Categories

The Critical Path #4: Acquisitions – 5by5

Aug 17, ’11 9:02 AM
Author Categories Podcast

The Critical Path #4: Acquisitions – 5by5.

Ryan Irelan speaks with Horace Dediu about Google’s planned acquisition of Motorla Mobility and the potential ramifications for competitors.

  • Amit Kandpal

    Been waiting for this 🙂 Just one question Horace, Is disruption ,as defined by Calyron Christensen, only way to go for a new entrant? Does the fact that Android doesn't fitting into that model automaticaly make it a wrong strategic choice gor google? Are there any notable exceptions to this model in Telecom, Technology or any other sectors?

    • asymco

      Chirstensen's research (and lots of anecdote) shows that sustaining strategies (and technologies) are gleefully embraced by incumbents and they win with near certainty. Disruptive approaches are the opposite: incumbents are motivated to ignore them. So it's a matter of odds. In order for you to win as an entrant you almost have to rely on the incumbents falling asleep at the switch.

      In practice, Google is not a minnow and they could engage in a costly battle of attrition with incumbents, but it is wasteful and the odds are still against them. In military terms, it's the equivalent of a frontal assault into entrenched defensive positions.

      • http://twitter.com/WaltFrench @WaltFrench

        Had you been Google's designated Devil's Advocate against doing the MMI deal, I can hardly think of a better argument against plans to operate MMI.

        Does this mean that economic and business forces will conspire to turn MMI into a maker of reference implementations, for license to the OEMs?

  • Amit Kandpal

    Apologies for the typos in the last post.

  • Pieter

    Horace excellent work again!
    The irony is that if Google pursue the software/hardware integration strategy with Motorola, the more successful Google/Motorola will be, the higher the risk of Samsung, HTC and others to move to the Microsoft operating system.

  • http://twitter.com/Stanilb @Stanilb

    Google CEO: – I need a phone, can someone buy me a Motorola?
    Few hours later:
    – Done. – Great, which model?
    – Model?…

    Sums the situation nicely 🙂

  • http://twitter.com/SiMBa37 @SiMBa37

    Horace, well worth the wait! I look forward to the TV/Cable market disruption show.

    A question for you though: Any particular reason why you didn't mention Google vs. Oracle conflict? Although not entirely relevant to Motorola per se, there are several damning emails from Andy Rubin that demonstrates Android's flagrant disregard for Java licensing. The outcome of this litigation will likely have consequeces for Android's viability.

    Another show topic perhaps?

    • asymco

      I don't feel qualified to discuss all the implications of IP disputes. Arguably the only people who could discuss this with any semblance of authority would be the legal team members themselves as they have access to all the information and arguments.

      • http://twitter.com/SiMBa37 @SiMBa37

        Fair enough. Yet another reason why we respect your opinion and expertise so much, Horace.____Still, I can't help but feel this saga is yet another yet-to-be filmed act in the "Pirates of Silcon Valley." ____With the summary being: Apple creates the iPhone –> Industry changing device –> while on the Apple board, Eric Schmidt works to secretly develop Android at Google along with Andy Rubin –> Steve Jobs introduced to Android at Google HQ and is furious, hence iPad developed in secrecy away from Schmidt –> Google's flagrant disregard for Java IP in Android development, and Rubin plows ahead without being burdended by licensing –> Java gets aquired by Oracle –> Android in fierce competition with OEMs having to make concessions to Microsoft –> Oracle sues Google for infringement –> Meanwhile the iPad is a raging success without a viable competitor –> Outcome of Oracle vs. Google is ???

      • Tommy4490
      • Steve Setzer

        Just remember, Florian Mueller, the author of FOSSPatents, is not an attorney. He's not even a college graduate. He's bright and writes persuasively, and apparently reads a lot, but I would not put much stock into his opinions. There are lawyer-bloggers ("blawggers") with expertise in patents and copyrights who comment extensively on these types of topics, representing all types of opinions.

