Why did Google acquire Motorola?
And why did they sell it to Lenovo 3 years later?
Question: In 2011 Google acquired Motorola for $12.5 billion. They later sold the company to Lenovo for $2.9 billion. Why?
Answer: Because Google wanted to protect Android from patent threats and Motorola’s 24,000+ patent portfolio gave them that.
Welcome to Costs Matter, a series that asks different questions all of which have the same answer: to better manage costs. The costs are usually economic though not always. The series focuses narrowly on the impact of costs. It does not claim these costs are the sole cause. To read more in the series, visit https://medium.com/galileo-onwards/costs/home.
There are two parts here, first, how was Android facing patent threats, and two, why does Google care about protecting Android which is Free Software? Let’s look at them in order.
Android’s patent threat
It isn’t often that the bulk of my argument can be made from a single website but Google’s press release on the argument is an excellent source. I cite primarily from it and its sub-pages. In the FAQs, Google say they’ve acquired Motorola, “to protect the Android ecosystem” and “Motorola Mobility’s patent portfolio will act as a deterrent, ensuring Android devices continue”.
On the same page, they elaborate on the patent defense. They say, “Microsoft, Oracle, Apple and other companies are banding together to attack Android with dubious lawsuits and aggressive licensing demands.” In a linked blog post by David Drummond, Google’s Chief Legal Officer, points out that Microsoft, Apple, Oracle, and other companies, sought $15 licensing fees for every Android device, and various other techniques to prevent manufacturers from selling Android powered devices.
In 2014, Google and Apple decided to settle their smartphone patent litigation. You know Google’s acquisition was to thank for this because the settlement was between Apple and Google’s Motorola Mobility. See this Business Insider article on the same.
After Google’s Motorola acquisition, Microsoft, Apple, Oracle, and the others went after smaller manufacturers and largely won. For instance, Microsoft signed deals with Samsung, HTC, LG. Apple sued and won against Samsung; they later agreed on patent litigation. Apple won against HTC and reportedly received a cut from all LG smartphones.
As an aside, lest you feel too much sympathy for Google, Google used its Android ownership and licensing clout to hinder Amazon’s products: the failed Fire phones, Fire TV streaming devices, and their Fire tablets. That will be the topic of a Costs Matter post some other day.
These facts, however, do not answer our central question: why does Google care so much to protect a software that it gives away for free? What’s costs are Google trying to save?
Android: what’s in it for Google?
Steve Ballmer, former Microsoft CEO, famously called Google a one-trick pony meaning they focus all their revenue from one source: advertising. In his words, “Google built one very good business. They only have one thing they do. Everything else is sort of cute.” This remains largely true even in 2023 as we’ll see below.
One direct way Google makes money out of Android is via Play Store fees.
As we saw in a previous Costs Matter post, Apple makes 30% for all digital goods sold on its platforms. Like the joke about describing human reproduction through avian and hymenopteran systems, it shouldn’t surprise us that Google does with Android what Apple does with iPhones. Google takes between 15 and 30% of all apps sold on Android, in app purchases, and digital goods.
But the real reason, best said in a Keanu Reeves voice, is…
Ads. Lots of ads
Everything Google does can be tied to one core belief: greater knowledge about individuals increases sales to said individuals. Google makes money not by selling this knowledge but by promising marketers to best match their products to individuals.
Knowing people’s likes (search history, YouTube), interests (cookies across the web, Google Maps, GMail, their aborted social networking products Orkut/Google Plus/Google Wave), location (Android GPS), will help Google best match individuals to corresponding marketers. That’s Google’s one trick. (And it’s a a big trick.)
Everything Google does is to feed this knowledge engine. It’s the cause behind their continued control of Android. In most Android phones, you are invited to sign in to your Google Account. (They make it practically impossible not to sign in.) It integrates with large chunks of the internet where Google can track you—with one goal in mind—revenue. And that’s why they care about Android. It rakes in money indirectly for their primary business.
So why did Google sell off Motorola to Lenovo? Because owning a hardware company doesn’t help Google’s bottomline. Owning hardware that people use doesn’t provide extra information about those people; nor does it help Google’s PR about Android as an open-competition-ecosystem. Google really only wanted Motorola Mobility’s patents. They couldn’t purchase the patents leaving behind the hardware unit so they purchased both. A few years later they got rid of the hardware because it was, to them, only dead weight.
With that, we are now ready to describe what Costs Mattered to Google which is now called Alphabet:
Motorola Mobility’s multifold patent portfolio purchased to protect Alphabet’s accurate advertising to apes with Android.
But why did Lenovo purchase Motorola?
That is the subject for another Costs Matter post.
