News Flash: Google to Purchase Motorola Mobility for $12.5 Billion

Google announced today that it intends to purchase smartphone maker Motorola Mobility for a staggering $12.5 billion in order to obtain its mobile-related patent holdings and hardware business. According to Google, this move will accelerate the online giant's Android ecosystem, which until now was made up largely of independent partners. But it's sure to attract intense antitrust scrutiny as well.

"Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners, and developers," Google CEO Larry Page said in a prepared statement.

Google Android lead Andy Rubin sought to undercut worries that Google's acquisition would only further splinter the Android ecosystem. "Our vision for Android is unchanged," he said. "Google remains firmly committed to Android as an open platform and a vibrant open-source community. We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices."

In some ways, Google's acquisition of Motorola mirrors Microsoft's tight partnership with Nokia, in which those two companies will work to further the Windows Phone platform. However, Microsoft and Nokia are retaining their independence while they co-develop their mobile platform of the future. By bringing Motorola Mobility into the Google fold, the online giant accomplishes three goals. Yes, it eliminates one of the more poorly performing Google hardware vendors. But it also provides Google with more hardware expertise, enabling it to compete better with Apple, which—like Microsoft/Nokia—designs both the hardware and the software for its own smartphone.

The third goal is, perhaps, the most important since it answers a serious issue for Google that's come to light in recent weeks: Motorola Mobility holds more than 17,000 patents, giving the company leverage, for the first time, against other holders of mobile-oriented patents. "Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio," Mr. Page admitted, "which will enable us to better protect Android from anticompetitive threats from Microsoft, Apple, and other companies." Or competitive threats, as an impartial observer might put it.

The $12.5 billion asking price represents a 63 percent premium over Motorola Mobility's current stock price, the companies revealed. It is Google's biggest acquisition by far, and it comes with an incredible $2.5 billion "breakup fee." So if antitrust regulators scuttle the deal, Motorola Mobility still wins big.

Android is the most widely used smartphone platform by far today, and its lead over rivals is growing each quarter. According to Gartner, Android now accounts for 43 percent of all smartphones sold in the world; a year ago, it represented just 17 percent. However, Motorola owns only a tiny slice of the overly crowded and commoditized Android portion of the market, despite being the maker of some high-profile, DROID-branded devices. Motorola currently owns about 11 percent of the US smartphone market, according to Nielsen, compared with 14 percent for HTC/Android and 8 percent for Samsung/Android (these two companies also make non-Android phones, but these figures account only for Android sales).

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