        For example, the authors at Patently O are Dennis Crouch of the University of Missouri and Jason Rantanen of the University of Iowa, both of them patent lawyers and recognized experts. Mark Webbink is a law professor and the former general counsel for Red Hat; he is now the primary editor for Groklaw and has been covering the Oracle- Google case.

        Mueller's background is in marketing and enterpreneurship. Make of that what you will, but I would read him for entertainment value and the occasional flash of insight, not for serious analysis of high stakes patent disputes between billion-dollar enterprises.

      • http://twitter.com/WaltFrench @WaltFrench

        Does this bio info have ANYTHING to do with the facts or interpretation of any particular argument Mueller has made?

        The more I read him, the more careful he seems to be in separating his views from past case law, etc.

        Or maybe he really stepped into it in some old posts you could link. Where are the intemperate, deceptive or flat-out stupid arguments he is making?

      • Michael Anderson

        Just remember, Steve Jobs and Bill Gates, the (ex) CEOs of Apple and Microsoft, are not computer scientists. They're not even college graduates. They are bright and they speak persuasively, but I would not put much stock into their opinions regarding technology. There are professional technology columnists who comment extensively on these types of topics, representing all types of opinions.

      • mark212

        Couldn't disagree with you more. I am an attorney with two decades worth of experience in high-stakes litigation and think that Florian Mueller's commentary is extremely valuable. He's the leading voice on these issues and has a very valuable perspective that the academics lack. Ignore his analysis at your peril if you have anything at risk in this industry.

      • Steve Setzer

        Well, I think we've all said about what there is to be said on this topic; I'll post once more in response and read whatever folks have to say and then we should probably move on (I'm sure our host has some new charts for us coming soon 🙂

        Regarding Mr. Mueller — A few months ago he claimed that Google (the company) infringed Oracle's Java copyrights in distributing Android; he was almost immediately taken down pretty hard by multiple people. The evidence was not nearly as strong as he seemed to think.

        Regarding credentials and education — yes, they are a poor tool for evaluating an information source. A better rubric is actual experience. The copyright issue is only one of several experiences where I have seen Mr. Mueller miss key information (others include the IBM/TurboHercules/patent kerfluffle and the EU's review of the Oracle/Sun acquisition).

        I'm not saying don't read the guy. He is bright, and he does get some things right. But I don't put a lot of stock in him, both because of his lack of credentials AND because of my past experience with his articles. If you trust him more than I do, great — do yourself a favor and start reading other patent blogs as well to get some more context.

    • http://www.noisetech-software.com/LoanPay.html Steven Noyes

      My only thought on the Oracle one (and to me, I would see Oracle seeing the new Googrola as a win. Google tried to claim that Android has $0 in value since it gives it away. Oracle can point to Google spending $12.5 billion to protect Android and Android has real monetary value to Google.

  • http://twitter.com/_ChrisHarris @_ChrisHarris

    I have a question which I'd like to see you answer if you have time:
    Given that Google was likely forced into making the MMI acquisition, and they now have big problems created by competing with their licensees… is there any strategy (considering your expierence with Nokia and Symbian) that you would recommend to Google now?

    Great show BTW (though a few problems with the sound).

    • asymco

      I would have (and actually did) recommend that Google build their own device in the first place. The strategy from 2005 of horizontal platforms was mistimed. Perhaps now it's too late and Google will do no better than Nexus did, but it may be the only way to really create value.

  • sve

    The way that epic battles with well-armed combatants ends generally follows a familiar course. There's a lot of back and forth with massive expenditures of effort. Time goes by. The world changes and the things they were fighting over become irrelevant. Everyone lays down their guns, shrugs and moves on. We are entering a post PC era whose general shape is only dimmly coming into view. The turf that is being fought over now will seem unimportant in the future.

  • Ian Ollmann

    Thank you for making these, Horace! The advantage of this format is that it allows you to discuss items that might not be worthy of a blog post, but which nonetheless are important. They help to fill in the cracks in the big picture.

    • asymco

      I am learning, somewhat reluctantly, that the media and the message are indeed interdependent.

      • http://twitter.com/WaltFrench @WaltFrench

        I haven't been a big fan of the podcast format but it seems to allow you to slip in very meaningful asides that I imagine you must edit out in the interest of good writing.

