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Google’s Tasty Lemonade

It’s good to see one of the more tiresome myths of the last couple of years – that everyone is trying to be like Apple, just look at Google buying Motorola! – get put to bed once and for all.

Earlier today Google sold the remains of Motorola Mobility to Lenovo for $2.91 billion,1 closing the door on an expensive mistake that never made a lick of sense.

There’s not much to say on this point beyond what I wrote in Understanding Google:

The surest route to befuddlement in the tech industry is comparing a vertical player, like Apple, with a horizontal one, like Google.

Vertical players typically monetize through hardware, only serve a subset of users, and any services they provide are exclusive to their devices. Horizontal players, on the other hand, monetize through subscriptions or ads, and seek to serve all users across all devices.

Google certainly isn’t confused; they are 100% a horizontal player [footnote link]

Footnote: Well, except for that bizarre Motorola thing. My best guess is that the decision was ultimately a combination of misguided kingdom-building by Andy Rubin, patent panic, and delusions of Steve-Jobs-esque grandeur from Larry Page. Give them credit for treating it as a sunk cost (and by sunk cost, I don’t mean abandoned; rather, they are treating Motorola pretty rationally, not trying to justify $12 billion)

Credit to Google indeed: there will be a lot of deserved mockery over the next few days over the money that was lost, but the company has smartly limited the strategic damage and in some respects come out of the deal in a stronger position. Specifically:

  • While the Motorola patents are not worth nearly as much as it seems due to FRAND, Android is still in a much stronger position than 2012, particularly with this week’s cross-licensing patent deal with Samsung. Keep in mind that most of the Samsung patents are newer and likely more relevant than the Motorola ones. This deal was likely a win for Google.
  • Speaking of Samsung, Re/code reported this morning that the leading Android OEM will dial back its OS differentiation efforts in favor of a purer – and more Google-centric – Android experience. Another win for Google.

While Re/code attempted to paint the latter deal as some sort of intimidation on Google’s part, it seems obvious that the reason Google “won” both of these deals was Motorola: specifically, Google likely offered to get out of hardware if Samsung cross-licensed their patents and stopped pseudo-forking Android. Given Samsung’s dominant position in the Android ecosystem, the Motorola bargaining chip very well may have been worth several billion dollars.

And don’t sleep on Lenovo. I’ve long considered them the most likely global Samsung challenger. As they have demonstrated in PCs, they have the cost structure and market knowledge to compete and win in low margin hardware, and they now have the channel and brand to keep Samsung honest in North America – another win from Google’s perspective.2

All things considered, this deal deepens my appreciation for Google’s strategic acumen. Motorola was a mistake, but they didn’t chase sunk costs, and they made some rather tasty lemonade out of some very expensive lemons.

  1. Which is actually overstating the price: only $660 million of that is cash, $750 million is Lenovo shares, and $1.5 billion is a 3-year promissory note that has a present value of ~$1.24 billion assuming a discount rate of 6.53%
  2. One does wonder where this leaves HTC. I’ve long assumed that Lenovo would buy them for the same reason: channel and brand

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