Why did Google spend $12.5 billion to purchase Motorola Mobility? It's been nearly two years since the deal was announced and close to a full year since it closed, and the questions keep piling up while the answers keep getting worse.
The biggest problem is that Motorola's patent portfolio doesn't appear to be worth anything close to what either company assumed: the judge in the Microsoft v. Motorola patent case ruled yesterday that Redmond owes a paltry $1.7 million in annual royalties for using Motorola's standards-related Wi-Fi and video-encoding patents in every Xbox 360 and Windows 7 PC sold, rather than the $4 billion Motorola had originally demanded.
To put that in perspective, it would take 3,235 years for Microsoft's royalties to pay off Google's $5.5 billion valuation of Motorola's patent portfolio.
"These rulings show that the portfolio isn't nearly as valuable as Google thought it was," said a source close to the issue, who pointed out that Motorola has lost other cases around the world on patents related to standards as well. "They're 0-for-Motorola."
That's a significant blow to Google's interest in using Motorola's patent portfolio as a defensive measure against an increasingly-litigious Apple. With the value of Motorola's patents now coming into focus, the complete implosion of a previous suit against Apple, and increasing domestic and international pressure against using standards-related patents to block competitive products, it's not unreasonable to say that any patent-related benefits to the purchase have vanished. Google may have wanted to buy a bulwark against future Apple lawsuits, but it ended up with a fairly anemic patent-licensing business instead.
And that patent-licensing business certainly isn't enough to offset quarter after quarter of losses as Motorola's current products fail to compete against strong devices from Apple, Samsung, and HTC. Google has repeatedly said that it inherited an 18-month pipeline of products from the company that it needs to flush out — CFO Patrick Pichette went so far in February as to say that current Motorola phones like the Droid RAZR Maxx HD aren't "wow" by Google's standards, but that the company is building "the next wave of innovation and product lines." In the meantime, Motorola has lost over a billion dollars since being acquired, laid off nearly 30 percent of its workforce, and had its cable box unit chopped off and sold to Arris for $2 billion amidst rumors that Google was struggling to find a buyer.
"Andy stood behind the deal and thought it was important to Google."
Motorola's struggles may have even played a role in Andy Rubin's departure from Android: Rubin sponsored the acquisition within Google, and sources say that he went so far as to vet Motorola's upcoming roadmap and personnel. "Andy stood behind the deal and thought it was important to Google," one source with deep ties to the mobile industry told The Verge." As [new Motorola CEO] Dennis Woodside started to look into the details, he couldn't see what Andy supposedly saw, which added more fuel to the fire to oust him."
"We acquired Motorola to level the playing field in patent attacks against Android and draw on Motorola's long history of innovation," a Google spokesperson told The Verge. "In just under a year they've accomplished a lot, with impressive velocity and execution. We're excited about Motorola's future." A Motorola spokesperson declined to comment.
That future now lies ahead — it's on Woodside to bring Motorola back to relevance, both within Google and the larger market. Rumors of a new "X Phone" have circulated since December, Google chairman Eric Schmidt has promised "phenomenal" devices that are "phones-plus," and Motorola design chief Jim Wicks told PC Magazine earlier this month that the company is working on devices that run stock Android and are "just the right" size. Larry Page, for his part, has emphasized durability.
New phones can't be Motorola's only contribution to Google
But new phones can't be Motorola's only contribution to Google — the company's Nexus program already allows the Android team to build high-end reference devices, and entering a full-throated competition with Android market leader Samsung might further impact a relationship that's already seeing the Korean company relegate Google's operating system to second place behind a thick veneer of Samsung software and services. Samsung dominates the mobile market in a way that no other company save Apple has managed to achieve — there's no apparent reason Google would risk severing that relationship just to enter a cutthroat hardware business that requires equally complex carrier relationships simply for the sake of it.
Which again leads to the question: why did Google buy Motorola? The real answer is worth $12.5 billion.