      • http://www.informationworkshop.org Mark Hernandez

        Of course, there are tradeoffs with everything, and the podcast delivers an important advantage that textual blog posts cannot. A one hour-long podcast is the equivalent of what, 10 – 15 asymco posts word-count wise? I've transcribed interviews before and this estimate comes from experience.

        Excessive brevity and conciseness engenders oversimplification which often causes confusion and/or more unanswered questions.

        The Harvard Business Review piece was incredibly consise (and exceedingly well-written in my opinion). But as an information geek I believe strongly that this podcast was an essential complement to it, providing history and context that just wouldn't have been possible in a typical textual post. Ian probably didn't mean the podcasts's information was not worthy of a blog post, and good writing isn't always good when it's overly brief.

        We got the best of both worlds here in just a day's time! Thanks for a great two-fer Horace.

  • Omar grant

    Towards the end Horace, you stated Google is somehow just moving around making acquisitions with no clear direction as to what defines them and their services/products. How can that be if supposedly they were innovative enough to garner a majority of the search market years ago? Could it be their business model can never hope to compete against Apple? Maybe they are outmatched?

    • asymco

      Folklore has it that search was not the original business plan for Google. In fact it was maybe the 6th version of the plan.

      Nothing against that, in fact it's typical that emergent business plans are more successful than deliberate plans, but it should not be taken as granted that Google used to be focused and now they are impulsive. They've always been impulsive with respect to business planning.

  • http://twitter.com/WaltFrench @WaltFrench

    I try not to make too much of little factoids but was struck by what seemed to be the urgency behind this deal, not to mention the last-minute notice served by MMI's Jha that their IP was about to be unleashed offensively.

    These reinforce my notion that MMI was in a hurry to wrap up the deal; the large breakup fee is consistent with the notion that they needed a strong guarantee, asap. (As you wrote earlier, it's an oddity unless they perceived Google insincere in its protestations, or unless they were forecasting events that might cause Google to back out.)

    So yes, I think the deal is all about IP, but not Google's acquisition of it; rather, it supports Google's hasty PR campaign to minimize Google's deficit of it in the eyes of customers and perhaps its partners.

    This seems to forecast the outcomes that Florian Mueller has been indicating: decisions going against the Android camp (or perhaps settlements) that will significantly change the economics of Android licensing.

    And yet, I have a hard time seeing the ODMs/OEMs (?) moving to WP7, WebOS or anything else. Those two platforms, along with RIM, are moving in the direction of “spectacular failure.”

    • EWPellegrino

      I think from Moto's perspective the rush was that they needed this deal to be concluded before somebody made a bid for Interdigital, or before Carl Icahn forced the board to sell the IP portfolio separately and destroy the chance of selling the entire business.

      Jha's comments could have been as much about keeping Icahn at bay as prompting Google to hurry up.

      • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

        I have this suspicion that Icahn and Jha worked hand in glove on this, with Icahn being the outside man, free to suggest and speculate what MMI should do with its portfolio. He could say things that Jha could not, although Jha did eventually talk about using the portfolio offensively.

        I also have the suspicion that Jha will name his next child "Carl".

    • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

      Walt,

      I wouldn't find it surprising to see handset makers adding more WP7 to their lineup, without abandoning Android altogether.

      I'm mass media "impaired". Has MS rolled out their half billion WP7 campaign in a big way yet, or has it been slow? MS might be keeping their powder dry for the moment.

  • N.B.

    Don't think it is unusual for a 5-week due dilly process for a strategic acquisition like this, especially of a public company. I think it's quick, but it's certainly not impossible.

    • mark212

      maybe, but the manpower would be staggering. How would you even attempt to evaluate 17,000 patents and 7,500 more patent applications in five weeks? Are there that many engineers at Google? And then to keep it a secret with that kind of army of analysts at work — impossible. Add in the financial due diligence and you're well past the point of comprehension.

      "Impulsive" is extremely charitable by Horace.

      • N.B.

