When Google purchased Motorola, industry experts believed it was a patent-play to shore up Android from lawsuits. But the Internet giant has far greater ambitions — a line of Google phones — which is leading to factions, and possibly, the downfall of the Android alliance.
Android is a straightforward business: smartphone makers like Samsung and HTC get a high-end mobile operating system, and Google gets to embed its services — like search, maps and Gmail — on millions of devices.
Google activates over 850,000 devices a day and growing, leading to billions of dollars in targeted advertising revenue. And that’s all fine and dandy… if the smartphone makers trust Google.
The problem: Google, which insisted it wouldn’t build devices, now wants to hedge its bets by making its own Google phone — splitting its eggs between software and hardware baskets, much like Apple does with the iPhone, iPad and iOS.
But unlike Apple, Google requires a consortium of hardware makers to play nice. And any sign that Google is playing favorites, especially with itself, may cause factions to build or splinter off. Taken to an extreme, all-out war may break out.
Not possible, you say? Consider this: Amazon’s Kindle Fire, which runs on Android, uses a “forked,” or altered, version of Android OS, customized so heavily that it’s nearly unrecognizable. Samsung, meanwhile, wary that its business relies largely on Android’s success, recently signed an advertising deal that competes directly with Google. In addition, HTC invested $300 into Beats Audio to add enhanced music and audio capabilities to its devices.
The reality is, while the Android alliance works together to challenge Apple, it’s far from a cohesive bunch. Manufacturers compete with one another for customers, often more fiercely than against Apple, while looking for ways to differentiate their products from the countless number of other devices sold on store shelves.
In their eyes, customization is necessary to lure consumers to their otherwise identical Android offerings. The practice is so heavily used that “fragmentation” issues have plagued Android, leading to delayed upgrades while Google tests to make sure each roll out is compatible between forked devices.
Over the next year, companies will increasingly alter their devices from vanilla Android to offer more distinctive products. And the threat to Google will be how to keep the alliance intact, while ensuring Android’s open-source nature.
Now, adding Motorola to the mix, as well as Google’s grand ambitions to chase Apple, and the likelihood of chaos changes from an impossibility to a consideration.
If Google pursues its own hardware interests, Android partners will see it as a threat — how can you compete on Android when Google is your competitor? Smartphone makers will then diversify to hedge their reliance on Google, whether developing their own proprietary add-on software and further fragmenting Android, or even siding with rivals such as Microsoft.
Either way, alliance members are already making backup plans. They view a Google phone a threat, even greater than the iPhone. Because this one looks and acts just like one of them, except better.
Motorola isn’t the threat it once was, especially as the company preps for personnel cutbacks and a product overhaul, but it may be poised for an impressive comeback with major ramifications for Android partners like Samsung.
Motorola Mobility, acquired by search engine giant Google this year, cut 4,000 jobs from its staff of 20,000, a change driven by its continued financial failure. The company spent 14 of the last 16 quarters in the red.
In addition to shearing jobs, Motorola is also shutting down one-third of its 90 facilities and streamlining its product portfolio, developments Google noted in its SEC filing about the transformation.
Although these measures are meant to get the company back to profitability, the job-cutting will cost Google $275 million in severance fees. And Google told investors to prepare for more financial setbacks arising from the deal, noting most of the restructuring costs will be felt in the third quarter, and may be significant.
How Google handles Motorola’s operations could have a major impact on its current relationships with phone makers, especially the company’s big money partnership with Samsung. If Google incorporates Motorola into plans to create integrated devices with Android software, it could threaten Samsung and Google’s other Android affiliates, who have helped propel Android into the world’s biggest mobile OS.
Google wants to continue selling Android software through a variety of hardware partners, including the immensely successful Samsung, but it is also looking into adopting Apple’s approach of fusing hardware and software into a complete device. However, realizing this goal could put Google in direct competition with its manufacturing partners.
Google initially pledged to treat Motorola the same way it treated the rest of its software partners, giving no preferential treatment to the flailing phone maker. This underlined the importance of its much more profitable relationship with Samsung, which controls 25 percent of the smartphone market, bolstered by the popularity of its Galaxy line and other handsets using Google’s Android operating system.
Google risks the stability of established hardware alliances by how it treats Motorola. Even though both HTC and Samsung came out in favor of Google’s Motorola acquisition, their positive stances stemmed from Google’s insistence it would keep the playing field level. If Google gives Motorola an exclusive mobile version of desktop software, as the New York Times explores, the move could prompt HTC and Samsung to sour on the deal and look elsewhere for software, either developing their own software or turning to alternatives like the well-reviewed Windows.
The focus is on cutting the fat at Motorola, but Google’s plans to move Motorola out of the lower-end, budget phone market and into focusing on a dozen or so higher-quality handsets may put Motorola in closer competition with Samsung, since it wants to focus on the type of phones that would directly compete with the Galaxy line and the iPhone.
When news of Google’s acquisition first broke, many acknowledged Google primarily bought Motorola for its 17,000 patents, especially 18 patents crucial to defending Android against litigation. But now that the company has these patents, it is left with how to handle the struggling company.
The search giant is unlikely to openly acknowledge any decisions to give Motorola a leg-up about Android, especially since it would jeopardize crucial partnerships with Samsung and HTC. At the same time, unless Google ends up selling off Motorola Mobility, it will have to extend some form of help or risk letting the smaller company bleed out.
For these reasons, there is a chance Google will let Motorola go under to avoid damaging its relationships with other phone makers, or it may end up selling large swathes of the division. The language in the SEC filing speaks to both of these possibilities, since its warning of future expenses could refer to costs related to a sale or costs related to keeping a failing company under Google’s wing.
But the potential substantial expenses may also point to what would happen if Samsung pulled out of the partnership protesting Google’s relationship with Motorola. And since Google’s plan for Motorola handsets centers on bringing the phone maker in closer competition with Samsung by crafting higher-quality phones, this scenario could arise and significantly alter the mobile market. ♦
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