When Google, the Net's dominant search engine, was approved to buy Motorola Mobility for a reported $12.5 billion, it acquired a portfolio of valuable hardware patents that instantly positioned it as a major competitor in the manufacturing of smartphones, tablets and TV set-top boxes. The announcement was made late in August of 2011, with the deal reaching finality during Q1 of this year. On Friday, The European Union (EU) released a public copy of its merger review, which sheds more light on the process involved in the merger, including talks with Apple and Microsoft regarding cross-licensing.

SEE: Patents Are Assets, So Learn How To Value Them

What They Gain
Millions of mobile phones, tablet computers and other telecommunication devices worldwide run on Google's Android operating system. Much like its peers in the smartphone industry, Android allows its users access the web, news feeds, a multitude of free apps, as well as view multiple open pages simultaneously. Numerous other features include cloud sync, Google Maps and customizable widgets that can be applied to the home screen.

With Google's acquisition of Motorola Mobile, the search engine giant now has a major foothold allowing it to push its Android system, which will grant them a strong ability to compete with Apple in the mobile and living room entertainment sectors. Google's acquirement of Motorola's patents, an estimated 17,000, will also give the firm additional ammunition for its long-term and enduring legal warfare with competitors over high tech patents.

Google reportedly paid a premium of more than 60% than the closing stock price of Motorola on the day of the initial offer, the biggest purchase in Google's history. Larry Page, Google CEO, has said he wants to "supercharge" the Android mobile OS.

"I think there's an opportunity to accelerate innovation in the home business by working together with the cable and Telco industry," he said, when Google's Motorola Mobility purchase was announced.

Page wants a bigger bite of Apple's market and wants to capture more of the handset market, worth billions worldwide. That means Google will now also be competing against Microsoft, Samsung and others in these areas.

As for the corporate structuring of Motorola Mobility, the Google subsidiary will do business as a separate entity beneath the Google umbrella and will continue as a licensee of Android. Android will continue, as previously, as an open system, available for use on its current and new devices as a "hardware partner," according to Page.

Social Media
Despite Google's acquisition of Motorola Mobility and its emerging challenge to its competitors in the mobile, telecommunications and social network space, performance of the Google + social network has been lackluster, so far. Data from research firm ComScore Inc. shows Facebook still outpacing Google +. Users are apparently signing on, but are not following up by using the network, according to ComScore.

A major problem for Google + is its inability to differentiate itself from Facebook, and that it has not established its customer value in the market.

An analyst at social media advisory firm Altimeter Group said, "Nobody wants another social media right now." Google, however, is betting against that proposition.

Google had been angling to get into the hardware end of the mobile and telecommunications business for some time now. In 2011, it lost a $900 million bid to buy about 6,000 patents owned by the Canadian firm Nortel, a maker of telecommunications devices. The entire Nortel company, patents included, was bought for $4.5 billion by a combination of firms including EMC, Ericsson, Microsoft, Research in Motion and Sony.

The Bottom Line
Motorola Mobility may or may not be worth the $12.5 billion Google paid for it, but now Google is set to own a major telecom hardware maker for its Android OS, which will be added to the ever-growing collection of companies owned by the corporation. Google is positioning itself to capture a bigger chunk of the market, if not corner it entirely. Google's chief competitors will undoubtedly mount a counter challenge to its threat and, thus, erode the firm's return on investment.

What's certain is that the global appetite for mobile devices seems voracious. In the second quarter of 2011, according to reports, a staggering 429 million mobile devices were purchased around the world. Equally healthy is the ongoing consumer hunger for new applications.

Data available from early 2012 disclosed that Android sales are increasing, with more than 700,000 smartphones activated every day. Some 250 million Android devices have been sold to date; but this is just the beginning, according to Page, who said that Google is still "very early in the monetization stage" of Android. Android is very profitable and will most likely be more so in the future.

Related Articles
  1. Investing

    What’s Holding Back the U.S. Consumer

    Even as job growth has surged and gasoline prices have plunged, U.S. consumers are proving slow to respond and repair their overextended balance sheets.
  2. Forex Education

    China's Devaluation of the Yuan

    Just over one week ago the People’s Bank of China (PBOC) surprised markets with three consecutive devaluations of the yuan, knocking over 3% off its value.
  3. Economics

    Explaining Market Penetration

    Market penetration is the measure of how much a good or service is being used within a total potential market.
  4. Economics

    Calculating the Marginal Rate of Substitution

    The marginal rate of substitution determines how much of one good a consumer will give up to obtain extra units of another good.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR EURO STOXX 50

    Learn about FEZ, the Euro Stoxx 50 ETF. FEZ tracks the 50 largest companies in Europe, making it the Dow Jones Industrial Average of Europe.
  6. Stock Analysis

    5 Reasons Thoratec Corp. Keeps Impressing Investors

    Learn about Thoratec Corporation and its position in its industry. Understand five key factors why the company has impressed investors.
  7. Entrepreneurship

    Top 5 Startups That Emerged in Boston

    Learn why Boston is a hot market for startups, and familiarize yourself with a few of the top startups that have emerged from the city.
  8. Stock Analysis

    Is the Apple Watch a Real Threat to Fitbit?

    Examine the potential for marketplace competition between Fitbit and the Apple Watch in the rapidly growing consumer wearables industry.
  9. Entrepreneurship

    How to Prep Your Business for a Sale

    Once you have a clean, stand-alone business with solid finances, it's time to put a price on it. Here are the steps needed to prepare for a sale.
  10. Investing News

    How 'Honesty' Could Pay off for Jessica Alba

    Is it possible that Jessica Alba is one of the savviest businesswomen on the planet?
RELATED TERMS
  1. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  2. Weighted Average Cost Of Capital ...

    A calculation of a firm's cost of capital in which each category ...
  3. Runoff Insurance

    An insurance policy provision that provides liability coverage ...
  4. Duty Free

    Goods that international travelers can purchase without paying ...
  5. European Monetary System - EMS

    A 1979 arrangement between several European countries which links ...
  6. Sprexit

    Sprexit, or SPanish euRo exit, is the possible case of Spain ...
RELATED FAQS
  1. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>
  2. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  3. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  4. What role does the OEM (original equipment manufacturer) play in the finished product?

    Original equipment manufacturers (OEMs) do not typically play much of direct role in determining the finished product. However, ... Read Full Answer >>
  5. What are some common accretive transactions?

    The term "accretive" is most often used in reference to mergers and acquisitions (M&A). It refers to a transaction that ... Read Full Answer >>
  6. What is the difference between an OEM (original equipment manufacturer) and a VAR ...

    An original equipment manufacturer (OEM) is a company that manufactures a basic product or a component product, such as a ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!