Was Google’s Motorola Mobility Acquisition a Mistake?

At least Motorola produces some nifty ads for its Droid phones.

Did Google make a mistake when it purchased Motorola Mobility?

When Google first announced that acquisition in August 2011, some analysts saw it as a spectacular coup. In exchange for $12.5 billion, the search-engine giant gained a hardware division and a boatload of patents. Those patents, in turn, could prove very useful in the ongoing intellectual-property wars between Google and many of its rivals, including Apple and Microsoft.

Even before the Google acquisition, Motorola Mobility was engaged in a major legal battle with Microsoft, insisting that the latter needed to pay around $4 billion per year if it wanted to keep using Motorola’s patents related to the H.264 video and 802.11 WiFi standards. (The patents in question affected the Xbox and other major Microsoft products.) Had that lawsuit succeeded as Motorola Mobility originally intended, it would have made Google a boatload of cash—but on April 25, a federal judge in Seattle ruled that Microsoft’s royalty payments should total around $1.8 million per year.

“Based on Motorola’s original demand of more than $4 billion per year from Microsoft,” patent expert Florian Mueller wrote in an April 26 posting on his FOSS Patents blog, “it would have taken only about three years’ worth of royalties for Microsoft to pay the $12.5 billion purchase price Google paid (in fact, way overpaid) for Motorola Mobility.”

In light of the billions that Microsoft earns per year, $1.8 million is pocket change. “At this level, it would take approximately 6,950 years—almost seven millennia—before Google’s SEP royalty income from Microsoft would have paid for the overpriced, wasteful purchase of Motorola Mobility,” Mueller continued. “Of course, it will never happen with these patents, which will expire in a matter of years.”

In addition to spending billions on Motorola Mobility, Google must have paid enormous amounts of money to its attorneys heading up this litigation, adding a smaller but still significant cost to the whole endeavor.

This isn’t the end of Motorola Mobility’s legal tangle with Microsoft. The two entities are scheduled to go to trial again in late August over related FRAND (fair, reasonable, and nondiscriminatory terms) licensing issues. Whether Motorola Mobility can win that next stage is an open question, but having one major loss in its column certainly doesn’t help matters.

This latest courtroom defeat also throws into question the true worth of Motorola Mobility’s patents. After all, if the best Google can earn from those patents is a few pennies-per-unit from its rivals’ products, that may undermine the whole idea of paying $12.5 billion primarily for Motorola Mobility’s intellectual-property portfolio. Had Google managed to buy Novell’s patents when the latter were available, it might have proven a more beneficial strategy than pursuing Motorola Mobility’s extensive-but-possibly-weak patent collection.

There’s also the small matter of Motorola Mobility’s hardware portfolio. The subsidiary offers several Android smartphones, most notably the Droid line, which has managed to stand out in a crowded market thanks to its unique designs and intense ad campaigns. But Google, perhaps reluctant to alienate its manufacturing partners, hasn’t positioned Motorola Mobility as the premier Android device maker; indeed, Motorola hasn’t launched a flagship smartphone or tablet in quite some time, even as Google relies on other manufacturers to develop its Nexus products.

That situation could very well change in the future. “Having just seen Motorola’s upcoming products myself, I’m real excited about the potential there,” Google CEO Larry Page told investors and analysts on his company’s most recent earnings call, according to InformationWeek. “In just under a year, they have accomplished a lot, and have impressive velocity and execution.”

It’s certainly possible that Motorola Mobility will release something capable of competing with the next-generation devices from Apple and Samsung, and the resulting cash will fatten Google’s bottom line for many quarters to come. But for the moment, Google’s plans for its hardware division remain nebulous in the extreme, throwing into doubt whether that initial acquisition was even worth the cash.


Image: Motorola Mobility