        Bah, the patent portfolio is public and it wouldn't need to be evaluated in its entirety. Also completely possible to evaluate the portfolio for litigation/competitive reasons without tipping to an acquisition.

      • Steven

        All correct, but the odds that this was initiated and pulled off in five weeks are pretty slim. I would suspect that at least a round of preliminary talks had taken place prior to the Nortel bid, possibly as a hedge against them losing that competition as they did.

  • MOD

    Good talk show, Horace.

  • Steven

    Horace, your statement, "Android could cease to exist, literally in, like, two years or less…” mirrored a comment I made in my own blog a few days ago. I said this because IP issues could cause Android to become prohibitively expensive (as opposed to free) for its licensees. But this was even before the acquisition, which adds an additional layer of complication for the likes of Samsung and HTC.

    • asymco

      Of course, by Android I mean "Android as it's defined today". There might still be some Android but it may be forked, may be controlled by different people and may be like Linux: flavored. As it's (mostly) open sourced it means that it will be pulled in many directions.

  • MOD

    One comment regarding the patent issue. Apple (and Microsoft) may try to shut down Google's Android, Motorola's IP notwithstanding, but the regulators will not allow it (because it is 40% of the market). They will force Apple to settle for license fees. Sergei's purchase of Motorola is just a good faith effort towards that settlement. Regulators are already looking at the Nortel consortium as an attack on Android.

    Just like with RIM and its patent fight. The judge refused to give an order to shut down RIM, because so many people were dependent on it (and still are). He was begging them to settle.

    Public interest trumps laws and IP.

    • EWPellegrino

      Except neither Apple nor MS are directly attacking the Android OS – instead they're attacking individual OEMs and often individual models of phone. Regulators won't immediately leap in if Apple gets an ITC judgement against HTC, Samsung or Moto,

      The RIM case is not particularly relevant as it took place in the courts and not the ITC, but even in the case of RIM you are in fact incorrect.
      http://en.wikipedia.org/wiki/NTP,_Inc.

      The judge DID issue an injunction, but RIM appealed and the injunction was stayed during the appeal process. The appeal made it's way up the ladder until the Supreme Court refused to hear it, at which point things returned to the lower courts. Judge Spencer didn't refuse to enforce the injunction, instead he gave the parties a final chance to settle and they did so before he was forced to either enforce or vacate the injunction.

      Finally the main government interest in RIM wasn't that it was critical to competition but rather that the services were key to the workings of the government itself and to national security. Android OEMs aren't going to get an amicus brief from the DoD.

      • MOD

        The judge might very well own a HTC, Samsung or Motorola, and he might like it. Android is selling well for a reason.

        It will have to be seen how it plays out legally, but if that is the arena, Google made a good buy (the best they could have). From the Economist:

        The eagle-eyed industry analysts at Frost & Sullivan offer a plausible answer. In a commentary issued on August 16th they note:

        "Motorola has a portfolio of 24,500 patents and patent applications that instantly bolsters Google’s strength in the IP war. Looking at some recent patent auctions and using some simple math can show why these patents were indeed the target of Google’s acquisition.

        Using one of the industries recent patent auctions as a baseline, in December of 2010, Novell sold off its portfolio of 882 patents for $450 Million. A simple division calculation leads us to a value of $510,204.08 per patent. Why not round that figure off you ask? Well, let’s look at the patent value of the Motorola acquisition.

        Forgetting that Motorola also makes mobile phones, let’s say the entire value of the acquisition was in their 24,500 patents and applications. At a $12.5 billion price tag, that equates to…drum roll please…$510,204.08 per patent. Can anyone guess what heuristic they used in the board room in valuing the deal?

      • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

        If a judge liked his Android phone that much (which is really straining credulity), he would recuse himself.

        True, the MMI deal bolsters Google's patent portfolio, but is it enough? MS and Apple were and are still suing MMI. They apparently don't think the patents are strong enough to deter them.

        Some of MMI's patents are not going to be relevant. Some are going to be FRAND encumbered, or even already licensed. It's not the quantity that matters. It's the quality.

