Why Google sold Motorola

Google bought Motorola Mobility last year for $12.5 billion. Now, they’re sending it off to Lenovo for a fraction of the price.

Reuters’ Nadia Damouni:

China’s Lenovo Group is nearing a deal to buy Google Inc’s Motorola handset division for close to $3 billion, people familiar with the matter told Reuters on Wednesday, buying its way into a heavily competitive U.S. handset market dominated by Apple Inc.

So what the heck happened?

1. Motorola wasn’t doing that well

Despite high expectations (and delivering on them, I would say), the Moto X went through multiple price cuts after its release. I think the first mistake they made came during the launch. MotoMaker, one of the highlights of newly released handset, was an AT&T exclusive for several months.

On Cyber Monday, Motorola slashed prices on the Moto X by up to $150. A few days ago, the phone was selling for $100 off. And in time for Valentine’s day, there will be yet another $70 discount coming up.

But it hasn’t even been a year since the Google-Motorola deal actually bore any fruit. This shouldn’t be enough to push Google to give away a company they bought for the aforementioned price.

Then why?

2. Google was after Motorola’s patents

From Motorola’s official blog:

Google will maintain ownership of the vast majority of the Motorola Mobility patent portfolio, including current patent applications and invention disclosures. As part of its ongoing relationship with Google, Lenovo will receive a license to this rich portfolio of patents and other intellectual property. Additionally Lenovo will receive over 2,000 patent assets, as well as the Motorola Mobility brand and trademark portfolio.

At the time of Google’s acquisition, critics debated whether the move was to secure a hardware manufacturer for the internet giant’s future products, or simply to gain patents that would help them in court cases against other companies. It seems like it was a little bit of both, but the effectiveness of the patent side is questionable.

Bryan Bishop for the Verge, on Apr. 25th, 2013:

A judge presiding over a legal battle between Microsoft and Google-owned Motorola issued a ruling today that valued elements of Motorola’s patent portfolio far below what the company felt they were worth — by a difference of over $3.9 billion a year.

Bought for $12.5 billion by Google, sold for $3 billion to Lenovo. Judging purely from these numbers, it looks as though Google lost a staggering $9.5 billion just from juggling Motorola around. Although Google will keep some of its assets (including patents), I can’t imagine that the $9.5 billion can be compensated for by the patents.

3. Keeping Samsung and others in mind

A little before the news about Motorola was revealed, Google and Samsung announced a deal regarding their patents. More specifically, Google requested that Samsung design its new Magazine UX interface closer to the way Google feels Android should be.

Liz Gannes and Ina Fried for Re/code:

Although the exact details of those meetings could not yet be learned, sources familiar with the discussions say not only will Samsung consider dumping or altering the Magazine UX interface in future devices, but, more importantly, new Samsung devices will spotlight Google’s suite of apps to get movies, music and other content at the expense of its in-house-developed software, which was once a proud showcase of Samsung’s evolution as a mobile industry leader.

Samsung devices account for over half of all Android handsets. On the other hand, Lenovo is a Chinese company with a modest presence in the mobile space, but with considerable growth in the PC industry.

Google can address two problems with this move. One, they can challenge Samsung, the current dominant force in the market. Though success with this is still only a possibility, the combined forces of Lenovo and Motorola may prove to be fruitful. “Lenovo has the expertise and track record to scale Motorola into a major player within the Android ecosystem,” wrote Larry Page in Google’s official blog.

Google’s relationship with manufacturers that use Android in their products can also be improved, in a way. When Motorola was “a Google company”, it received the benefit of being close to the team that was building the Android software. By having a somewhat better insight on upcoming builds of the operating system, Motorola was able to release a smartphone with tight software-hardware integration. Fears of this kind of preferential treatment will be eliminated by handing Motorola over to Lenovo.

But if so, why did Google buy Motorola in the first place?

Questions remain

Some parts of the company will not be sold in this deal. The most curious example is Project Ara, headed by former DARPA director Regina Dugan. Instead of going to Lenovo, this modular smartphone project is to become part of Google’s Android team. How are they planning on taking the idea from here on?

Supposedly Google’s acquisition originally aimed to take their software and Moto’s hardware, and increase production efficiency with vertical integration. Their collaboration has only birthed two products up to this day. The ultimate question is, why now?