With Google Moves, Balance Is Restored to Smartphone Market

Look past the headlines of this week's big story, in which online giant Google announced its intent to purchase smartphone maker Motorola Mobility for a stunning $12.5 billion, and something unexpected emerges: This is just good business. And while tech industry analysts and bloggers will be debating this one for weeks, this topic isn't all that complex. Before this week, Google hadn't paid any meaningful price to enter the smartphone market. Now it has.

And just like that, balance is restored.

What Google is really doing by purchasing Motorola, assuming the deal passes regulatory muster, is belatedly building up a mobile industry patent portfolio that can rival those owned by the other major players in the industry: Apple, Microsoft, Nokia, RIM, Samsung, and others.

Some have argued ineffectively that this Motorola purchase was Google's master plan all along and that Google only pretended to be interested in previous Nortel and Novell patent sales that went to its competitors. In fact, they feel that Google's pretense helped drive up the cost of those patent sales: wily Google.

But if that was the plan, Google didn't do so well. The Nortel patents eventually went to a consortium of companies that include Apple, Microsoft, and RIM. (And could have involved Google had they cooperated.) These companies paid $4.5 billion--a sum just over one third the price Google is paying for Motorola--for a patent portfolio that’s roughly one third the size of Motorola's. So these companies are all paying about the same price per patent, but only Google is shouldering the cost alone. Maybe the company's not so wily after all.

You might be wondering why any of this is a big deal. As the market for smartphones and other mobile devices heats up, there have been winners and losers. So far, the biggest winner, by far, is Google, which gives away its Android OS for nothing but also pays almost nothing in licensing fees for the patented technologies that it’s no doubt using. Meanwhile, the rest of the mobile industry is busy cross-licensing each others' technologies and suing those that won't sign. Like any predator, these companies go after the weakest victims first.

So far, no one has gone after the big kahuna, Google. But with Android sweeping from 17 percent of the market a year ago to over 43 percent of the market today, those other companies are starting to finally threaten Google. And none more obviously than the consortium that purchased the Nortel patents.

Over the past few weeks, there has been a very public catfight between these companies, touched off when Google published a bizarre, ranting blog post in which Google Senior Vice President and Chief Legal Officer David Drummond accused these other companies of colluding against it using "bogus" patents. Examining this post, I found Drummond's argument to be baseless, and I wondered why the US government wasn't investigating Google for its Android-related abuses. (As it turns out, the FTC is in fact investigating Google for antitrust abuse regarding the Android mobile OS.) And Microsoft's public responses to Google were simply priceless, exposing the online giant as hypocritical. I later wondered aloud whether Android--yes, the platform currently dominating the industry--was headed for a fall. Surely its lack of patent backing would come back to haunt Google eventually.

But the Motorola purchase changes everything and restores a sense of balance to the smartphone industry. That is, now Google, Apple, Microsoft, and the other mobile platform makers all have patent portfolios of their own, ammunition that they can use against each other in case any one of them comes knocking with patent complaints. In this way, today's patent climate appears to be modeled after the Cold War, and while there are calls for an overhaul of the system, that's beside the point. Competition in this market today involves patents. And until now, Google wasn't armed for battle. It only escaped harm because of its size.

It should also be noted that Google gets more than just patents with Motorola. It gets the number two Android hardware maker, although of course Google already sold its own Google-branded phones, none of which ever really took the market by storm. And it gets a closer relationship, modeled after Microsoft and Nokia, that melds hardware and software design in a way that somewhat competes more closely with Apple's more tightly controlled platform.

These are decent reasons to purchase Motorola. But this was really about the patents. And on that score, Google finally did the right thing. I'm just surprised it took so long.

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