Vodafone Essar.

The deal ought to stop Vodafone breaching local laws that ban the UK giant from owning more than 74 per cent
of Vodafone Essar.

It’s been looking for another investor since Essar, its partner, decided in March to sell its 33 per cent stake to Vodafone. Vodafone should emerge with 70 per cent of its Indian business after the Piramal deal.

Now it just has to persuade an Indian court that it doesn’t owe the country’s government £1.5 billion in tax for its original takeover of the company, as the tax authorities there claim.

That might prove more difficult.

1 COMMENT

  1. Motorola hardly ooze sex appeal. Google should stick to software. They’ve got a good thing going with current partnerships. The Google Nexus phone was woeful.

    This could play nicely into the MS Windows OS hands.

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