Is the Google deal about Larry Pages' desire to become the best strategist in the world?

The changing face of mobile

Surprised at the latest Google deal to acquire Motorola Mobility for $12.5Bn, you should not be; Eric Schmidt was very clear back at MWC in FEB 2007 "Mobile Mobile Mobile" and since then Google has focussed both time and effort to deliver andriod (which was itself acquired).  When Schmidt stepped down in saying " adult supervision no longer required" this left open the matured Larry Page to step up from being great at maths and a world leading entrepreneur, to take on the mantel of "world leading strategist and deal doer."

This deal will be the discussion point for the next 3 months and already there are a lot of views circulating about what it means but there is no doubt that depending on your stance you can argue for change. However at Mobile 2 on 1st Sept in SFO - we get the first bite, why not join in. 

The Deal

Google purchased Motorola’s mobile business for $12.5 billion. In doing so, Google brought patents, hardware design, manufacturing and a seat at the patent table. However the context is... Oracle suing, Apple winning, eco-system struggling, Samsung annoyed and Microsoft attacking

Worthy of Note

Google has bought in cash and not shares.  This commitment will reduce their cash balance to $22bn from the mid thirties, but it is cash.  Given the issues that cash purchases delivered to telecoms in 2000/2001 this is an important fact as many ran into immediate issues and sold off key assets.  However, I expect the reason that this is cash is that Google are not expecting to hold the operational assets for long.  An equity purchase could have caused them problems from shareholders when they flip it assuming it completes in Q1 2012

Why now?

Porter 5 forces model is helpful here as it highlights the dynamic nature of the mobile market that Google faces.  Their power is low, their service fragmented and  they are being attacked.

Implications

This deal will be the discussion point for the next 3 months and already there are a lot of views circulating about what it means but there is no doubt that depending on your stance you can argue for change. However at Mobile 2 on 1st Sept in SFO - we get the first bite, why not join in. 

Starting from the view of the world formed by ....

Operators                         Deal does not change anything as we are the controllers of mobile - we keep all manufacturers below 30% market share and make sure it is a competitive supply market.  However, we are still worried about becoming bit pipe....

Oracle/ Sun/ Java             Defence needed as android has been beset with legal challenges from all sides, including a multibillion dollar lawsuit filed by Oracle, but Motorola patents are about wireless tech and unlikely to help.

Microsoft/ Nokia                Attention is off us - heads down lads and deliver. Worth reading the pervious insights on MSFT/ Nokia deal and how to befriend the operators.

Apple                                By purchasing a manufacturer, Google has admitted it needs more than just a free operating system and loads of partners to compete with Apple: they need to duplicate Apple’s successes by totally controlling both the hardware and software of their devices.

OEM 's                             "Google has gone from partner to competitor." 

Media/ Content owners       According to Infonetics, Motorola Mobility was the leader in set-top box revenues last year, and was also tops in hybrid IP/QAM set-top boxes -- that is, the boxes used by operators like Verizon that combine broadcast TV and over-the-top applications. By leveraging Motorola's position with carriers, Google can better solidify its bid to expand Google TV and Android into the living room."

Developers                       At least there is one less system to deal with

Scenarios and outcomes

The production shop

                         In this scenario Google keeps Motorola as is and starts to manufacture it owns handsets.  In reality this could provide short term stability to the fragmented andriod market place and show case devices and move into other screen based markets, but in the long run looks like a new Apple and being open is probably not a true option. Probability in long run 10% as this would not elevate Page to world class strategist who is just following Jobs view of the world.

The negotiator tactic

                         This is the company official line that the acquisition brings 17,000 patents (but are they relevant) to Google and enables them to robustly defend their mobile position and also expand.  It is a $12.5bn investment to get a seat at the table.  Strategically there is a lot of truth in this as mobile will dominate long term strategy and value. Probability in long run 25% as patents only last for a period....

Power to disrupt

                         Imagine Google takes the patents, yes they are useful to defend/ negotiate but also to empower others if free and open. This would reduce the power of others in the market and change the dynamics

                         Imagine Google keeps the patents and sells on production to Samsung to create a global partner across all screens

                         Imagine Google Wallet becomes the model - forget small transaction fees - lets go for user data in every model

 

                         Probability in long run 65% and Larry Page is now the best strategist in the world and did it without adult supervision.