Google's Acquisition of Motorola Mobility: Will the 'Gamble' Pay Off?

Google's Acquisition of Motorola Mobility: Will the 'Gamble' Pay Off?
Case Code: BSTR420
Case Length: 21 Pages
Period: 2010-2011
Pub Date: 2013
Teaching Note: Available
Price: Rs.500
Organization: Google Inc., Motorola Mobility Holdings Inc.
Industry: Mobile devices, Information Technology
Countries: USA
Themes: Acquisition
Google's Acquisition of Motorola Mobility: Will the 'Gamble' Pay Off?
Abstract Case Intro 1 Case Intro 2 Excerpts

Google's Biggest Acquisition Ever

On August 15, 2011, US-based Internet search major, Google Inc, (Google), announced that it had entered into a definitive agreement to acquire Motorola Mobility Holdings Inc. (Motorola Mobility) for US$ 12.5 billion at US$ 40 per share in cash. Motorola Mobility had been a dedicated partner of Google's smartphone operating system, Android. Analysts said that the acquisition, which heralded Google's entry into the hardware segment, would help Google become more competitive in the mobile computing market, and pave the way for it to become a major player in the market for Internet access through mobile devices. The Google-Motorola Mobility deal, according to Reuters, marked the assimilation of mobile hardware with the underlying software.

Forming a part of the acquisition was a cache of Motorola Mobility's patents in mobile communications and technologies. The patents were likely to help Google defend Android, which had been the target of several patent lawsuits. Google's competitors like Apple Inc. (Apple), Microsoft Corporation (Microsoft), and Oracle Corporation10 (Oracle) , filed several patent suits, not only against Android but also against Android partners like the Samsung Group (Samsung) and HTC Corporation (HTC).

Google announced that Motorola Mobility would operate as a separate entity and Android would remain open source software. On the acquisition, Larry Page (Page), Google CEO, said, "Motorola Mobility's total commitment to Android has created a natural fit for our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners, and developers."

Though Page reaffirmed Google's stance on Android, analysts said that the acquisition could alienate Google's Android partners who might suspect Google of giving preferential treatment to Motorola Mobility. According to Nick Dillon, Analyst from Ovum, "Google will move from the position of partner to that of competitor to Android handset manufacturers, potentially placing significant strain on the Android ecosystem."

The acquisition received a mixed response. While a few analysts said it would prove beneficial to Google in many ways, others were not so sure. "The best way to fight a big portfolio of patents is to have your own big portfolio of patents. That appears to be what Google is doing here, arming itself with patents to be able to defend itself in this fast-growing market," said Herbert Hovenkamp, a law professor at the University of Iowa. On the other hand, Standard & Poor's (S&P) downgraded Google, saying the acquisition posed a risk to the company. Equity Analyst Scott Kessler from S&P said that even after acquiring Motorola Mobility, patent challenges remained. He added, "We also believe the purchase would negatively impact Google's growth, margins and balance sheet."

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