      • MOD

        Let's find a judge that does not use a cellphone (or a computer), and 12 more for a jury. It would be an interesting exercise. Even idiots use cellphones now.

        See, public interest trumps patents, because patents were made to protect the public interest. Congress can do away with patents instantly. Regulators (and judges) can pressure litigants to settle patent disputes.

        You think Microsoft Windows would be shut down over patents? Same with Android.

        Think "public interest" first, before responding to my arguments. What is the "public interest" behind Android?

      • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

        You and I are probably proof of that. 😀

        But seriously, no judge is going to let the fact that he is really keen on his phone affect his judgement. That's ludicrous.

        And given the jury pool, I find it difficult to imagine that even one is going to be a platform zealot. Among the many millions of phone users, platform zealots are pretty rare birds. Noisy birds, but rare.

        Before I think about public interest, maybe you better explain the logic of the public's interest in protecting Android. Because it's free? Because it's open source? It's just another OS among many others (some of which are also open source, perhaps "opener") that's recently seen a great growth in market share. Who gets to determine what is in the public interest?

        Congress can theoretically do away with patents, but let's talk about the Congress in this country, on this planet, in the year 2011. You were saying?

        Yes, judges and regulators can apply pressure. And sometimes it works and often it doesn't. Usually a judge does this because he knows his court is being used as a tool to haggle over price. In the case of Apple vs MMI, Samsung, or HTC, Apple wants them to stop manufacturing and importing Android handsets. It's not a disagreement over what the patents are worth that can be satisfied with a cash settlement or a cross licensing deal, unless the defense can come up with some pretty potent ammo.

        I don't think it's the case that you think there is a public interest magic wand that can be waved over patent litigation, but you need to explain your theory a bit better, and explain what mechanisms would come into play to bring about the result you are suggesting.

      • MOD

        The politicians and regulators decide what is in the public interest. Cell phones are in the public interest, computers too. Therefore they cannot be shut down. Especially one that 40% of the people use. End of argument.

        Another alternative will have to be found. And this is Sergey's (and Sanjay's) strategy: appeal to the regulators. "See, we bought patents legitimately, pulled an American company out of potential bankruptcy, so help us against this legal threat."

        And the regulators don't understand legalese regarding the validity and value of specific patents. They just see broad market strategies.

      • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

        "Cell phones are in the public interest, computers too. Therefore they cannot be shut down. Especially one that 40% of the people use. End of argument. "

        Sorry, but there is plenty of choice available, platform/OS-wise, so I'm not buying the argument. Nor do I buy the argument that public interest always wins out over private interest. I don't think you've presented an argument of how Google is going to persuade politicians and regulators that preserving Android in the face of property infringement is in the public interest. Marketshare alone is not going to do it.

        Still, if you just want to agree to disagree, that's fine with me. That would indeed end the argument.

      • http://twitter.com/WaltFrench @WaltFrench

        “Motorola's patents are there to check off the ‘tonnage of patents’ box — so that Google can say that tens of millions of Android handsets are compatible with their competitors' handsets, for people who get excited about those things.” MOD added: “Do I think the tonnage is overplayed? Yes. But if you think it’s about having a couple tens of thousand patents, there you go.” — All the fans and the Conventional Wisdom Crowd and occasional AstroTurfer, channeling Google channeling Jim Balsilie, and making exactly as much sense.

        Goes to show that if you repeat something non-sensical often enough, millions of people will believe it.

        Beats me why Googlers claim, and People Who Don't Pay Close Attention swallow, the idea that if you've seen one patent, you've seen 'em all.

        All of the non-Lodsys patents swarming around Android deal with specific features that the claimants charge Android intentionally ripped off after being given warnings that the software was not up for licensing. Ergo, NONE of the patents at issue are “bogus” unless ALL patents are “bogus,” in which case Google just blew $12.5 billion of shareholder money.

    • Paul

      Nobody can force a patent holder to license its IP to other parties. Oracle can shut down Android as soon as in October.

      • EWPellegrino

        That's also wrong, they can and sometimes they do.

