Buying Motorola: Google's Biggest Blunder?

Google's management is supremely logical. But the marketplace is far from this rational.
Posted August 17, 2011

Mike Elgan

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It was the best of acquisitions, it was the worst of acquisitions, it was an acquisition of wisdom, it was an acquisition of foolishness…

How will history judge Google's $12.5 billion purchase of cell phone pioneer Motorola?

I think it just might have been the biggest mistake in the company's history. It's clear Google bought Motorola to support and defend its Android platform. But the deal just might hurt Android more than it helps.

I'll tell you why below. First, let's take a look at the benefits of buying Motorola.

Why Buying Motorola Is a Good Idea

All the major cell phone hardware and platform companies are locked in an absurd battle over patents. The trouble is that cell phones are so complicated, with spectacular complexity in hardware, wireless and software technologies, that the average cell phone probably violates thousands of existing patents. It's not possible to build a cell phone without violating patents.

Forget about patents as a legal tool to protect innovation. Patents have become mere bullets in a hot war over markets. And whoever has the most bullets wins.

Trolls buy and sell patents like pork belly futures. So do companies that innovate, like Apple, Microsoft and Google. But the patents often have no relationship to the innovation. They're just ammo.

Google is currently a mobile phone platform company that makes no mobile hardware. Like all mobile platforms, Android probably violates a gazillion patents. But instead of suing Google, for the most part, both trolls and Google's competitors have found greener pastures in going after Google's handset partners.

Most of the lawsuits appear to be motivated by the desire to force licensing agreements out of these partners. So even though Android is free, some companies that use it are paying other companies like Microsoft for using technology built into Android.

All this patent stupidity has got all the deep-pocket companies scrambling for acquisitions -- not for the business, but for the patent portfolios. Everybody wants to patent up either to enable the extraction of licensing revenue, or to protect against such extraction.

Patents are also negotiating chips. Whenever companies negotiate license fees, the respective balance of patent power increasingly determines price.

And that's why Google bought Motorola. The company empowers Google with a patent portfolio 17,000 patents strong.

Buying Motorola and continuing to run it as an ongoing business, rather than, say, buying the bankrupt and defunct Canadian telecom company Nortel Networks, is vastly superior for Google.

Not only does Motorola come with more and better patents, it's still churning out new patents year after year. If the Nortel deal would have been like buying a truck-load of milk, the Motorola deal is like buying three truck-loads of milk -- plus a herd of dairy cows.

Viewed purely from the patent portfolio perspective, acquiring Motorola is a great idea for Google.

Why Buying Motorola Is a Bad Idea

I think Google may have miscalculated.

The company's founders, Sergey Brin and current CEO Larry Page, are extremely rational, logical thinkers. When they make mistakes, those errors tend to have something to do with assuming other people are also rational.

But nobody is as logic- and data-focused as Google's founders. They're practically Vulcans.

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Tags: Google, Android, mobile, Motorola

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