Having been through a massive number of mergers over the years, I’ve learned that the odds against what Google is attempting with Motorola aren’t good. But then the odds against Google actually being successful in the first place, particularly to the extent they have been, are actually worse so let’s take the alternative view that this will work out and look at how the world could change if Googorola (sounds like a Japanese Monster) is successful.
Before we start a tip of the hat to Ben Bajarin who predicted this merger last week and got me thinking about the long term impact.
Google is all about providing things for free and then monetizing them after the fact. For them, the goal in managing Motorola would be to massively cost-reduce the offering and then heavily subsidize what was left with advertising revenue. They wouldn’t just want to replace PCs, tablets or smartphones over time, but would likely go after TVs and other media consumption devices as well with similar offerings. This is Google’s greatest strength – the ability to legally get away with providing what otherwise would be predatory pricing.
Now hardware prices are too high to do this in one stop, outside of phones and 3G tablets which would, under this model, get dual subsidies, one from Google and one from the carrier. But cable companies might be willing to partner on TVs to offset the cost of their set-top boxes, and there clearly will be a stronger 4G class of subsidized tablets coming.
It might take a decade to accomplish but the end result would be a level of control that other firms, including Apple, could only imagine.
On this path Google has several exposures, the first being what happens to the rest of their current ecosystem and their continued need for more patents in the mobile space, which can be used to defend their platforms. I think it is likely that Google will realize they will need to buy a few more companies to better fill out their worldwide presence and the patents they are getting from Motorola likely won’t be enough for the defense they envision. While I do think Samsung and LG are way too big and as Korean companies, too difficult to acquire, they both have the ability to reach into the TV space where Google will eventually be going. This brings to mind Vizio, who is vastly smaller but already on the low cost vector Google wants and is doing very well against these larger competitors, though their phone and tablet efforts are just getting started.
With HTC and RIM the choice is more interesting. HTC has what arguably is the most successful Android line today, but RIM has the most patents that Google needs and the relationships with government and enterprises that Google wants strategically for the firm. HTC would protect the Android phone base (they don’t have tablets yet) but RIM, which is likely a bargain, would seem to be vastly more strategic. However with RIM, it would be a similar move to what Oracle did with PeopleSoft and given they are already bleeding customers at an alarming rate, it is doubtful that by the time the merger was done, there would be much left. HTC’s success, on the other hand, would be much more assured and HTC is comparatively small, falling within Google’s merger capabilities.
Granted it would seem unlikely that Google will move on any of these firms until approvals are in place for Motorola, because they would raise too many anti-trust concerns at once and both Apple and Microsoft would aggressively use these concerns to block the related acquisitions.
But Motorola puts them on a path to buy other licensees who otherwise will likely abandon Android as too risky now that they effectively will be competing with Googorola. Firms don’t like to license critical technology from competitors.
Wrapping Up: Googorola vs. Godzilla
This merger reminds me too much of AOL/Time Warner to be comfortable with its likelihood of success. However stranger things have happened and the end result could be a power the like of which we have never seen. Maybe Googorola is the US form of a Japanese monster because it has the potential to eat Japan and pretty much every other personal technology market. Compared to Googorola, Godzilla is a wimp.
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President and Principal Analyst, Enderle Group
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