Google’s takeover of Motorola is a sign of growth in the mobile communications sector. Whether Mountain View now builds their own cell phones or not is questionable – in reality it is about patents.
These days, a job at Standard and Poor’s means making oneself really unpopular on a nearly daily basis. The grass had hardly grown over the downgrading of American creditworthiness when Standard and Poor’s recommended selling Google stock. The reason? Google’s previously celebrated takeover of Motorola’s mobile communications division for $12.5 billion.
A Pretty Penny
Even for Google, which earned $8.5 billion in profits, $12.5 billion is a lot of money – therefore quickly posing the question of why the firm took so much in hand. The vague answer: the takeover was intended to “advance” the Android platform.
At the same time, Google is not actually a hardware firm. The business idea of the company lies in the digitalization of content as well and grouping it in the Cloud. As an operating system, Android only offers access to it. Because users use Google services, they see advertising from the company and are connected long-term as customers. For this reason, the firm distributes this no-cost software to enthusiastic mobile communications firms, which were left with no alternative after the appearance of the iPhone. Of course, it is also the means to an end – namely gaining customers for (no-cost) Google services and thereby also customers for advertising, with which Google generates nearly 98 percent of its revenue. That Android was supposed to introduce a beautiful new era of transparency on the basis of its partly open source code, can only partly hide that fact.
"And Boy Did We Patent It“
Therefore, I strongly doubt that Google has a genuine motivation to produce mobile phones. The company earns its money splendidly with its own strategy, which is principally more elegant than the production of mobile phones. Also, earlier attempts in this direction, like the sale of their own telephone, were explicit attempts to demonstrate an “optimal Android experience” to the world. Problematically, with all the idealism, it misjudged in reference to the demand and clearly hit a brick wall with the project. The ratings agency knows this as well and gives it thumbs down.
At the presentation of the first iPhone, a proud Steve Jobs stood on the stage and announced how much the product was patented in every way. Four years later a look at pending court cases shows a patent war that looks for its equal. Here everyone sues everyone, with no end in sight.
The takeover of Motorola’s cell phone division is therefore a strategic purchase that makes sense because of the patents of the firm. If Google’s sudden acquisition shows anything, it is the deepening rift in the American patent system. For so long, everything with a heartbeat has been patented so that patents have for a long time been unable to do justice to their actual role as a preserver of innovations. Instead of that, they are brought into court to survive more and more absurd proceedings about contentious patent law violations. That Microsoft makes $12.50 licensing fees for every android cell phone sold and thereby earns more from the sale than Google itself is just the beginning.
Who Can Hold it Against S&P?
At the beginning of the month a slightly tortured Timothy Geithner reproached Standard and Poor’s, stating that their downgrading was based on “a stunning lack of knowledge about the basic U.S. fiscal budget math.” Still, can one also hold their rating of Google against them?
The ratings agency had suffered considerable losses in credibility after the false assessment of the financial crisis and is now markedly acting more carefully. So this assessment is a wake-up call; someone is being downgraded who needs to earn back $12.5 billion with a no-cost operating system and who is additionally submitting themselves to an increasingly hot and absurd patent war with their competitors. And if nothing changes in the patent system, Motorola is ultimately also only new fuel for the coming years.