        A good example is the lawsuit by Personal Audio LLC vs Apple, where Personal Audio was awarded $8mil damages as a full and final settlement. The result is that Apple is no effectively licensed for the patents involved in the suit which is why Personal Audio's subsequent suits regarding different products failed.

        “The court finds that the jury’s selection of lump sum as the appropriate form of reasonable royalty clearly represents a damages award giving Apple a fully paid up license that covers all past and future use of the patented technology,” (US district Justice) Clark said in a decision posted on the court’s website.

  • George Slusher

    In the podcast, Horace said that Google could make back the cash in a few quarters. From Yahoo finance, it seems that Google's "Net Income" for the past 4 quarters was $9.01B. Their "operating income," which doesn't account for taxes, was $10.7B. It looks like MMI has a bit less than $3B in cash less debt, so the net cost to Google would be something like $9.5B–about an entire year's net income.

  • berult

    I reckon MMI was acquired for the purpose of patenting and erecting a branded exoskeleton, 'Geekus Erectus' so to speak, on top of …Chrome OS…

    …a browser-like operating system, based upon open webkit, that can carry the full ad-supported gamut of modern, if not mind blowing, proprietary web services enclosed in a shell metaphor of home-field parametrical tolerance.

    Android sweeps far and wide as a journeyman mobile space collector and aggregator and as a Chrome OS' mindset spawning ground …and nursery. One must always bear in mind that the end user is the one 'thing' that gets to be sold in Google's business model. Both Android and Chrome logically extol distribution of minimum cost…streamlined …habit containers, hardwired for primary source income generation. A free slate of sophisticated web services, low-rent …half-life disposable …melts-in-the-mouth candy hardware, carpet-bombing ubiquity, Chrome may well pan out as pure-bred, non encumbered, free wheeling Geek 'Googlery' in the wake of a half-baked, litigated, alienable prodigy.

    Chrome OS, fully google-ized and litigation shielded, potentially expandable to all 'cache-able' computing categories, one-ups deleterious Android …and summons the Competition therein for wall-to-wall, floor-to-ceiling market confrontation!

    It's been a long time in the making, with lots of smokescreens and diversionary bells and whistles, but that's what I perceive to be Google's phase 2 deployment over the mobile space battleground… Motorola will be breast fed and parented by Google's Chrome OS division to compete with Pegatron and Foxconn on an assembly line thrust into Apple's thrift-laden erudition. Samsung, HTC and yes the Android even-handed side of Motorola along with other Android hardware contractors will swagger along as upstaged actors mired in yesteryear's 'mobilizing' foreplay.

    Google surely senses Apple's forthcoming foray into AI mitigated services as well as their probable entry into low cost, iCloud-driven smart phone business. The iPod Nano experiment, with some FaceTime/AirPlay/Bluetooth tweak, is just about ready to be turned into a full blown market disruptor. Moreover, the Siri acquisition will soon get the UI navigating-assistant ball rolling towards traditional search engine irrelevancy. 

    Indeed, Apple is just about ready to digress into the realm of naught ….the ragtag viral Google default fee, …and plough the low ground crust with hard hatted, wrist banded …nano folly! A timely shifting mode to an idiosyncratic tit for tat …on the rumbling of atonal to and fro.

    MMI's patents portfolio merely plays bass continuo in this variation on a transactional theme for geek stings and hornet nest; rapping harmonics …enwrapping music it promises to be…

    • http://twitter.com/WaltFrench @WaltFrench

      @berult, them's a lot of words to speculate that MMI will be transformed from a shrinking, unprofitable manufacturer into a wold-class assembler of gear.

      I obviously have lots of questions about what this merger is all about, but several ideas present themselves which do not fly in the face of all the economics and business I know about.

      Why would Google sink a few billion more into this shop, when (a) Google has been fabulously successful in producing ubiquitous, low-cost phones with their competitive approach, and (b) Apple, the market-leader has chosen to likewise out-source (although with closer coordination) their manufacture?

      I personally think Google doesn't give a rat's patootie about whether Moto keeps making phones. There is no likely buyer for the business, either.

