Google's Acquisition of Motorola: Software, Hardware, Everywhere
Case Code: BSTR401
Case Length: 18 Pages
Pub Date: 2012
Teaching Note: Not Available
Organization: Google, Inc., Motorola Mobility Holdings, Inc.
Industry: Smartphones, Information Technology
Themes: Managing Networked Businesses, Corporate Strategy, Mergers and Acquisitions
Abstract Case Intro 1 Case Intro 2 Excerpts
Motorola Mobility Holdings Inc (MM) was one of the two companies that were formed due to the division of the telecommunications company Motorola, Inc. (Motorola). MM's main products were smartphones, feature phones, tablet computers, and digital set-top boxes. Motorola had its origins in 1928 as Galvin Manufacturing Corporation, an enterprise which was started by two brothers, Joseph and Paul Galvin. It manufactured radio battery eliminators...
A Big Leap into Smartphone Operating Software
Google extended its search engine application to mobile devices in 2001. In July 2005, Google purchased Android Inc., headed by Andy Rubin, for an estimated US$50 million. At that time, Android was a 22-month-old firm, working on developing operating software for wireless devices., In November 2007, Google launched the wireless operating software Android, which was developed by its Android team. Android was available for free for any mobile device maker...
There were some challenges that threatened Android's very existence. As compared to some of its formidable rivals, Google had a relatively shallow suite of patents, especially in the mobile space, as it had not been in existence for too long. Some industry observers also felt that Google had been lax with copyright regulations in its zeal to develop Android. It was estimated that Google had just 317 wireless patents in the US at the start of August 2011...
Gaining Traction with Motorola
Immediately after the Nortel debacle, Google started holding parleys with MM, which had a formidable patent portfolio. MM had, however, made it clear at the outset that Google had to acquire the company as a whole and not just its patents. Google had at first proposed to pay US$30 per MM's share. MM rejected this and said that it wanted US$43.50 per share. Google revised its price upward to US$37 per share, which MM again turned down...
A Complete Mobile Device Maker?
With this deal, Google morphed into a complete mobile device maker. "We actually believe the Motorola team has amazing products. We like having at least one area where we can do integrated hardware," said Eric Schmidt, Chairman, Google Inc. As mobile Internet access proliferated, the deal was expected to help Google in its efforts to become the epicenter of users' Internet usage in times to come. But Google had to first lock horns with Apple's iPhone and iPad in the smart-device business and attain greater influence for its Android software...
In Tune with the Times?
Mobile computing was expected to become all encompassing, allowing one to access one's data, be entertained, and to conduct one's life through a hand-held device. This was expected to be made all the more exciting with artificial intelligence titillating and spoiling the user for choice, providing and in the process monetizing this experience through focused advertisements. This exercise was expected to be so lucrative to advertisers that they would bear a major chunk of users' web access expenses...
Will the Synergies be Realized?
Many experts were unsure whether Google would be able to match up to the likes of Apple as a maker of both hardware and software. They pointed out that other companies such as Hewlett-Packard and Nokia, which had tried bundling their own hardware and software, had failed. Nokia, due to a sharp fall in its market share, had shelved its integrated strategy and had gone full-time with Microsoft's Windows. Many analysts doubted whether substantial synergies could be derived from Google's acquisition as Google and MM were dissimilar in many aspects. Google focused on web services and software - it derived a major chunk of its revenue from the search ad and display ad business, enjoyed fat margins, and used mammoth data servers to make its tools ubiquitous...
Can Google Simultaneously Collaborate and Compete?
Many analysts felt that Google, through this acquisition, had tied itself up in a situation which would be more difficult to negotiate than the patent imbroglio. Owning a hardware maker was expected to cause irreparable damage to Google's relationship with other Android device makers such as Samsung, HTC, etc. by pitting Google against them. Some experts called it the "classic channel conflict". Other Android device makers might feel alienated if they thought that Motorola would now have an unfair edge over them in Android deployment...
Exhibit I: Some of Google's Successful Acquisitions Over the Years
Exhibit II: Google's Financial Performance (2005-2010)
Exhibit III: Motorola Inc.'s Financial Performance (2004-2009)
Exhibit IV: Motorola Mobility Holdings Inc.'s Financial Performance (2008-2010)
Exhibit V: Worldwide Smartphone Sales Share by Operating System (Q3' 2011)
Exhibit VI: US Smartphone Sales Share by Operating System (Q3' 2011)
Exhibit VII: Worldwide Mobile Device Sales Share (Q3' 2011)
Exhibit VIII: US Smartphone Sales Share (Q3' 2011)
Exhibit IX: Worldwide Smartphone Sales Share (Q3' 2011)
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