Google And Lenovo’s Win-Win Deal For Motorola

Google’s surprise $2.9 billion (£1.76bn) sale of the Motorola Mobility handset business to Lenovo raised eyebrows for several reasons – but it still makes a lot of sense.

The price sounds very low, given that Google paid $12.5 billion (£8bn) for the business in 2011. And what about Google’s protestations, right up till yesterday, that owning hardware was essential to its standing in the phone business? How did that suddenly change? Meanwhile, on Lenovo’s side, does it really make sense to make a move this big, on the heels of its major acquisition of IBM’s server business?

Patent value

Right from the start, Google’s 2011 offer for Motorola Mobility was obviously largely about the patents. In 2012, Google let slip that it reckoned the patent portfolio was worth $5.5 billion (£3.5bn) to the company, approaching half what it paid for Morotola Mobility.

The actual value was even higher: before buying Motorola, Google was concerned about the intellectual property status of Android. Microsoft and Apple were both suing phone makers, and Google relied on them to stand firm.

Motorola had the strongest set of patents. It was the actual inventor of the first cellphone, after all. But rumours emerged after the details of the deal were published, that suggested Motorola might have taken an unexpectedly weak line, paying royalties to Microsoft or Apple, or even adopting Windows Phone. After that, other phone makers would have crumbled and the Android field would have been very different.

We can’t know if Motorola would really have done this – even after being one of the earliest and strongest Android adopters with its then-popular Droid line. But it was a shadow of its former self, and the whole question of whether the world can support an American smartphone maker (other than Apple) was, and is moot.

Since then, the idea of making hardware has become less attractive for Google, not more. Apple’s strategy of owning hardware and software could never apply with an OS available to others. We’ve seen Microsoft trying to prove you can do both, owning Nokia and still hoping for large numbers of other Windows Phone partners, and it’s not looking all that impressive.

Lenovo paid too much?

Motorola does now have a strong set of products and a good roadmap. But if anything, rather than unloading the phones for a knockdown price, Google got more than it might have expected. Lenovo has huge potential in smartphones – it’s already number five worldwide based on sales within China – and it has been desperate to buy its way into the rest of the world’s phone markets, frustrated in its bid to acquire BlackBerry.

The initial reaction amongst Lenovo shareholders was negative: its stock price fell, on fears that the company had overpaid.

But in future, we can surmise that Lenovo will get some star billing in the Android world: we wouldn’t be at all surprised to see it making a future Nexus phone or tablet. And a lot of goodwill towards the Motorola brand remains.

If anything, the brand has something in common with the IBM brand, which Lenovo has been acquiring pieces of – a big chunk of American heritage and a reputation for inventiveness. There’s no obvious link between the IBM server business that Lenovo picked up and the Motorola phone business, but there will be an overlap in the customers which won’t hurt Lenovo’s brand at all outside China.

Getting out of hardware may be a climb-down for Google, but the company’s heart was never in it (and don’t expect much from the hardware side of its Nest acquisition). This was a neat escape for Google, and an opportunity for Lenovo.

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