      Now, if Google has MMI engineers design hardware that others build scrupulously, well… that maybe could work. Others, including Horace, IIRC, have noted the huge cultural chasm to span, but a man's reach should exceed his grasp and all that.

      • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

        When you say, "others build scrupulously", do you mean the other handset makers? The Chinese maquiladoras? Who?

        You seem to be suggesting that MMI would become a 19,000 employee design shop. OK, I imagine a good number would be cashiered, some would be spun off in the set top box division where ever that lands. This is an intriguing idea! Would Google then give away the designs or license them? Either way, with restrictions on what the handset makers could put on a given design, or what's the point?

      • http://twitter.com/WaltFrench @WaltFrench

        “ When you say, ‘others build scrupulously,’ do you mean the other handset makers?”

        I mean the firms that build all of Apple's products, firms that Apple works very closely with, but has essentially zero equity interest in. While making those best-in-class devices, they crank out Dell laptops from an adjacent assembly line, or forge (“hammer out”) chips for their own brand using almost-identical designs.

        By reports, Apple has far fewer internal walls than any of its competitors, and it also manages to have extremely close working relations — or, at least appears to get great results from — firms outside of 1 Infinite Loop.

        I don't dispute one moment that tight integration of design, hardware, software and marketing are important to Apple's success. Observers note that Apple did not attempt to achieve this integration by swallowing operations on anywhere near this scale. Also by contrast, HP, Dell, Lenovo, Asus, Acer: they all have had a stable/stagnant Windows platform to work with, so design/sw/hw integration should be easy, and yet Apple eats their lunch on UltraBooks ®.

        Michael Mace had a fine blog in which he confessed total confusion about Google's plans and while I spelled out a rationale in comments there, it is facile and interpolates grandly between the few data points, so I'll emphasize your “suggesting.” But yes, I think that Google cannot keep the set top business in operation as the few customers — the cable cos — trust Google even less than the wireless companies did back when Google was pushing honest network neutrality. This emphasizes that Google CAN change if it suits their needs, and that there are other very interested parties who will affect outcomes, in ways yet to be seen.

        As an uninformed SWAG, set-tops are a minority share of employees; a spinout would be pretty easy. Maybe a re-absorption by the old Moto. The bigger issues are (a) assembly techs, who I would think would be a majority of headcount but a minority of payroll; and (b) design/marketing/engineering types. I think the future bodes ill for Motorola's standalone manufacturing biz: already not cost-effective, and not very product-effective in the very situation (integrated design/build of the Xoom) where Apple excels with outside firms.

        The designers and hardware guys? Google can find some “good” use for them; I suspect they'll get integrated into a variety of Google efforts and not coalesce again into a cohesive unit.

        Designs? Google doesn't care and so needs a stable of competitors to find the best solution by competition. Google seems to rather have two users of $100 phones (at maybe $1 profit to manufactures) who say the phones get the job done at a good price, than one user who pays $600 for a phone that reflects his refinement. In fact, they make twice as much money from the former two and don't risk the hardware arm asserting control or becoming a monopoly disinterested in improvement. That's part of Google's “economics of ubiquity.”

        Long-winded reply; sorry.

      • berult

        All in all Walt, I think you beat me on the word count. Thanks for the reply…

      • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

        OK, just located Mobile Opportunity and am diving in. And Foxconn, et al., is what I was referring to as Chinese Maquiladoras, although that might not be an entirely accurate comparison (I've been living in Old Mexico for almost 7 months now, so I'm tending to see things more and more through a Mexican lens).
        http://en.wikipedia.org/wiki/Maquiladora

        I might be repeating myself or others, but I think the set top business will get spun off as a nod to regulators, especially if there are objections to the deal by cable companies.

      • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

        And while I'm babbling . . . something tangential: You mentioned that Apple doesn't hold equity in its Chinese Maquiladoras (humor my use of the term). AFAIK, Apple doesn't hold equity in its suppliers, either, yet makes capital investments in them in return for parts. I know you are already aware of this, being on top of the business as you are. Is this the supply chain secret sauce? Your thoughts? Do we know what sort of industrial design collaboration Apple does with suppliers and assemblers?

