PART I: GOOGLE/Motorola Acquisition Likely to Impact Embedded Market More than Mobile
As most of you are aware, Google (Nasdaq: GOOG) announced their intent to acquire Motorola Mobility (NYSE: MMI) on Monday, driving shockwaves through both the investment and technology communities.
A quick retrospective:
Clearly, Google’s Open Handset Alliance (OHA) and its Android operating system platform shook up the mobile word and put a significant dent in Apple’s once seemingly unassailable smartphone market share. Android was able to achieve this progress based on two main factors:
- Perfect timing – Apple’s iPhone reinvented the smartphone category, raising the bar for user interface functionality and proving that consumer-oriented feature sets could expand the available market. Traditional phone OEMs such as RIM and Nokia were caught off guard and the incumbent third-party mobile OS vendors, led by Microsoft and Symbian, simultaneously lost relevance due to slow product development and corporate reorganizations. Phone OEMs needed a solution to the Apple problem and Android offered them a way to collectively fight back. (The fact that Android is largely available without royalty costs was obviously another bonus)
- Evolution of software value chain – Apple’s App Store ultimately helped to augment the value proposition of Android because it catalyzed the development of third-party application content channels. Not only did it drive some of the end device value creation further up the software stack and out of the hands of OEMs, but it created a market demand for customizable user experiences, spurring a network effect that reinforced the need for a second viable OS platform option. Traditional market participants needed a way satisfy this new market demand for apps while also allowing them to focus their internal software development resources on differentiating feature sets – the open source Android OS served both purposes.
So why the acquisition?
- It diversifies Google’s business. Despite its foray into the mobile OS landscape, Google business model is still reliant on their ability to monetize search and advertising. Although the mobile search segment is growing tremendously, Google is maturing as an organization and looking to hedge and expand its various revenue streams.
- Apple is still winning. Make no mistake, Android may have increased its market share in the mobile market, but Apple still owns the high end (high margin) smartphone market. Lower cost phone manufacturers like ZTE and Huawei are using Android as a way to drive more smartphone functionality into lower cost devices. While this can be beneficial to the overall ecosystem development, it can also have a negative impact on the Android’s brand and its traditional association with premium devices. Apple, in part, achieved its success by its close, draconian control of the entire device under development. The Motorola acquisition offers Google a way to ensure the production of Android devices that would meet their own functionality standards and vision for the utilization of the mobile platform.
- Google gets a little more IP ammo against Apple (and Microsoft). The mobile landscape has been mired in IP litigation as of late with many OEMs now affectively being taxed for participation in the space. Microsoft has actually made the most waves recently with its attacks on OEMs using Android, asking for compensation for what it deems to be IP infringement within the Android platform. To date, however, Microsoft has focused its efforts on the OEMs in effect capturing a piece of the device profit margin and largely leaving Google alone. This acquisition will either allow Motorola devices to be developed with greater immunity (and potentially profit) or it will serve as the catalyst for larger battles between the tech industry leaders.