Google acquisition of Motorola, implications for mobile handsets, set-top boxes and the OTT video market
Yesterday, Google was considered a great enemy of US cable operators, threatening to take away a large share of TV advertising revenues and flirting with a pay over-the-top TV service of its own. As of this morning, Google has become a frenemy, set to become the largest technology supplier to US cable.
From the information available to date, it appears that Google has no intent to rebrand Motorola Mobility or intervene in its operations in any direct way. Google really only wants MOTO’s patents so as to defend the Android platform. It is important to note that in most of the 12 years since Motorola acquired General Instruments (the originator of the Motorola pay-TV business), the good people in Horsham, PA have continued to operate with a great deal of independence, being a consistent cash generator for the more volatile parts of Motorola’s business. IMS Research’s impression is that Horsham even maintained a corporate culture that was quite different from that found at the rest of Motorola (and Freescale). Therefore, our analysis is that the same pattern will continue, but there are some key places where Google could add significant value to Motorola’s pay-TV and home product portfolio. Here are some of the opportunities that will hopefully be realized as a result of today’s acquisition:
- Content Search and Discovery –Content search and navigation is one of the leading areas of pay-TV technology innovation at the moment. With the exception of Verizon FiOS (who develops its own software), Motorola’s pay-TV customers are not known as leaders in this area. Motorola’s set-top boxes already run a flavor of Linux. Changing that to Android would be reasonably straightforward.
- Low-cost, energy-efficient data centers – A key opportunity to bring cost savings to cable operators. A modular, containerized head-end based on Google’s own datacenter innovations is a real possibility, making upgrades much more straightforward. This could have implications as far-reaching as the economics of network DVRs.
- Cloud-based Multiscreen Services – Google owns the world’s largest over-the-top video service. YouTube and Google TV provide an ideal server platform for cloud-based multiscreen services while Motorola is also a leader in home transcoding for home-based multiscreen service delivery. Combined with the above, it is certainly easy to imagine Motorola offering OTT-in-a-container.
One final note, Sanjay again cited home-mobile convergence as a key opportunity for Motorola Mobility in today’s conference call. However, our analysis is that any such convergence must happen through open standards. With the exception of Apple, no one player in either space has enough market share to support a proprietary solution.
Stephen Froehlich – Senior Analyst – Consumer Electronics
Implications of Google Acquisition of Motorola Mobility for the Over-the-Top (OTT) Video Market
For Google, this acquisition also has ramifications beyond the mobile device market. Motorola Mobility is one of the world’s top suppliers of pay-TV set-top boxes, and has close relationships with a variety of large pay-TV operators worldwide. Motorola’s pay-TV presence is strongest in North America, arguably the world’s most aggressive market for multi-screen applications and service deployment by pay-TV operators.
Google’s aspirations to enter the living room are well-known, and this deal places the company squarely in the fold of the world’s most technologically aggressive cable TV companies. Whether Google sees this as strategically beneficial in advancing the video-based incarnation of the Android platform via potential carriage on pay-TV set-top boxes, via acquired understanding and expertise of pay-TV service delivery, or via acquired video- and set-top box-related patent portfolios, it is potentially an important step for the company in extending the reach of Android beyond mobile devices.
With Google TV currently still in search of market traction, this deal allows Google to get closer to the video arena from the services side, versus the consumer side. Also, it allows Google to have direct presence at the front line of the world’s most competitive market for deploying pay-TV applications to tablets and handsets.
With Apple working on two-screen and three-screen integration, and with CE industry Android partners such as Samsung, LG, Sony, Vizio, and others working on variations of the same, the insights gained and potential development benefits from a closer relationship to the pay-TV industry might be invaluable. The faster time-to-market, deeper level of integration, greater feature set, and higher level of functionality that would likely materialize in pay-TV tablet and mobile handset applications would benefit all Android hardware partners while providing an important competitive advantage against Apple.
Over the long term, the deal also allows Google to more quickly advance the maturation process of Android (and Google TV) for use on video-related CE devices. Should the company advance the platform to a level acceptable by pay-TV operators for set-top box use, it potentially opens up yet one more arena where Google will be able to extend its expertise in search and reach in advertising placement.
Paul Erickson – Senior Analyst – Consumer Electronics
Google Acquisition of Motorola – Implications for the Mobile Handset Market
Monday’s news that Google has agreed to a $12.5 billion takeover of Motorola Mobility – the firm’s cellular handset development and manufacturing arm – was a big announcement for a number of industry heavyweights.
