Paul Grim: The Empire Strikes Back

Just when you think the Don’t Be Evil Empire faces certain defeat, Google comes roaring back with a gutsy conquest – Motorola, truly one of the stalwarts of the mobile industry (if a bit tarnished of late). Some implications are obvious (they need patents to defend their platform and just got a treasure trove) – and some not so much (how does Google owning one of the top Android manufacturers impact the other Android OEMs in the medium term?).

Ever since Android was a twinkle in Larry’s eye, experts have wondered what bold strategic moves Google might make – Would they bid on spectrum and become a carrier? Build their own phone and bypass the ecosystem? (Ok, they tried-so much for that.) Buy or partner with an ailing network operator? Instead, they co-opted an anti-Apple brigade of handset makers (Samsung, HTC, Motorola, Kyocera, LG) and took the mobile industry by storm. Call it Android’s Clone Wars era: an endless sea of nearly identical handsets, churned out by the millions, new models almost every few weeks, finally establishing a viable alternative smartphone platform to the monoculture of the iPhone ecosystem. I believed that as a result, Apple would not be able to Beat Android – the simple fact that Apple would never relinquish complete control of manufacturing as well as the OS meant that Android would keep up or surpass iOS (in terms of volume market share, as opposed to profits). Android thus effectively inherited the mantle of Microsoft in a new platform battle against Apple.

But Apple wasn’t about to give up without a serious fight or two, and continues to aggressively go after Android’s proxies (eg Samsung) as well as directly against Google. The most obvious weakness was Google’s deficit in intellectual property: Sun/Oracle attacking from within (arguing that the core IP of Android infringed Java), and Apple and other OEMs attacking from without (UI and a host of others). The sorry state of IP law being what it is, the only way to win (or not lose) is to have enough patents to horse-trade when the lawyers come calling. And Google had nothing to trade.

Google tried to beef up its patent portfolio in mobile by bidding on Nortel’s huge patent auction (up to $900 million), only to find an unholy alliance of Microsoft, Apple and RIM paying 5 times more. \Microsoft is meanwhile shaking down the OEMs for licensing fees, repeating the mantra that Android isn’t free, it just steals from others. So the MOT deal makes enormous strategic sense. But aside from helping Google’s in-house counsel finally sleep at night, what happens next?

Google insists they will continue to allow Motorola Mobility to run as a separate business, which makes sense. Any benefits from closer integration would be a direct offset against losing the loyalty of other Android OEMs. But very likely, they may continue to hedge their bets anyway by supporting other operating systems, and Microsoft Phone 7 may yet find a second lease on life. In fact, if I were Samsung or HTC, taking out RIM might be a great way to ensure they remain relevant in the fight for market share.

The other possibility is Google keeps the IP and jettisons the manufacturing business out of the airlock, unless they can find an interested buyer. Not that likely though – I think they still harbor a dream to get Nexus right and show the carriers who’s boss after all.

Paul Grim is a founder and general partner with SunBridge Partners. He tweets here and writes a blog called Grim Times.