Google announced today they are purchasing Motorola Mobility for $12.5 billion in cash, a 63 percent premium on Motorola’s last closing price.
Larry Page explained why they bought Motorola in a blog post:
We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to “protect competition and innovation in the open source software community” and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.
In other words, Google’s very, very scared of the Nortel patent portfolio, so they purchased a phone maker for their own patents to use in defense.
The purchase price is indicative of how afraid they are, but what’s even more telling is just how dangerous a move this is. Because Android is a market share play, it depends entirely on its partners for success. This acquisition—no matter what quotes from partners Google publishes—will scare the hell out of their partners, because there’s so much that could go wrong for them. Google has already tightened control on how phone manufactures use Android, and now they own their own phone company. If you’re a phone manufacture, and your business is dependent on an operating system developed and controlled by a company that happens to own its own phone business, you’re going to be a bit uncomfortable.
And you’re going to start investigating other options. This may present an opportunity for Microsoft to become a sort of neutral company with no threat of lawsuits or competition. Whereas Google’s Android is encumbered by legal threats, and now potentially competition (or anti-competitive measures, like giving new versions of Android to Motorola first) from Google itself, Microsoft’s Windows Phone 7 doesn’t have any legal issues, and they’re certainly more trustworthy when they say they’re not going to build devices to compete with their partners.
So Google took a big risk here; not only did they spend $12.5 billion, but they (1) now are responsible for a separate company that they have no chance of integrating into Google itself, which is, at best, a huge distraction; and (2) are threatening Android’s success, their most important long-term business.
That’s what a company does when they’re afraid.