Google’s Android operating system has exploded since its launch in late-2008 with the HTC Dream/G1. In just two years, Android became the best-selling smartphone OS on a quarterly handset activations basis, and seems poised to continue its incredible growth as more people are drawn to smartphones. IMS Research predicts 42% of all smartphone shipments in 2012 will be based on the Android OS.
With Nokia’s continued demise in the sector, Apple’s iOS is the other big smartphone success story. This has led to intense competition between Apple and Google, and also a slew of handset manufacturers who use the Android OS.
“While the acquisition does mean that Google will be acquiring Motorola’s range of Android handsets, the real prize is the extensive pool of patents that Motorola has amassed over the years as a result of its long history within the cellular handset market,” commented Heath Lockett, Connectivity market analyst at IMS Research. “As much of the smartphone world has descended into a legal battle, this set of patents may serve Google well – even more so than Motorola’s physical products themselves.”
According to Bill Morelli, research director at IMS, “Google has an urgent need for patents to defend its position with Android. It is currently the target of several major lawsuits by companies such as Oracle, Gemalto, and Skyhook among others. In addition, Android partners such as HTC and Samsung have been sued as well. Google was unsuccessful in bidding for the Nortel patent portfolio, and the recent activity in the wireless patent acquisitions had driven the prices for companies like Interdigital up significantly. The Motorola Mobility acquisition allows them to significantly strengthen their position, as Motorola has a wealth of wireless patents.”
While this acquisition appears likely to help address the patent weaknesses of the Android platform, it also creates a measure of uncertainty in the smartphone market. To provide some context, a few statistics:
- Currently 7 of the top 10 global manufacturers of smartphones (which includes Motorola) use the Android Operating System. In Q2 2011, these OEMs accounted for over 50.1% of smartphones shipments worldwide.
- Currently Motorola Mobility’s entire smartphone portfolio runs on the Android OS and the partnership has produced some of the most successful Android powered smartphones devices, including the Droid and Droid X.
- In 2Q 2011, IMS Research estimated that Motorola Mobility shipped 4.3 million smartphones, making it the 8th largest smartphone vendor in the world with a 4.3% global market share. In 2Q 2010, Motorola was the 6th largest smartphone vendor with a market share of about 4.4%.
- Motorola also produces the Android-powered Xoom tablet, including 690,000 in the first half of 2011. In its 2Q earnings report, Motorola Mobility estimated it would ship a total of 21-23 million smartphones and tablet units in 2011.
- In 2009, Motorola shipped over 55 million mobile handsets (smartphones and feature phones) and accounted for 4.9% of the overall market. In 2010, the company shipped only 33.2 million handsets, and its market share was down 2.6%.
Google has now moved from being an open source OS supplier to being a handset and tablet manufacturer, which puts it in direct competition with many of its key partners such as Samsung, HTC and LG.
The first set of unknowns concerns how Google will manage its new handset subsidiary. How will carriers react? Will Google offer its Motorola unit early access to new Android releases? Is Google prepared to transition into manufacturing end equipment, an area where it has no real prior experience? How will the Google and Motorola corporate cultures mix?
Beyond those questions are the set of unknowns for the rest of the smartphone ecosystem. At present there are only a handful of viable smartphone operating systems, namely Apple’s iOS, RIM’s Blackberry platform, Windows Phone, Android, Symbian, and HP’s Web OS. Apple and RIM both have proprietary platforms and there is not benefit to them licensing it out. At present HP seems unlikely to license Web OS, and with the Microsoft-Nokia partnership, handset OEMs will be somewhat hesitant to aggressively pursue Windows Phone.
While Samsung has been developing the bada platform as a possible proprietary alternative, the other handset OEMs do not seem to have a broad range of options for alternative smartphone operating systems.
At present, Apple would appear to be the big winner from this increased uncertainty around the Android platform. It is also likely that there will be a new round of speculation around a possible acquisition of RIM by one of the other handset OEMs in an effort to secure a proprietary smartphone OS for themselves (although RIM’s QNX platform is still under development).
As with the acquisition of Nortel’s patents by Apple, Microsoft et al, this deal will attract the attention of US and EU regulators before it becomes a done deal. However, assuming Google gets the green light; the acquisition will definitely have huge implications, both inside and outside of the courtroom.