Google Sells Motorola
In late January of 2014, Google announced it is selling the Motorola handset business to Lenovo for $2.9 billion. The company acquired the Motorola handset business and its numerous patents for $12.5 billion in 2011.
Most of the water cooler conversation, pundit and press coverage since the announcement has focused on dissecting the deal, including wondering who at Google is going to be axed as a result of the quick reversal of strategy and the ups and downs of the financials for Google.
Other common speculation has focused on the value Google will retain with its 6 percent investment in the deal and ownership of Motorola patents, and the impact on Lenovo and the Chinese high-tech industry from the combination of the Motorola handset and low-end IBM System x Series server businesses.
Google is Getting Out Now, while the Getting is Good
The obvious reason the deal is happening is to eliminate channel conflict. The dual ownership of a shared software platform and a first-to-market hardware platform by Google was a major source of conflict for Google’s Android business partners, all of whom complained about the Motorola acquisition since day one. If you were the head of Samsung, LG, or any of the other business partners, you’d be justly upset with Google for owning products that could one day put you out of business.
Google wisely concluded its ownership of both the preferred software platform and a competing hardware platform was too much for its value added business partners, all of whom are fielding Android-based products, including those made and sold by Acer, Alcatel, Amazon, Archos, Asus, Barnes and Noble, Cherry Mobile, Cube, Dell, Garmin, GeeksPhone, HTC, Huawei, I-Mobile, LG, Motorola, NEC, Pantech, Samsung, Sony Ericsson, Sanyo, Spice, Toshiba, Viewsonic and ZTEC among many others. Besides, Google has its Nexus lineup that teases what a pure Android experience is.
The less obvious reason for the sale is the more important one: acquiring Motorola was the wrong strategic move for Google. Beyond channel conflict, the biggest problem from the Motorola acquisition for Google was that it defocused the company away from its obvious core businesses including: market-segmented consumer data, context-based advertising, and its ability to innovate on its software platforms.
Instead of pouring resources into the Android software experience to bolster its core businesses, Google found itself being dragged into the hardware device business, a very different line of business with lower margins, quite at odds for a company whose roots and expertise is innovating in higher-margin software.
The market for handsets, tablets, and other consumer devices will inexorably march down the road toward device price — and cost — leadership which are not Google strengths, rather than value and software innovation leadership which are Google’s strengths. Google finally decided to refocus on its strengths: defining and innovating on the software platform experience. Google is telling its business partners with the sale of Motorola: you own the hardware device business!
Google Gets its Mojo Back from the Sale of Motorola
By selling the hardware business, Google puts itself back in the enviable position of potentially controlling one of the computing fulcrums for the next 30 years. Google may or may not be leaving money on the table with this deal, but a near-term loss on its investment is not as important as making the correct strategic moves. This deal solves the company’s channel conflict problems and brings it back to where it should have been all along, focusing on innovating the Android software experience.
By focusing on the platform software, Google is executing the same strategy Microsoft did in 1980 when it negotiated a contract with IBM to supply the operating system for the IBM PC. IBM would own the hardware business which is something it had done for years for mainframe and midrange systems, while Microsoft would own the operating system. History has shown which strategy was the better part of the deal.
Selling Motorola enables Google to deliver some missing capabilities that could result in a market-hegemony similar to what Windows and the PC did for Microsoft in the past, but for Android software platforms into the future. The missing capabilities Google must focus on include delivering a uniform user experience across Android devices, and delivering uniform-access to the most recent releases of Android.
The sale of Motorola also enables Google to focus on expanding its share of the Independent Software Vendor (ISV) community to build out the kind of portfolio that only Apple can claim today. Once its platform consistency problems are solved, its software partners around the world will feed on a much larger market opportunity, which in turn will lead to larger demand for Android devices and software services.
The sale of Motorola enables Google to reenergize its future and focus on its core competencies.
What about Microsoft?
The sale of Motorola presents some interesting questions for the new management team and board at Microsoft. The obvious question is, Should Microsoft stick to the handset business the company acquired from Nokia, or divest itself of the handset business altogether?
Microsoft will have to rethink its “devices and services” strategy, recently pushed by former CEO, Steve Ballmer. Deemphasizing the devices part of the strategy will allow the company to refocus on its roots of innovating in software, and exploit the opportunity for services that are independent of devices.
It also provides the new-guard at Microsoft with an opportunity for a major strategy reset, one that if taken advantage of may leave the Android juggernaut untouched in the near-term. But like a Trojan horse, a strategy-reset could enable Microsoft’s to take advantage of its software innovation roots while providing it with the opportunity to embrace and overtake the City of Android by defining the other fulcrum of computing for the next 30 years.
What Changes for Corporate IT Buyers and Managers?
At this time, not much. Android and iOS remain preferred mobile platforms of choice that employees will continue to use on- and off-the-job. Windows 7 remains the currently entrenched platform of choice for desktops and laptops. Will these platforms change in five years? Possibly, but you have plenty of time to not worry about it, and react when and if change occurs.
But on the back-end, where the other fulcrum of computing for the 21st century resides, the battles are just heating up. Expect Microsoft to put its muscle behind services delivered through the Cloud as well as new application software services delivered through on-premises applications.
What Changes for Suppliers?
The sale of Motorola by Google energizes the firm and its ability to refocus resources on the Android platform and services and address both ends of the fulcrum of computing in the 21st century. After all, Google was born in the Cloud.
The sale of Motorola and a refocus by Google changes the supply-landscape for all big and small firms generating revenue from the sale of systems, software and services, including: Amazon, Accenture, Atos, AT&T, Booz Allen, Capgemeni, CA, Cisco, Citrix Systems, Core Logic, CSC, Dell, Deloitte,E&Y, HP, IBM,KPMG, iGate, Fiserv, Genpact, Getronics, HCL, Infosys, Intuit, Joyent, Microsoft, Oracle, SAP, SalesForce.com, Splunk, Tableau Software, PwC, Rackspace, Red Hat, AIC, SoftLayer, Symantec, Tata Consulting, Tech Mahindra, Unisys, and VMware, and Wipro among many others.
The innovation taking place in software on the device end is being matched by innovation on the back-end by all of these suppliers, and more.
Did Google out-Microsoft, Microsoft?
Only time will tell, and the new players at Microsoft may have something to say about this, going forward, if they can keep the financiers at bay.
Microsoft may have to reinvent itself within the next five years if it is to remain credible for thirty years beyond that.