I understand why Google bought Motorola Mobility today — they need bigger battalions in the Patent Wars. But did they overpay? Maybe:
Google is paying a premium of 73 percent compared with Motorola Mobility’s 20-day trading average price before today. The average premium of more than 360 deals in the wireless- equipment industry on that basis was 32 percent in the past five years, according to Bloomberg data.
“This is a heck of a premium” said Lee Simpson, an analyst at Jefferies International in London. Motorola Mobility’s patents are “a good counterweight if Apple comes after Google.”
Apple has been quite carefully not going after Google. Instead, Apple has chosen to fight against its biggest Android-infused copycat manufacturers. Now that Google is becoming a manufacturer, via Moto, that could change.
Despite Android’s runaway success, Google has proven itself a not-very-adept cellphone maker. Google has released two name-branded phones, both built by other makers to Google’s specs. The first, the Nexus One, was something of a flop. Manufactured by HTC, it was supposed to be the flagship Android phone, but it never really took off.
Samsung was chosen to build the follow-up Nexus S. It has done better than its predecessor, but like many Android phones it’s gotten lost in the shuffle. That, by the way, is a feature of the Android ecosystem, not a bug. Google’s entire Android strategy is to make it available to anyone, and to get it on as many devices as possible. Still, that does make it more difficult for manufacturers to build standout phones — or for them to stand out for very long.
By design, it appears Google is going to wade willy-nilly into making its very own handsets. Maybe not — maybe it bought Moto purely for the patent portfolio. If so, that makes the 73% premium even harder to justify. So I’m betting that Googarola or whatever will soon be building Android handsets to put up against the best Android handsets from HTC, Samsung, and all the rest.
Right off the bat then, Google has given its Android OEMs a reason to flirt a bit with Microsoft, maybe take a quick peek under the skirts of Windows Phone 7. But that’s not all.
Google has never been much of a handset maker. Barring Android, Motorola hasn’t been an interesting handset maker for half a decade or longer. It’s profits are weak and the company is suffering product delays. Googarola is going to have to do something to make its products stand out from the crowd — a difficult feat in the Android world, as we’ve already discussed.
As I see it, Google has three ways to do that.
Premium hardware? That’s Apple’s niche. Aggressive pricing? That’s (unloved) Nokia’s specialty and, besides, it would be just another reason for Android OEMs to look to Microsoft. Google’s third option is: Unique flavors of Android no other manufacturers can get, if only for a while. Now there’s a way to Samsung and HTC racing to Windows Phone 7.
I suppose there’s a fourth option. Google could remain a tiny manufacturer. Which begs the question: Why bother? No, I think Google has its eyes set on gobbling up some of the massive profits Apple enjoys in the cellphone business. And that means going big.
Imagine if Microsoft swallowed Dell whole, and vertically integrated itself like Apple. Windows OEMs would have to start thinking very seriously about their dependence on Microsoft. MS would also set itself up for a mano y mano fight with the most beloved computer maker on the planet. And let’s be honest: A Microsoft-built box is just not going to garner the loyalty (and profit margins) that an MacBook Air does. Yet that’s the situation Google seems to have gotten itself into.
The whole point of Windows is that it runs on most any PC, anywhere — and cheaply. That’s what Android does, too. If I’m seeing this correctly, Google is trying and bootstrap Android from cheap-but-plentiful to pricy-and-exclusive. And they’ll have to do that without scaring off the OEMs who make the Android ecosystem work.
That’s a helluva tightrope to walk. It’s enough to make me wonder if Google paid the Moto premium just for the patents, after all.
In which case, yeah, they overpaid.
UPDATE: Blodget says, “It could end up being a disaster.”
GRUBER: “The Stepford Handset Makers.” They ain’t happy with Google right now.
INVESTORS: Aren’t happy, either. GOOG is down more than 2% already.