A week ago, Google announced it was buying Motorola Mobility for $12.5 billion, a 63 percent premium over its trading price. The deal awaits regulatory approval.
Android has made huge inroads, dominating smartphone operating systems and finally giving Apple a run for its money in tabs. But Adam Hartung in Forbes argues Google has blown it with its bid on Moto.
He notes that Android is not a moneymaker for Google. It’s been a loss leader. Android has been a strategy for Google to hold on to its search revenues as users moved from PCs into the cloud, according to the author and business growth expert.
Hartung says the business world was stunned because:
—Few software companies move into hardware;
—Effectively Google will now compete with its customers such as Samsung and HTC that offer Android-based phones and tablets, and
—Motorola Mobility had pretty much been written off as a viable long-term competitor in the mobile marketplace. With less than 9 percent share, Motorola is the last place finisher – behind even crashing Research In Motion and its BlackBerry.
The acquisition has been explained as a way to give Google some weight in what has become a patent battle.Google had already suffered some patent setbacks in Europe. Moto brings more than 16,000 patents to fray.
But Hartung argues that the Moto purchase won’t resolve the fundamental flaw in Google’s Android business plan. “Android still isn’t making any money for Google. And Motorola’s flat Android product sales don’t make any money either,” he says.
He says that Google should have just cut its losses and dropped Android.
Chunka Mui, appropriately of the Devil’s Advocate Group, provides the counterpoint in Forbes. He notes that the sort of “defend and extend” strategy followed by Google often doesn’t make sense. But he argues that it is the right path for Google.
He says that this approach is good if it is used in the context of a growing market and large potential profit pool. “Defending the enormously profitable search-driven advertising business model and extending it into the potentially larger mobile Internet seems right to me,” he says. “There are hundreds of billions in advertising and promotion dollars still being spent on traditional media. Much of that will migrate online, to PCs and mobile devices. In my view, Google is right to position itself to capture as much of that as possible.”
Willy Sutton said he robbed banks because that’s where the money is. Mui says Google likewise in going after the mobile market is following the growth in users and advertising dollars. “Android is necessary (though not sufficient) for enabling that,” he says. “Imagine a scenario where Google abandons Android. How much of the Android’s almost 50 percent share of the smartphone market would migrate to Apple? How much of it would go to Microsoft, another arch nemesis?”