Google’s “Whatcha Gonna Do with All That Junk” Motorola Mobility Moment

| Aug 17, 2011 | Fixed Access Infrastructure
| Analysts: Erik Keith, Yoav Schreiber

Event Summary

August 15, 2001 -- Google announced a definitive agreement to acquire Motorola Mobility for $40 per share in cash, totaling about $12.5 billion. The offer is not as expensive as it looks when you subtract Motorola Mobility’s $3 billion in cash and its roughly $3 billion set-top box business. Google clearly bought Motorola for its huge patent trove (17,000 patents granted and 7,500 pending), but this report covers the competitive impact resulting from acquiring the rest of Motorola Mobility’s operating business in video solutions.

Quick Take

Analytical Summary

• Current Perspective: Very positive on Google acquiring Motorola Mobility, because the deal is more than an expansion across the vertical supply chain or a defensive patent land-grab to protect (or perhaps “supercharge”) the Android ecosystem. It is a potential paradigm-bursting strategy that takes Google a step closer in transitioning from being the gatekeeper of online data management to being the gatekeeper of higher-value video management across all platforms. Making this leap requires shifting from a retail/consumer-oriented business with primarily consumer device/OEM relationships, to deeper pay TV service provider and content owner relationships. Android’s future success as an OS platform for connected devices is (in part) dependent on the ability to enable rich content experiences, which are controlled by service providers and content owners, with which Google has limited success fostering business or friendly relationships. Thus, Motorola Mobility’s assets and deep relationships in this area are critical to winning the battle on mobile platforms in the short term and the war for content in the long term.

• Vendor Importance: Very high to both companies, for both defensive and offensive reasons. Google needed to bolster its patent pool to defend Android from increasing IPR threats. Offensively, Google needs to build a path for Android to play in the TV Everywhere opportunity, and although a by-product of the IPR-focused transaction, there are natural fits with Motorola Mobility. For its part, Motorola Mobility has been doing its best to stabilize its roughly $4 billion dollar Home business, but it lacked a compelling differentiator to improve the competitiveness of its portfolio. Google’s data management expertise fits with Motorola Mobility’s ambitions to enable “TV experiences” on IP-connected devices, as well as providing a unique approach to complement its video infrastructure and software assets. At best, Motorola gains access to Google’s industry-leading Internet-paced software development expertise to execute on its converged TV experiences vision; at worst, Google spins out (separately?) Motorola’s roughly $3 billion STB business and its roughly $1 billion video infrastructure and broadband access business. In the interim, Google likely subsidizes the Motorola Home business.

• Market Impact: Very high on the digital media infrastructure market, because the future of the video business is increasingly about data, but to date, no one has been able to unify data access, management, and monetization across all platforms. Enter Google, which can, by uniting with Motorola Mobility, bring about the convergence of video content and mobility to delivery TV experiences. Google TV has been a monumental market failure shunned by broadcasters, operators, and consumers. With Motorola Mobility, Google could re-orient Google TV into a value proposition that service providers and content owners latch onto. The alternative is that Google spins out Motorola’s STB, video networking, and broadband access business. Motorola has a well-established presence in the cable infrastructure market (number two overall behind Cisco) and its GPON solutions are deployed extensively in the Verizon FiOS network. With the odds being high that Google will sell off these lines of business shortly after the acquisition is completed, the impact on the fixed access market is moderate. There are plenty of vendors which could benefit from this likely distressed land-grab, and in today’s economy, borrowing money is cheap enough to enable “outsize” transactions.

CLIENTS ONLY

Current Perspective

Competitive Strengths and Weaknesses

Response & Recommendations

Buyer Actions

| Client access - Full report in Fixed Access Infrastructure | More information

Top

Top