Google's Motorola Conundrum: Dominance, Innovation, or Protectionism?
What is Google thinking? Monday's announcement that it will pay a 63% cash premium for Motorola Mobility shares, at an offer of $40 per share, certainly stoked Wall Street interest. Yet the long-term benefit is less clear when it comes to the Android platform's recently achieved ranking as the number one smartphone operating system.
Based on a number of facts, and in light of a series of tests I've helped conduct on a wide variety of Android handsets over the past few months, it seems that Google is at a crossroads. When it comes to balancing innovation against market dominance and even a bit of protectionism, U.S.-style, the Motorola acquisition may be about short-term positioning but could severely curtail the overall appeal of Android with bigger handset players.
Consider a few facts.
First, Motorola has been losing market share in the U.S. smartphone subscriber market faster than Research In Motion (RIM), even as the overall smartphone usage has grown by 8% and is accelerating. According to comScore's three-month rolling window of US smartphone subscribers, 78.5 million U.S. mobile subscribers used smartphones from April to June 2001, and yet Motorola's share dropped 1.3% in that same time period, while Apple and Samsung both grew almost 1%.
Second, Google's Android and Apple's iOS were the only two smartphone platform operating systems to grow in the same time period, with Android accelerating from 35% up to 40% in just three-months. The primary growth came from Samsung and LG smartphones, however, and not from Motorola.
Third, Apple has filed a number of complaints in Australia, Europe and—to a lesser extent—in the United States, seeking to block the import of certain handsets and tablet devices that it claims are "slavish copies" of its iPhone and iPad devices. Whether the striking similarities are more than coincidence remains to be determined legally, but Apple has been successful in several instances in blocking HTC, Samsung, and a few others from launching products in a few key countries across the globe.
Fourth, Apple and a host of other companies recently won approval for a treasure trove of patents from bankrupt Canadian telephony company Nortel. While Google had the "stalking horse" bid to begin negotiations, Apple teamed up with EMC, Ericsson, RIM, Microsoft, and Sony to present a bid of $4.5 billion for a total of 6,000 patents. Google, choosing to pay almost $12.5 billion for Motorola Mobility, gathers almost 25,000 patents (including 17,000 issued) into its patent war chest.
"Patents were meant to encourage innovation," wrote David Drummond, Google's chief legal officer, at the time of the Nortel patent decision. "But lately they are being used as a weapon to stop it."
Patents are at the heart of the Motorola purchase, as Google seeks to balance—or, some would argue, dominate—the playing field (by acquiring patents that all other handset manufacturers must use to attach to mobile phone networks. Nortel was a traditional telephony company, with many of its patents applying to wireline connections, where Motorola Mobility is a wireless-focused company through and through.
The bigger question for Google, however, is whether it will now use the patent trove to stifle innovation, as it accuses Apple and others of doing. This question alone will keep the anti-trust regulators, who must approve the deal, awake at night as it appears we're moving into the intellectual equivalent of the robber barons' land grab across the patent landscape.
A side effect of the Motorola acquisition may be that larger handset manufacturers such as Samsung—which is being hammered in ongoing litigation by Apple for its Galaxy S II smartphone and newer Galaxy Tab tablet—simply choose to cede the U.S. market to other device manufacturers and turn instead to a platform like Microsoft's Windows 7 Phone. If that happens, Android's U.S. market share could easily be cut in half, as Samsung accounts for over 25% of all smartphones sold in the United States.
Google may also see the purchase of Motorola Mobility as a path to a consistent hardware platform, marrying the Android OS with a custom-designed phone or tablet. Google's recent attempts with Samsung to deliver the Nexus S—the official Google phone—have been nominally successful in terms of market share, but somewhat dismal in terms of quality of experience.
At the outset, I mentioned testing a number of Android handsets. Adobe commissioned Transitions, Inc., a consulting firm I co-founded in 2003, to conduct a series of tests focusing on consistency of video and media delivery. The tests covered a number of handsets from all the manufacturers mentioned in this article.
What Transitions found, and published in two reports (Performance or Penalty? Assessing Flash Player 10.1 Impact On Android Handsets and The Right Fit?: Video Playback Performance on Android Handset and Tablet Devices Using Adobe Flash Player 10.2 and 10.3, was that the official Google phone often came in near the bottom of the list, while a Motorola device often placed near the top in a number of categories. The Motorola phones certainly weren't as pretty as some of the other devices, but they were functional and solid.
The one exception was the initial version of Android OS on the Motorola Xoom tablet: using Android "Honeycomb" 3.01 and Flash Player 10.2, the Xoom was fairly sluggish. During the course of testing, Transitions received an update to both the OS and Flash Player (3.1 and 10.3, respectively) which delivered rock-solid results.
Still, there was no one "perfect" device that balanced form, functionality and consistency of user experience. Therein lies the problem for the Android platform: any given smartphone or tablet was good at a few things, but not seamlessly in the way that Apple's devices are famous for.
All that is to say that Google could plausibly use Motorola Mobility, which it will run as a separate entity, as a test bed for tighter hardware and software integration. Whether this turns companies such as Samsung and LG, who are already facing protectionism and litigation threats by Apple, remains to be seen, but Google just hedged its bets by acquiring one of the few U.S.-based smartphone manufacturers.
I'll be presenting a session at Streaming Media Europe, titled "Video for the Android OS: Challenges and Opportunities," to discuss the Transitions reports and the broader implications for user experience on the Android platform. Streaming Media Europe is held in London from October 18-19, 2011.
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