Google abandons bid to be like Apple, CEO Larry Page under pressure

Google abandons bid to be like Apple, CEO Larry Page under pressure

Summary: Google's hardware strategy is in tatters after huge losses. Will Larry Page find his voice and face Wall Street analysts at the Q4 earnings call?

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TOPICS: Google
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Cracked
Google's cracked strategy in handsets.

 

Lenovo agreed to buy Google’s Motorola handset business for $2.91B. Larry Dignan and Zack Whittaker report:

Google confirmed after markets closed on Wednesday that Lenovo has acquired Motorola Mobility in a deal valued at $2.91 billion, just two years after the search giant bought it for $12.5 billion.

Lenovo will pay $1.41 billion when the deal closes in cash and shares and the remainder will be in a $1.5 billion note over three years.

In a company blog post, Motorola confirmed Google will retain the "vast majority" of the patents it acquired when it first bought the mobile company in 2011, including "current patent applications and invention disclosures." Lenovo will license the patents as part of an ongoing relationship with the search giant.

Foremski’s Take:

Google kept the patents because it needs them so it can protect Android OS app developers from legal claims by signing cross-technology license agreements, such as the recent one with Samsung. Intel, Microsoft and PC makers all engaged in cross-technology licensing agreements in the 1980s and 1990s and it helped expand the PC market.

Big U-turn…

The sale represents a U-turn for Google, and for Larry Page, CEO. Google has been trying to build an Apple-like hardware business consisting of smartphones, music players, portable computers, and TV Internet devices. It has now abandoned the smartphone handset business.

Google has been laying off thousands of people trying to make its smartphone business profitable. But very high marketing costs and an always-listening smartphone that was good, but didn’t wow the geek community or regular people, left it holding a business with mounting losses.

[Google’s Ad Partners Suffer As It Pursues An Apple-like Business, And Cuts 5400 Jobs]

Google gives away its Android operating system and it must also continue to support it with new features, which is an expensive burden. Google does not disclose the percentage of revenues it receives from mobile advertising but it is a growing revenue stream.

When will mobile revenues cover the costs of maintaining Android and also defending it from legal challenges? That’s a question I’d like Wall Street analysts to ask tomorrow, when the company reports Q4 2013.

Good decision…

The decision to sell to Lenovo was a bold one for Larry Page, CEO because it will be seen as a mark against him. He took over as CEO in April 2011, from Eric Schmidt, former CEO at Novell.

Page’s management of Google’s hardware strategy would certainly be something that Google shareholders would have a right to complain about. They can’t do much but complain because the founders and insiders hold shares that give them majority voting control.

Will Page find his voice and face Wall Street analysts for the Q4 report on Thursday? He said last year that he has a medical condition affecting his voice and will likely not do any more earnings calls.

It is better to pull out earlier than later and he has made the right decision. Shareholders will benefit because hardware is a low margin business if you aren’t in a premium position, like Apple, and it will drag down earnings per share. 

The more $GOOG tried to be like Apple, the more it risked alienating shareholders. If its investors wanted to own a hardware company they would have bought $APPL. 

In after-hours trading Wednesday Google was up more than 2%.

Topic: Google

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16 comments
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  • Google never liked Motorola

    For some reason Google did not really like Motorola. None of nexus phones or tablets were made by Motorola. Google guys had to go across the street to talk to Motorola people yet they chose to work with others. There was no love and it was weird.
    paul2011
    • Given the close relationship between the two,

      Motorola phones should have usurped Samsung's as the number one in Android. And Motorola should have been making phones for Google. But as we know, that didn't happen. It implies some deep problem between the two.
      1,2,3
    • Google's purchase of Moto was a quick defensive move.

      they wanted to protect Android and other Android OEMs from potential lawsuit set by not Apple but Motorola Mobility themselves. That's the real reason Google were interested in purchasing them, to avoid a patent war in the Android community which could have led to ultimate destruction of the platform. Motorola at the time was hinting they would sue other Android OEMs and even collect royalties. So I am not surprised at all by this latest move.
      dave95.
      • There's a bit more to it than that.

