The Moto X. Photo: Ariel Zambelich/WIRED
Google jettisoned Motorola Mobility on Wednesday, and at first blush, it seemed like a failure for the ages — a seemingly $10 billion loss that came less than two years after Google bought the flailing smartphone and tablet maker. But in truth, it was very smart business.
Yes, in the short time that Google has owned Motorola, the phone maker lost money every single financial quarter. The red ink totaled more than $1.7 billion, a figure likely to top $2 billion when Google announces its fourth-quarter earnings later today. And, yes, Google offloaded Moto to Chinese computer maker Lenovo for roughly $10 billion less than what it paid for the outfit in 2012. But Google still comes out ahead.
When Google bought Motorola, the deal made a lot more sense than it does in hindsight, and the web giant hasn't lost nearly as much as the difference between what it bought and sold Motorola for would suggest. For one, Google pocketed a fair amount of cash when it sold a portion of Motorola at the end of 2012. And as it sold the bulk of the company to Lenovo, it retained many of the patents it acquired in purchasing Moto — an extremely valuable collection of intellectual property. But most importantly, Google is now a sleeker, stronger company. Larry Page and his brain trust have rightly realized that Google is much better off staying a software pioneer — not a hardware also-ran.
A Bad But Necessary Buy
In August 2011, when Google's Motorola buy was announced, Apple was on a tear. Sales of the iPhone and iPad were growing rapidly every quarter. In many ways, Google was getting left behind.
It's not just that Google didn't have full control over the hardware design of Android mobile phones. It was also behind in the all-important patent race. Earlier that summer, it had lost a bidding war on a stack of Nortel mobile patents that went to a consortium that included not only Apple but Microsoft.
Google's Moto acquisition came just as smartphones were becoming little more than commodity devices
First and foremost, Motorola Mobility shored up Google's patent situation. The company came with a portfolio of some 10,000 patents, a way for Google to hedge its bets as the Android market itself grew at enormous rates. Plus, the buy allowed Google to more quickly innovate on the hardware side of the mobile game.
The trouble is that this game took an unexpected turn over the next several months. In previous years, it was an innovation race — a race to build better and better phones. But Google's Moto acquisition came just as that market started to mature. Smartphones were becoming little more than commodity devices. The big growth has been not in better phones but cheaper phones, especially in emerging markets.
Last year, Google bet on the Moto X as its flagship device — and the critics loved it. But customers didn't care. What's more, in making its own phones, Google put itself in the awkward position of competing with its own customers, such as Samsung.
But now, those problems are gone. And Google still has the intellectual property without the burden of running a separate company.
Patents and Partners Secured
When news of Google's Motorola sale broke, many assumed that the web giant was taking an enormous hit. After all, it was getting just about $3 billion from Lenovo after paying about $13 billion in 2011. But when it bought the company, Moto had $3 billion in cash, and in late 2012, Google sold the Motorola Home modem and set-top box operation for about $2.35 billion. Plus, the Moto patents it didn't sell are probably worth billions in their own right.
So, the loss is far less. More to the point, Google still has what it needs to fight the patent wars with Apple and Microsoft. In announcing the Lenovo deal, Larry Page and company said they will "retain the vast majority of Motorola's patents, which we will continue to use to defend the entire Android ecosystem." Indeed, earlier this week, Google signed a major deal with Samsung to cross-license each other's patents.
The Samsung deal is not only good news for Google in the patent wars. It also shows that Google retains a good relationship with its most important of Android partners. Google always said it would use the Motorola patents to protect the "entire Android ecosystem." But would Samsung have agreed to this patent deal if Google was still interested in running Motorola, still planning to sell hardware that sucked market share from Samsung? Probably not.
Google Is Not a Hardware Company
The bigger point is that Google has finally decided to focus on its real strength, software, which is all it needs to be effective in the mobile game. Just as Google didn't need to make PCs in order to grow rich off the web, it doesn't have to make phones or tablets. It just has to be on them.
In this sense, Google is already the runaway winner. By the end of last year, Android was the native operating system on more than four out of five mobile devices shipped. That gives Google an enormous gateway through which it can push its core ad business into the mobile-first world.
Android gives Google an enormous gateway to push its core ad business into the mobile-first world
The asterisk attached to Google's identity as a software rather than a hardware company boils down to two words: Nest and Glass. To some, it may seem ironic that Google is losing billions to offload an old hardware business so soon after spending $3.2 billion to buy Nest, a company on the leading edge of the internet of things. And Glass is not just a hardware play, but a mobile hardware play.
These two projects, however, should not be confused with smartphones and tablets. The aim with both is to be where the future of technology is going to be, not where it is now. Glass and Nest are not about just keeping up — that is, nothing like a Motorola phone.
Addition by Subtraction
Since it originally bought Motorola, Google's share price has nearly doubled to an all-time high. And now that it has shed Motorola, its message to shareholders is stronger still.
With the Lenovo deal, Google drops a big drag on its bottom line, as well as a corporate bureaucracy that deflected focus from what Google is really good at: imagining the future. If Google had held on to Motorola through another year of losses, the message would be very different. Google would look like a company clinging too tightly to a past that was not only irrelevant but a waste of money.
Whatever Google may have lost on Motorola, it wasn't much — if it was anything at all. Google is a $370 billion company busy sucking up startups at the forefront of robotics and artificial intelligence. Without Motorola, Google is in a better place to stake its claim to tomorrow than it ever was before.
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