      • WaltFrench

        I know essentially nothing about these deals, but they all seem arm's-length. Foxconn can keep making Dells as long as they want. If they tie up more than 0.1% of Apple's capital (not just their cash), it would be hugely amazing.

        Regards their investment plans, I like the quote, “if you attack the king you cannot fail to kill him.” Apple's recent major product innovations did NOT require a frontal assault on an entrenched monopolist or oligopolist such as the wireless carriers, cable cos, Intel, Microsoft, Google all are. And really, Apple seems to prefer that MO. That's not to say they'll always be able to go that way. That must be what the warchest is for.

        Regards industrial design? I presume that all non-commoditized supplier relations everywhere do something like what Apple is purported to do. This is right at the cusp for the question of vertical integration, and Apple seems to think others can diversify their production capacity in case Apple's sales projections are wildly over- or under-optimistic, so in such a volatile industry outsourcing production is almost a requirement. Another reason why the MMI deal is odd, unless it's meant to be a tiny part of the overall Android production, say as reference designs.

      • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

        Your IP-PR theory is interesting and convincing. I also just read some of the skyhook stuff, and I can also see MMI being used as another club with which to beat up "partners". Feudalism is a beautiful thing. I think Machiavelli said that.

        I've noticed that when I have a number of intellectual reasons for taking some action, there is usually a single underlying emotional reason that compels the decision, unconscious until I figure out what it is. What I'm saying is that I think Larry Page secretly and unconsciously has the hots for Sanjay Jha.

    • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

      Written like a Poet/Analyst!

      Very interesting idea, very much out of left field. This is one of those ideas, that, if it unfolded, everyone would be stunned for a day, then say, of course, that was the plan all along! and then forget they were surprised.

      I also like what you did with rapping – enwrapping. Rapturous language, my friend.

      • berult

        Thanks. Much appreciated.

        I fill a void, a rhetorical one if not a substantive one, and lend a writing hand to readers who may occasionally and good-naturedly feel the urge to fill 'avoid!'

  • http://twitter.com/janlarsson @janlarsson

    I think Google is spooked by the idea of an iCloud Phone. If this product exist then how can Google compete? They are forced to make their own device. They can hardly rely on Samsung, HTC to build devices so tightly coupled ( very dependent) to Googles mainframes.

  • Steve Setzer

    I am an IP lawyer. I have no relationship to the editors of Groklaw or any law bloggers, other than a Groklaw account.

    — A gang of criminals hijacked an airplane full of lawyers. They're threatening to release one every hour until their demands are met.

    • http://twitter.com/Marcos_El_Malo @Marcos_El_Malo

      Nice one, and thanks for clarifying your position.

  • Michael Anderson

    After analyzing the Chitika carrier share data, I strongly suspect that the reason Google's buying MMI is that they are afraid of being marginalized outside of emerging market economies and prepaid carriers:
    http://andersonmichael.wordpress.com/2011/08/19/w…

    Sounds strange when they are activating over 550,000 devices/day, but that's the way the data are pointing!

  • http://twitter.com/markodvornik @markodvornik

    There hasn't been much of a talk about another possible scenario of why Google bought MMI. What about if the Motorola Mobility acquisition is not about Android phones, but Android tablets.

    – Google wanted a hardware partner for some time.
    The MMI acquisition was planed simultaneously with the Nortel deal and both are therefore unrelated. They has somehow already announced this shift toward closed business model when they declared that Android 3 terms of use for its vendors will get tighter. As you pointed out this is to protect their core business – the cloud services. This new terms can already be marked as a semi-closed business model.

    – Tablet market is not directly related to the phone market and both can have different business models.
    That would give Google's phone partners some peace of mind and Google would dodge the mistakes Nokia did with Symbian as you pointed out. Also I believe that for tablets it is not to late to switch from open to closed business model.

    And the price at witch MMI was bought shows how high Google values tablets in the near future. They'll practically do anything to get in to that market.

  • Anonymous

    Is it just me, or is the audio quality particularly bad in this episode? Lots of skips and glitches…very distracting. :/