        Worse than "Motorola at the time was hinting they would sue other Android OEMs" Sanjay Jah told Google he was prepared to put Motorola's patents up for sale ala Nortel. Google had been burned bad by playing cute with Rockstar, so they panicked and backed a truck of money up to Motorola's loading dock and made Mr. Jah fabulously wealthy.
        matthew_maurice
  • time to sue the pants of the axis of evil software

    go google and may the FOSS be with you!
    LlNUX Geek
    • Why would Google sue Google, Google and Google?

      The axis of evil?
      Bruizer
    • So

      Google would sue who exactly? Get back to your broom and think on the answer.
      athynz
  • ACtually Google did Brilliantly

    If you follow the logic in this article
    www.forbes.com/sites/timworstall/2013/04/29/why-google-did-buy-motorola/

    Google only ACTUALLY was out of pocket $1.5bill to buy Motorola. They've just sold it to Lenovo for pretty much the same in cash + another $1bill in shares, kept the patents they care about, avoided litigation.

    Brilliant!
    gr1f
  • Is Android profitable?

    "When will mobile revenues cover the costs of maintaining Android and also defending it from legal challenges? That’s a question I’d like Wall Street analysts to ask tomorrow, when the company reports Q4 2013."

    Or more plainly, is Android profitable on smartphones and on tablets? If so, then by how much? My guess is that Android is not profitable on smartphones, because of the limited amount of ads that can be displayed on smartphone screen sizes. Also, Android users apparently don't like to spend money, so the OS may not be getting that many ad presses on either smartphones or tablets. It would be riot of Android makes no or very little profit, given its massive market share.
    P. Douglas
    • Incorrect/incomplete question.

      Android certainly generates profits for Samsung.

      The only profits Google ever saw was from the google play services.
      jessepollard
      • How much from the play store then?

        There are some stories about how Google splits their 30% of app store revenue with carriers as an incentive to carry and sell phones.
        Emacho
    • My guess

      is that it runs a lot deeper than you care to think about. There's a big difference between profitable and beneficial, on paper.

      I really don't think google would buy an OS, to release it FOC, give or take, and continue with it so it's the most popular mobile OS in the world, without some benefit. Just because on paper it doesn't make money, doesn't mean it hasn't benefitted google's profits. They stuck with it, spent millions (if not more) on it, and you think there was no benefit? We know the OS is given away, business is a bit more complicated than that.
      Little Old Man
  • Android's profits

    Android itself doesn't need to be profitable. First, the core of it, much like Linux where it started from, will eventually stabilize to the point where much of the development will be to support evolving hardware and features. And that will be driven by the hardware manufacturers and carriers. All Google will do mostly is review and determine what goes into the base version, much like happens to Linux now. But...

    The agreement with Samsung gets to two points with Android. It may be open source, but it is FREE by the grace of Google. And they were, and are, seeing efforts to make 'Android' versions that loosen or break the ties to the mothership. Amazon and the Kindle Fire are the poster child for that. And there is where Google loses. It is what Android devices push through Google services and past their ads that matter. And Samsung was a very big fish who, if they went with Google-free Android would hurt. Now with that messy hardware business gone and Samsung back in the fold, Google can get to their main business and make every effort to regain more control of their robot child.

    Interesting what they learned - they are doing a much better job protecting Chrome OS and Glass. No rogue OEMs there. Gotta make sure that tether to their ad pipe stays firmly connected.
    jwspicer
  • Lenovo Sucks

    I was hoping a better company would come along to purchase Motorola. Lenovo lacks the innovation to use Motorola to its full extent. Motorola is the key to changing the hand held landscape and no one sees it.

    The high-tech industry is in such a sad shape right now. So much more could be done, but companies are going stale with poor leadership. All these accountants and business people have taken over throwing ideas and innovation out the door. Cutting cost is he new innovation.
    dboz555
  • What a load of crap.

    Google realized they wouldn't be Apple with the crap coming from Motorola, so they spent what they made unloading it on Lenovo to pick up a co-creator of the iPod and 100 other Apple engineers at Nest.
    matthew_maurice
  • Google shafted its OEMs

    When Google purchased Motorola, it stabbed its OEMs in the back.

    It's about time Google got out of the hardware business.
    Vbitrate