This morning Google announced that it was spending $12.5 billion to acquire Motorola Mobility (MMI). In cash. Clearly Google must see a lot of value in Motorola that shareholders didn't see as late as Friday, when the company was valued at "only" $7.7 billion. Why does Google want Motorola so badly? I believe there are 3 main reasons:
1. Patents. The US patent system provides government-sanctioned monopolies, ostensibly to protect the little guy that comes up with a truly novel and unique invention in his workshop from having his idea stolen and replicated by robber barons without giving the original inventor a cent. At least that was the intent when the first patent was granted on US Soil to Samuel Winslow in 1641 for a new way of making salt.
Lately, though, patents have been less about protecting the little guy and more about generating revenue and protecting markets. IP holding firms buy up patents and then use them to extort money from companies that actually make products, and big companies encourage their employees to submit thousands of patents that are then used to sue their competitors. Compounding the problem is the lack of quality in patents granted. It's all-to-common for the patent office to grant multiple overlapping patents covering basically the same invention, or granting patents for ideas that are obvious to anyone skilled in the field.
As a relatively new company that started with the silly notion that it was more important to do innovative work rather than lock up the work in patents to prevent others from doing it, Google has found itself on the short end of the patent stick more often than not. The purchase of Motorola gives the company a much bigger stick with which to fend off attackers. As sole owners they can also pass on this protection, if they wish, to Android licensees down stream.
2. Enterprise features. One area where Google has been lagging is security and other features that are required by Enterprise customers. For example, plain vanilla Android does not support some of the most popular VPN protocols used by big business. Motorola, Samsung, and others have been working hard to differentiate themselves by providing packages of Enterprise ready features on top of the base features supported by Android. Now Google can take the Motorola offering and fold it into Android, making these features available for free to all Android licensees.
3. Home devices. So far, Google's efforts to break into the home market have been a flop. Google TV and Google @ Home could both benefit from Motorola's expertise in making consumer devices and exploiting Internet technologies in smaller and more personal ways. I'm doubtful this will ultimately be a success, but certainly the Motorola purchase will give it a shot in the arm.
So those are the reasons why Google is buying Motorola. How about the reasons that they shouldn't have made the purchase? The main one is possible damage to Google's partnerships with Android phone makers. Google claims that the Motorola purchase will not hurt its relationship with Motorola's competitors such as HTC and Samsung. But how can it not? Before today's announcement were rumors that Google would buy Motorola but divest itself the phone making parts, keeping only the software and patent parts. But today Google says Motorola will continue doing what it's doing as a "separate business". That's going to be a tough balancing act.