Google Buys Motorola

Google (GOOG) purchased Motorola mobility for whooping 12.5 billion USD, its biggest acquisition ever since its Double Click acquisition which was closed for 3.1 billion USD. Google paid a premium of 63% to acquire the company. Google dipped into its huge cash reserve of $39 billion to buy Motorola Mobility for $12.5 billion, or at 63 percent premium over the target stock’s closing price. The acquisition, which is now the largest acquisition of Google after DoubleClick, shocked the Wall Street, making Google’s stock dip 2.6 percent to $549.23 soon after the announcement.

Why was Google willing to pay a premium of whooping 63%

Google’s acquisition of Motorola Mobility Inc. came as a shocker to the market and was definitely a surprise, especially when the fact that Google was willing to pay a 63% premium over market price of Motorola mobility was revealed. It was pretty evident and no one has any doubts about Google’s commitment to Android and its full intentions to make it the de-facto standard, ubiquitously connected operating system for cell phones, mobile computing, robotics, and not to forget the cloud.

Investors were stunned about the deal decision because Motorola is not only the smallest of the major Android Smartphone makers, but it is also the only major Android handset maker whose share of the Smartphone market has declined to a large extent in the second quarter and the company have seen a trend of outgoing revenues.

Justifying the decision of acquisition and throwing some light on the strategy behind the same at a conference after making the decision pubic Google Co-Founder and CEO Larry Page said:

“With mobility continuing to take centre stage in the computing revolution, the combination with Motorola is an extremely important event in Google’s continuing evolution that will drive a lot of improvements in our ability to deliver great user experiences.”

The above statement itself justifies that there are big plans behind the deal and Google Inc. will soon be seen reaching heights.

Google, like Apple (AAPL) which is No.1 Technology Company, is a big brand name and has always been an innovator. It has lacked the hardware expertise which is available with its rival Apple. The acquisition of Motorola Mobility, however, makes Google the owner of both hardware and software and it could bridge that gap between Apple and Google. Most importantly, it may help the search giant produce products that marry art and technology and will also give the search giant a chance to compete with its four major hardware-software competitors:

• Apple-iOS
• HP-webOS
• Research in Motion-BlackBerry OS
• Nokia-Microsoft’s Windows Mobile OS

The acquisition means Google, which has so far collaborated with HTC to build its Nexus phone, will now have its own hardware manufacturing operation for the first time and could compete with the competitors with its solely owned product and acquire market share.

Motorola is not a forerunner in the Smartphone race but it definitely is a force to reckon with in the global low-cost feature phone market. And the low-cost feature market is a lucrative one, especially in developing countries like China and India, as there’s no threat from Apple.

However for Google, the Motorola Mobility deal could be the missing piece in the puzzle. Google, which now controls the experience from software to hardware, can create Android phones to its exact specifications and take advantage of the latest advances in the Android OS, just like Apple does. However, with Motorola Mobility under its belt, Google now has a new business focus- mobile computing in addition to at least $12 billion a year in new revenue, including $8 billion in mobile handset business.

Thus Google acquisition of Motorola Mobility even at 63% premium is justified, as by shedding out few extra bucks it is targeting a wide market share of Low cost phones and is also making a presence in hardware market.

Would Google actually derive value from this transaction or is there a hidden intention behind this deal

Google launched android and made it available to users on 22 October 2008, since then it has never seen a downtrend. It was announced that Android Market listed 200,000 apps, and had clocked 4.5 billion apps installed. The application download is as shown in the table below which clearly shows its rising spree:

The market for Smartphone is increasing at a tremendous rate and at the same time it is reveled that 550,000-plus Android handsets and tablets are being activated daily. It is also said Android has 41.8 percent market share in a market where there are more than 80 million Smartphone users which is a huge chunk in itself.

Smartphone penetration shot up 10%, to 35% of the U.S. cell phone market, or 82.2 million subscribers. And among smartphones:

• Android continued to outpace rival mobile operating systems with 41.8% of the pie, up 5.4% from the February-April period.
• Apple’s iOS gained 1% to capture 27 % of the Smartphone market.
• RIM tumbled 4% but retained third place with 21.7% share, followed by
• Microsoft’s Windows Mobile (5.7%) and Nokia‘s Symbian (1.9%).

Read on GWI Tablets become Ground Zero of Technology Wars as Smartphone becomes Samsung and Apple Duopoly.

Conclusion

The acquisition of Motorola Mobility, a dedicated Android partner, will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing. Motorola Mobility will remain a licensee of Android and Android will remain open. Google will run Motorola Mobility as a separate business.

This is a huge move made by Google. Like Microsoft and Nokia, Google and Motorola are going to take advantage of their partnership by harnessing the power of Android software and the might of Moto’s hardware to create amazing products for consumers. Keep in mind that the Mobility division goes beyond smartphones and also includes other consumer devices like set top boxes; no doubt Google will work with Motorola to ensure the growth of products like Google TV.

And on the business end of things, the acquisition “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,” says Page.