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Archive for August, 2011

Why the Motorola Mobility Deal is like the Google Book Search Settlement

Friday, August 19th, 2011

Over the past few days I’ve been asked a lot about why Google addressed a patent problem with what seemed like overkill—a $12.5 billion acquisition of a handset company that almost doubles the size of the company and puts Google deep in the seemingly unattractive business of being a hardware manufacturer. I tell people the following story, as accounted in my book In the Plex.

Google was in the early stages of setting up engineering centers overseas. It wasn’t quite clear how extensive the effort would be. In an executive meeting with company’s key leaders, Larry was asked how many engineers Google should eventually employ.

“How many does Microsoft have?” he asked. He was told that Microsoft employed about 25,000 engineers.

“Then we should have a million,” said Page.

Google didn’t embark on a million-engineer march after that, but the reply is utterly typical of a Larry Page response. Time after time, Googlers describe Page’s critiques, with one common element: Page’s unhappiness that the plans were insufficiently ambitious. You suggest a toothpick to Larry, and he immediately thinks forest. That’s the way he is, and because he is that way, it is no accident that Google is so prominent as a business and in our lives. And you better believe that Larry Page wants Google to be a much bigger business that’s even more prominent in our lives.

That’s why it made utter sense to me that Google would try to dig itself out of its patent hole with a plan that wound up to encompass much more than the problem itself. After being rebuffed in its efforts to nab an expensive patent portfolio to defend Android against “bogus” (in David Drummond’s phrase) claims, it decided not only to get a better portfolio but an entire company and new business model as well.

During the conference call explaining this purchase, Google send some mixed signals as to what it would do with Mobility. Page vowed that it would be a “separate business.” But he also said that he was excited about the possibilities that it opened for Google, to innovate in hardware. This is somewhat of a contradiction. Every year, Google chooses one model from one handset manufacturer as its “lead device,” the chosen (temporary) flagship phone. That company moves its people in with Googlers to create a device that integrates the latest in hardware with the latest in Android OS. Android Czar Andy Rubin said that Google’s new division would compete for this plum on an equal footing with the Samsungs and HTC’s of the world.

How is Google going to handle this? Does he think that if, in a given year, Google-ola wins the contest, the other partners won’t suspect a fix? Conversely, if Google does keep its new division at arms-length from the Android folks, wouldn’t that be hampering its new investment?

People have also been asking me whether, if the acquisition goes through, the Motorola division will become “Googly.” It’s a good question. Currently that division has 19,000 employees. That’s nearly doubling the size of a company that’s obsessed with not falling prey to the stodginess of being a big company. My view is that Google won’t cope with this problem by regarding its new prize as something outside the Google-sphere. Google has specific ideas of how a company should run, what its culture should be, what kind of employees it wants. Why would it disregard those when it comes to Motorola? Google is a disruptive company—so we should expect it to be disruptive when it comes to future products from Google-ola. Business models too. Maybe Google will figure out a way to give away moto-phones, calculating it will wind up profitable on the back end. (Maybe that’s what Page meant when he cited “an opportunity to accelerate innovation in the home business by working together with the cable and telco industry as we go through a transition to Internet protocol.”) Hard to predict what Page and Google will do, but it would be uncharacteristic not to be startling and disruptive.

One thing does bother me here, and that is a parallel to Larry Page’s response to the challenges of Book Search, when he busted open an impasse between Google and the authors and publishers by embracing a larger solution—the class action settlement. The impetus behind both actions was a problem not rooted in technology or a user need, but an externality that stifled innovation and the user’s benefit. In the book case it was an arcane copyright system that prevented Google and anyone else from pursuing a course that would have brought fantastic benefit to civilization. In the mobile area it was an arcane patent system that assured that only established players with mighty portfolios would have the sufficient legal protection to produce a smart phone.

In other words, both bold solutions came from a poison seed. The Book Search Settlement wound up getting bounced in court for its overreach. Google undoubtedly hopes that its Mobility purchase has a better fate.