By Nilay Patel and Ben Popper
Google’s romance with Motorola was star-crossed from the start. With the $12.5 billion purchase of Motorola it wasn’t just taking on an ailing manufacturer — challenge enough — but simultaneously competing with Google’s own hardware partners in the Android ecosystem, meaning it had to tread carefully. The payoff for all that heartache? Motorola’s impressive collection of 24,000 patents and patent applications. Unfortunately for Google, the much-ballyhooed war chest of intellectual property didn’t hold up in the courtroom.
Google’s initial motivation for buying Motorola was extremely simple: Motorola’s patent portfolio included core pieces of standard technologies like Wi-Fi and GSM. At the height of the patent battles between Apple and Android phone manufacturers like Samsung, governments around the world were undecided on whether those "standards-essential" patents could be used to completely block products from the market — and Motorola had already filed several lawsuits attempting to block the iPhone from sale in courts across the US.
If Google had succeeded in blocking the iPhone it would have been the smartest $12.5 billion ever spent
If Google had succeeded in using Motorola’s patents to block the iPhone, gain Congressional interest, and force Apple to the negotiating table, it would have been the smartest $12.5 billion ever spent.
Unfortunately, it didn’t quite work that way. Court after court rejected Motorola’s patent claims — the influential Judge Richard Posner of the 7th Circuit completely threw out the case after deciding neither Apple nor Motorola had even demonstrated any reason to be in court — and trade agencies in the US and Europe took a hard line against using standards patents to block products. In the US, Google settled a Federal Trade Commission investigation into its improper use of standards patents by agreeing that those patents would not be used to block products from market but instead be licensed fairly. And the value of a fair license plummeted: the court in Motorola’s case against Microsoft’s Xbox 360 found that Microsoft owed just $1.7M in royalties per year, far less than the $4 billion Motorola had demanded.
Motorola’s patent portfolio was essentially rendered worthless; an anemic licensing business compared to Google’s other massive revenue streams.
While the patent play blew up, the hardware side may have paid off
But while the patent play blew up spectacularly, the hardware side of the Motorola acquisition may have actually paid off: by building its own phones, Google gained valuable leverage over the Android partners, particularly Samsung.
Motorola actually made some nice phones during its run at Google. The flagship Moto X was well-received by critics, including our own. "The additions to the software that Motorola has made are legitimately useful and really quite impressive," wrote Joshua Topolsky. "They add to the experience of Android without removing what is most vital in Google's software, unlike the competition, which seems intent on obscuring what's already a sophisticated and beautiful operating system." The Moto X never sold well, but it increased the pressure on Google's partners to build great products by showing what was possible.
The problem was that Google’s Motorola lacked the marketing and distribution power needed to actually sell enough phones. Despite a warm welcome from critics, Motorola’s losses widened to $248 million during the first quarter when the Moto X was on sale. "Motorola needs to build tighter relationships with other carriers after a long tie-up with Verizon on the Droid line," said Ross Rubin, principal analyst at Reticle Research.
Overall, Motorola had burned through $600 million since the acquisition and was on pace to bleed about $1 billion a year. To turn things around Google would have had to pour hundreds of millions into expanding marketing and distribution, upping the competition with its partners. Rather than doubling down on making its own phones, Google used Motorola as leverage to secure the Android ecosystem against a painful and expensive patent battle and to prod its partners into accepting its version of Android.
A few days after bringing Samsung in more tightly, Google let go of Motorola
Earlier this week it reached an interesting détente with Samsung: the two companies agreed to share patents, helping each other defensively and not litigating against one another. At the same time, Samsung reportedly made concessions about what Android will look like on its future devices, agreeing to tone down the extensive customization and duplication of apps and services that characterize its most popular phones and tablets. It’s hardly a coincidence that a few days after bringing Samsung more tightly into the fold, Google let go of Motorola.
How long will this balance hold? The purchase of Nest indicates that Google has rethought its hardware strategy, preferring to avoid competition with its Android partners and instead invest in the wide-open world of connected devices and smart homes instead. Larry Page said as much in an email to staffers about the Motorola sale. "As a side note, this does not signal a larger shift for our other hardware efforts. The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry. We’re excited by the opportunities to build amazing new products for users within these emerging ecosystems."
Of course, Samsung has plenty of interest in building a smart home of its own. The delicate dance goes on.