- Many have derided Google for its mishap in releasing its Q3 results early but it seems to me that real mistake has been the $12.5bn acquisition of Motorola Mobility
- Whichever way you slice the cake, Google has delivered nothing from this acquisition for shareholders.
- The thumping $527m Q3 12 EBIT loss (of which $376 is restructuring) from Motorola completely obscures the fantastic progress that Google has made with Android.
- Revenues from mobile advertising are now at a run rate of $8bn a year (up 220% YoY) with 0.5bn Android devices in the market and 1.3m being added every day.
- At this rate, Android is on course to double its user base to 1bn in just over 1 years’ time.
- But right now no one cares. Everyone is focused on the fact that $12.5bn has gone out the door followed by another $527m in the last three months.
- The only winners so far have been the long-suffering shareholders of Motorola Mobility who got a cracking deal and have smiled all the way to the bank.
- I see two reasons for this acquisition:
- First: To acquire a patent portfolio that could be used to protect the Android community from the ravages of patent prosecution from the likes of Apple and Microsoft.
- Second: To increase vertical integration such that, should the need arise, Google could become more like Apple and derive value from all parts of the mobile value chain.
- I have no issue with the first reason, and in fact it needed to be done as Android vendors have little no IPR with which to protect themselves.
- Unfortunately Google has made nothing other than a total mess of defending the Android camp.
- Firstly, when HTC tried to use Google patents to protect itself at the ITC they were thrown out as HTC had only borrowed them.
- Turns out, you can’t sue for patents that you don’t legally own, which would seem to render Google’s entire strategy to defend Android ineffective.
- Secondly, Google itself is now under investigation for allegedly using standard essential patents in a manner that contravenes FRAND licensing terms.
- It seems to me that Google is pretty new to this patent licensing game and is making elementary errors to the detriment of the Android community.
- The second reason makes no sense to me at all.
- The success of the Android user experience has had the effect of accelerating the commoditisation of hardware allowing more value to accrue to Google from the ecosystem.
- Motorola was a great hardware maker once but it has been crushed by Samsung who is showing every sign of being the only one capable of making money from hardware.
- Despite public protestations, I am certain that in reality Samsung and others are not happy at all with Google becoming a hardware maker.
- They have no reason to be so as suddenly a trusted partner becomes a competitor. How do you make that work?
- It never has done in the past. Remember Symbian?
- When Nokia bought a controlling stake in Symbian, support from other vendors collapsed and it all ended in tears and huge losses.
- Why would you waste money and resources to nature a dead duck at the risk of killing the golden eagle?
- If you are rational you wouldn’t, which is why I am sure that Google will end up selling the hardware piece of Motorola.
- However, at the moment, the only explanation I can come up with for hanging onto Motorola handsets is that Google is racked by what I call engineering disease.
- Engineers often get so excited about whether they can develop something that they forget to ask whether they should develop that something.
- Engineering disease almost always ends in disaster and I strongly believe that unless Google gets rid of Motorola Mobility in short order, heavy losses will continue as Motorola’s business dwindles into oblivion.
- Worst of all, it pushes other handset vendors, who are shipping almost all of Android’s volumes ($2bn advertising revenues per quarter for Google), into the arms of Microsoft.
- Microsoft is a threat with Windows 8 (despite what Eric says), from which Google is likely to earn much less or zero.
- Take Home Message
- Google is a great company, that has just got a lot cheaper, but I am not touching it until I have either been proved spectacularly wrong or until Google lances the boil.
Blog Comments
@samanjj
October 22, 2012 at 11:05 pm
‘Revenues from mobile advertising are now at a run rate of $8bn a year’
This includes and I believe is mostly from IOS devices.
tatilsever
October 23, 2012 at 8:42 pm
Business Insider has a story around that claim. If true, they say the income from desktop advertising must have actually gone down a bit. In the past Google could avoid drops in revenue during tough economic times, as internet advertising could grow even when budgets for other advertising outlets were cut. It may not be immune to downturns anymore.
@samanjj
October 24, 2012 at 12:19 pm
Considering the browser usage stats of android v iOS, it is true as iOS devices have a much higher browser and Internet connected app usage. MS makes money from every android device since they have patents that they have enforced against the OEMs. Android and Motorola as a strategy do not make sense for Google, in my opinion. What bang are they getting for these big bucks?
windsorr
October 23, 2012 at 10:06 am
That is worth looking into….thanks
If its true, it further undermines the strength of Android, making it an even softer target for MSFT.
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