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Google selling Motorola makes sense because it gives Google more power over Android (and Samsung)

By Michael Heller

Updated: Jan 30, 2014, 3:43 PM

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This article may contain personal views and opinion from the author.

Google selling Motorola makes sense because it gives Google more power over Android (and Samsung)

Today's news that Google was selling its Motorola devices division to Lenovo for $2.91 billion was shocking, but it probably shouldn't have been much of a surprise. Maybe I'm not the normal user, but I am a huge fan of the Moto X and what Motorola has been doing, and I've already run through the five stages of grief in the past few hours since the deal was announced.

When the rumor first came out, I thought it couldn't be real, but given that it was reported by Reuters, it was hard to deny. I got a bit angry, because I had literally just bought my Moto X last month, and I considered the bargaining aspect of maybe selling my Moto X in protest. I was sad about the prospects of Motorola's amazing products, but soon accepted the news as more details came out.

Larry Page has said that "Lenovo intends to keep Motorola’s distinct brand identity", which right now means a focus on near-stock Android software and the Moto Maker customizations. And, to ease the other concerns that lingered, the news came out that Google is not selling the Motorola Advanced Technology Projects group, meaning that Project Ara and other "moonshot" ideas like security tattoos and biotech sensors are staying with Google.

Rationally, it makes sense

All that leaves is the rational thinking and conspiracy theories that will inevitably surround this deal. Starting with the rational side of it: this move was likely inevitable. From the moment Google purchased Motorola for $12.5 billion, the prevailing idea was that the deal was mostly about the patents, and we always assumed that Google would likely offload the hardware divisions because Google is at heart a software company, not a hardware company. That assumption was validated early on when Google sold the set-top box division of Motorola to Arris for $2.35 billion. Google likely boosted the value of the

Motorola smartphone division from where it was when Google first purchased the group; and if you combine the set-top box sale with this one, that adds up to $5.26 billion plus whatever licensing fees are coming from the Motorola patents. That brings the cost of the Motorola patent portfolio down to under $7.24 billion, which isn't so bad for 24,000+ patents to help protect the Android ecosystem.

The surprise came then because Motorola didn't unload the smartphone division, and actually let it run in a very Googley way. Google was running Motorola as a separate entity, but it was obvious that Motorola was making its product decisions with influence from Google. The Motorola custom software disappeared in favor of near-stock Android with only a few choice improvements, which were added as apps that could be updated through Google Play, meaning much faster system updates. Motorola adopted AMOLED displays in a way that Google had always hoped manufacturers would. And, Motorola offered choice, not just by breaking Motorola's long-standing partnership with Verizon and bringing the Moto X to other U.S. carriers, and the Moto G internationally, but through the Moto Maker and the deeper customization available there.

Of course, through all of this, Motorola has consistently lost money for Google, and estimates say that in total since Google acquired Motorola in 2011, the division has lost close to $2 billion for Google. Google is expected to announce its Q4 earnings tomorrow, so we'll see if Motorola has been able to slow the bleeding at all since it ramped up the Moto Maker offerings and began the rollout of the Moto G, but even if it has it would only point towards reasons why Lenovo is buying and not to value that Google is getting.

Even so, the profit margins for most smartphone makers is pretty low, somewhere around 2-3%. The only manufacturers that can command more than that on a consistent basis are Samsung and Apple. Given the recent price drops of the Moto X, and the low margins on the Moto G, Motorola had very little chance of generating profits. It was assumed that maybe, like other Google properties, profits didn't matter so much as the changes that Motorola could instigate in the market. But, conquering the emerging markets was inevitable, the quality of the Moto G likely just sped up the improvements in low-end hardware that were coming anyway. The other big change Motorola was poised to make was with the modular phone idea of Project Ara, but Google is keeping hold of that with this deal anyway.

