Google's desperate bid

My previous post dealt with the impending downfall of Android. Even if you ignore all the legal issues of Android, there is one thing you cannot ignore. Most Android licensees are either barely breaking even, or even losing money on their Android strategy. Despite whatever happens on the legal front, Android is always going to be about the latest greatest handset that will be released next. With models getting outdated so soon, it is tough to make money. Especially if your primary sales strategy is to give away a phone for every phone sold!

There is speculation in the blogosphere about this being a ploy by Google to acquire patents to defend themselves. And that with these 25000 odd patents, Google can defend Android better.

Why that explanation doesn't make any sense

- Whatever ammo Motorola had, they have already fired at Apple. These two have been suing each other for over a year now. Very unlikely that Motorola either forgot some patents or held them back for a later day.

- Most of Motorola's patents have either passed the 20 year protection limit or have been already incorporated into standards that Apple can license on FRAND terms. So these 25000 patents really boil down to a few thousand at most.

- Over last 6 years Motorola has been battling for survival. Their hey day was in the 90's. It is very likely that most of Motorola's patents cover 2G and 3G. And not so much on 4G. We are rapidly moving to 4G. Makes these patents less worthy.

The real reason for the bid

As Android was getting dicey, Motorola realized they were in trouble. They were making losses, so could not really spend massive money to build an alternative OS. And even if they did build an alternate OS, it would not be easy competing against Apple with a fledgling OS, zero marketshare and no ecosystem. So they had to do something drastic and quick.

Over last few months, Motorola has been seeking licensing from other Android partners. They were also threatening to take these vendors to court. This is the sort of civil war that could have hurt Android even more than the legal issues. Google had absolutely no choice but to stop Motorola from suing.

It is clear from the breakup fee on this deal that this is Motorola's deal all the way. If Google walks away, they owe Motorola $2.5B, whereas Motorola pays only $375M if they walk away.

Why this deal is not of much use

It is difficult to say whether or not this deal will have any impact on Apple's suits against Android makers. However one thing is absolutely clear. This deal has zero impact on Oracle. None of Motorola's patents have any connection to Oracle. The biggest threat to Android today comes from Oracle, especially with all the smoking gun emails that the discovery process has unearthed. It has become obvious that if Oracle wins, they can easily get triple damages. This will hurt Google big for all devices already sold plus all devices sold going forward.

Even if the patents are worth something to Google, they have paid almost 5 times what Apple paid ($2.6 B) for the Nortel patents. In fact it is very likely that this $12.5B might have covered any potential licensing costs of all Android licensees for the next 2-3 years which would have given Google enough time to work around the Java issues, etc.

And this potentially opens Google to direct legal liability from Android. If Android devices are found to infringe patents of Microsoft or Apple, Google could have exposed itself to law suits.

And the final nail in Android's coffin...

Microsoft already has Nokia tied up to use Windows Phone 7. They are finding it difficult to get other partners for WP7. Here is a golden opportunity for Microsoft - they can spend (say) $15B to get one of the most prominent licensees of Android and convert them to WP7. And in the process, they can get a massive arsenal of patents that Motorola was anyway planning to use against other Android licensees! This would nudge more Android licensees away from Android and towards WP7! And they can at least force Google to up the bid significantly higher, and make it even more painful than it already is.

Google has already gone on the record that defending Android is worth spending $12.5B on - if Microsoft ends up buying Motorola, the impact on Google would be even worse than the present situation. The best part is that Microsoft does not even need to succeed in this bid - Google will have no choice but to raise their bid for Motorola - they cannot wait for the DoJ to shoot down Microsoft's bid.

The benefit to Microsoft is actually significantly more than the benefit to Google - Google already is a winner, and is looking to defend its position - Microsoft on the other hand has lost massively in mobile, and buying Motorola would be the best way for them to improve their position.