Deals

Google-Motorola Deal Rattles the Competition

The deal Google announced Monday — to acquire Motorola Mobility for US$12.5 billion — is a stunning seismic event in the already-heated mobile device and operating system market. Google’s Android OS has been on a tear lately, rivaling Apple for the moniker of coolest smartphone system.

Now what? Will Motorola competitors desert Android? Will there be a rush to Microsoft’s Windows Phone 7 as an alternative? Or, will things go pretty much the same, with Samsung, LG and Sony happily producing Android phones for years to come? Ah, sure.

Chances are, this announcement will mark a major shift in an already turbulent market.

A New Chapter in the Mobile Wars

When looking at how the deal changes the competitive landscape, the first question is whether it helps Google’s competitors. That would imply Google somehow stumbled in this move. Certainly, a good number of stock traders initially seemed to think so — Google’s stock tanked on the announcement. However, that reaction may have been misguided.

“The competitors don’t benefit from this. That would imply this is a mistake and Google will suffer from it,” Allen Nogee, principal analyst for wireless technology at In-Stat, told the E-Commerce Times. “I don’t see how buying Motorola will hurt Google. It will probably help. They may scrap all the hardware and just use the patents.”

The move will affect each individual competitor in a different way. Some will be untouched, others may benefit, some may lose.

“I don’t think this changes RIM,” said Nogee. “It could help Microsoft. Microsoft is in the beginning with Phone 7. They will come out with an update soon, and that will help. Microsoft could benefit — but not immediately.”

The deal could result in a weakening of Google’s existing partnerships. Companies like Samsung and Sony may be less enamored with the Android operating system if it is intimately tied to Motorola.

“It depends on how much of a role Google takes with Motorola,” said Nogee. “Even before this happened, Google was giving early information on its tablet system to Motorola. When they purchase Motorola, that will likely happen to a greater extent. Even if it isn’t happening, there will be suspicion that it’s happening.”

Confusion Reigns

The market was surprised by Google’s move, especially since it takes Google’s partnerships with other hardware providers into uncharted territory. While the market is accustomed to a hardware-software mix with Apple and RIM, creating it midlife has a Frankenstein feel to it.

“It is definitely out of left field for a software and service company to buy a hardware player,” Chris Hazelton, research director for mobile and wireless at the 451 Group, told the E-Commerce Times. “This complicates the relationship Google has with Samsung, LG, Sony and others. These companies made billion-dollar bets on Android. So did Motorola, but now they’re the one getting the payoff. Samsung, LG, and Sony may look to another operating system. Right now, Windows Phone 7 looks good.”

Nokia suddenly looks like it made a very sweet deal with Microsoft, in Hazelton’s view. Nokia has been working for the last year on Windows Phone 7 device development.

“If the other hardware companies move to Microsoft because of the Motorola deal, they will be behind Nokia,” said Hazelton.

There has been speculation that Google’s Motorola deal will weaken RIM to the point where it becomes a potential acquisition target, but Hazelton doesn’t see that as likely.

“RIM would be a pretty expensive acquisition target,” he said. “RIM wants to remain a vertically integrated device center. When RIM comes out with its smartphones, they will be in a slightly better position, because next year there may be fewer Android devices. It could be that Motorola will be the only vendor using Android next year.”

Google’s stock dive notwithstanding, the company may have rolled a seven. In business, control is the pearl. The Motorola deal may give Google a strong hand in its future: total control of its mobile offering.

“In the end, this is a good move for Google,” said Hazelton. “If you own the partner — by vertically integrating the operating system and hardware — you can determine what you want to do. That’s critically important as smartphones and tablets gain usage over desktops and laptops.”

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