Larry Page said in his blog post on the deal that the reason Google was selling Motorola was because the only way to be successful in the smartphone market was to be "all-in". That was something Google couldn't do, and it seemed like the road was a long one for Motorola to make it to the "all-in" status as well. Motorola had started by focusing solely on the U.S., and it had just recently begun expanding into Europe and South America. But, if you combine Motorola with Lenovo, which has seen success in Asia, that is a formidable combination, especially if Lenovo really does let Motorola continue as it has been going. It is always possible that Google wants Motorola to succeed, and sees this as the best option for that.

Google made us all feel like it was really going to continue supporting Motorola, but in reality the honeymoon couldn't last, because the company was being run in a bit too Googley a way. The Moto X didn't gather much customer support, so the other Android hardware makers didn't get too worried, but then the Moto G came out, and that likely ruffled some feathers, not the least of which were the feathers of Samsung, because emerging markets is the big growth market of the future for smartphone makers.

The Samsung conspiracy

Google and Samsung have had something of a tense relationship recently, because Samsung controls a huge amount of the Android ecosystem, but has also been edging away from Google with its own content stores on its Galaxy devices as well as its own mobile OS in the works with Tizen. Last week, the big news came down that Google and Samsung had agreed on a global cross-licensing patent deal; and today, we learned that the talks between Google have

continued and widened. It has been rumored that Samsung has agreed to possibly kill off its Android-hiding Magazine UX that it had planned for its new line of tablets, and also to promote Google Play content rather than its own stores.

When the report of that came out, we were careful to mention that there has been no report of what Google's side of the agreement might be in this deal with Samsung. There is almost no way that Samsung would agree to do something as drastic as promoting Google Play over its own stores if it weren't getting something in return. It's possible that Google agreed to waive the Google Play Store licensing fees, or maybe it took a lesser part of the patent deal in order to get Samsung to cooperate on this. Google might have agreed to give Samsung the reigns on the Nexus devices coming up.

But, what if this is Google's payment for Samsung agreeing to tone down its Android software? Maybe Samsung asked for one thing: for Google to be completely out of the smartphone hardware business. Obviously, it's unlikely that Google could have pulled off the deal with Lenovo all that quickly. Maybe Google has been in preliminary talks with companies about selling Motorola from before, but wasn't very serious about making a deal. Samsung likely would have known that the possibility was there, and maybe Samsung pushed a bit once the talks with Google began early this year. Both sides get what they want: Google gets a more Android-friendly Samsung, and Samsung gets Google out of the smartphone business.

Conclusion

I used a lot of maybes in that last passage, because there's no way to know right now if any of that speculation is accurate. But, the reports about the new deal between Samsung and Google have said that there was a "sea change" in the relationship between the two sides, and that there will be more details coming because there are more deals in the works. Samsung and Google are likely still talking through this new partnership and what each side can offer the other. Whatever paths the talks are taking, Google is in a far better bargaining position to get what it wants, and what the Android ecosystem needs, if Google isn't a direct competitor with Samsung. That means selling Motorola would a necessary move for Google.

The idea extends beyond Samsung as well. Google likely found it more difficult in negotiating any deals with hardware partners while it had Motorola in its stable. Sure, having Motorola would give Google a way to strongarm partners, but Google has always been a company to lead with a carrot rather than a stick. And, there are enough new mobile platforms springing up, including Samsung's own Tizen, that hardware partners could threaten to abandon Android just as much as Google could possibly threaten to take over the hardware of Android itself.

Google is not Microsoft, and Android is not Windows Phone. Windows Phone has had its success almost entirely through the work of Nokia. Android has been successful because of the myriad hardware makers pushing devices worldwide, which is something Google could never do on its own. So, any potential threat of Google using Motorola would easily be outweighed by losing other hardware partners, meaning that in the end, Motorola had to go, no matter how much we (I) may have come to love the Google Motorola.

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Michael Heller is known for his clear and informative articles on mobile technology. He explores important topics such as the rollouts of 5G networks and the advancements in mobile payments, offering readers insights into the evolving tech landscape.