Analysts disagree over the impact Google's proposed $12.5 billion acquisition of Motorola Mobility will have on the dynamics between Android and Apple's iOS.
To Brian White, a Wall Street analyst with Ticonderoga Securities, Google's move smacks of an admission that it needs to mimic Apple's top-to-bottom control of the iOS platform. "There is a trend in other parts of IT moving toward control of both the hardware and the software," White said in an interview Monday. "Google's move validates that model, which Apple uses. Google sees that."
In an note to clients today, White argued that the deal "speaks to the concerns Google had in competing with Apple in the long run."
earlier today, Google said it was buying mobile handset maker Motorola Mobility for approximately $12.5 billion. Assuming the deal gains stockholder and regulatory approval -- Google said it would close the transaction by late 2011 or early 2012 -- Motorola Mobility will continue to operate as a separate business.
In a statement Monday, Google CEO Larry Page said the acquisition would "supercharge the entire Android ecosystem."
But White, who covers Apple but not Google, saw it as an acknowledgment that Android faces long-term problems competing with Apple and its iOS, both on the technology front and in the courtroom.
With Motorola in hand, Google will have not only a mobile operating system, but also a smartphone maker to manufacture devices to its specifications, letting it duplicate Apple's approach. "This will let Google control the total user experience, just as Apple does," said White.
Other smartphone manufacturers can't be happy with Google's acquisition, said White, even though Google claimed it would be business as usual in its dealings with other Android phone makers.
"I don't buy that," countered White. "Essentially, they're going to be competing directly against Google. The Nexus was one thing -- it was just one phone and did poorly -- but Motorola, with 10.6 million phones a quarter -- is quite another. With the Nexus, Google didn't have the scale of Apple.... Now, they do."
Others had a different take on the impact on the Android-iOS battle.
"Google may be tempted to produce a super Android smartphone, but they'll resist that temptation," countered Ezra Gottheil of Technology Business Research. Unlike White, Gottheil tracks both Apple and Android.
"This isn't a situation where Google will want to rock boats," said Gottheil, pointing to the success of Android smartphones. "There's a temptation there, but their core business won't allow them to. [Android] handsets and even tablets are a going concern, and basically feeding money into their coffers.... They don't want to drive OEMs into the arms of Microsoft."
Experts did agree that the Motorola acquisition, which will also give Google the former's huge patent portfolio, puts it in a better position to fight Apple in the courtroom. Apple has aggressively sued several Android smartphone makers, including Motorola, Samsung and HTC, over alleged patent infringements.
In fact, Larry Page, Google's CEO, mentioned the patent angle in a blog entry posted after the acquisition was announced.
"Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies," wrote Page.
In a conference call early Monday, Google's top lawyer, David Drummond -- who two weeks ago blasted rivals, among them Apple, for waging what he called a "hostile, organized campaign against Android" using "bogus patents" -- said much the same.
Florian Muller, a German patent activist and analyst, credited the patent part of the deal for driving the acquisition price to $12.5 billion, a 63% premium over Motorola's stock price at Friday's closing.
"There's no question that the purchase price is to some degree related to Motorola Mobility's patents, but perhaps to a lesser degree than most people think," Mueller said in a Monday entry on his FOSS Patents blog.
Gottheil, though, claimed that the deal was primarily driven by the patent acquisition. "It helps Google reassure its licensees that it's playing the patent game, too," said Gottheil. "It takes the patent problems off the table, which is worth quite a bit to Google. That helps their licensees as much as it helps them."
In the end, two of the three analysts said the acquisition was about more than just patents, and that the impact will be far-reaching.
"We're looking at a deal that would fundamentally change Google's Android-related business model," said Mueller. "The price Google agreed to pay is not reflective of the value of Motorola Mobility as a stand-alone business: That's the kind of price paid by a strategic buyer who plans to use the acquisition target as leverage for its (Google's) own core business."
White echoed that, arguing that the battle outside the court is the most important here. "Google is saying 'We are afraid of what Apple can become, so we need a hardware platform,'" said White.
And the direct impact on Apple?
"Does it threaten Apple? No," said Gottheil. "At least not the iPhone and the iPad. What Apple may be wondering today is how the acquisition could affect their future 'next big things,' like set-top boxes that integrate mobile and home PCs with televisions.
"But I don't think they're losing any sleep over it," he added.