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Motorola deal provides Google with new challenge

SAN FRANCISCO — Google has completed its $12.5 billion purchase of device maker Motorola Mobility in a deal that poses new challenges for the Internet's most powerful company as it tries to shape the future of mobile computing.

The deal closed Tuesday, nine months after Google made a surprise announcement that it wanted to expand into the hardware business with the most expensive and riskiest acquisition in its 14-year history. The purchase pushes Google deeper into the cellphone business, a market it entered four years ago with the debut of its Android software, now the chief challenger to Apple's iPhones.

In Motorola, Google gets a cellphone pioneer that has struggled in recent years. Motorola hasn't produced a mass-market hit since it introduced the Razr cellphone in 2005. Once the No. 2 cellphone maker, Motorola now ranks eighth with 2 percent of the worldwide market share, according to Gartner Inc.

As had been expected, Google CEO Larry Page immediately named one of his top lieutenants, Dennis Woodside, as Motorola's CEO. He replaces Sanjay Jha, 49, who will stay on just long enough to assist in the ownership change.

Woodside, 43, has spent the past three years immersed in online advertising as president of Google's America region. Woodside's background in online advertising is likely to raise questions about whether he is the best choice to oversee a company that specializes in making smartphones, tablet computers and cable-TV boxes.

"It's a bit concerning because online advertising is quite different than the hardware business," Gartner analyst Carolina Milanesi said. Google depends on digital ads for 96 percent of its revenue, which totaled $38 billion last year.

The takeover became possible only after government regulators were satisfied that the acquisition wouldn't stifle competition in the smartphone market. China removed the final regulatory hurdle by granting its approval Saturday.

Google wants Motorola largely for its trove of 17,000 cellphone patents, which the search company can use to defend Android phones against lawsuits accusing them of copying key features from the iPhone.

But in recent months, Google has been signaling that it has been drawing up more ambitious plans for the newly acquired hardware business.

Owning a handset and tablet manufacturer will also allow Google to exert more control over how Android runs on the devices. That has been difficult for Google to do because it gives away Android to other hardware manufacturers, which can tweak the software to suit their own agenda.

Google will have to reassure its Android partners such as Samsung Electronics and HTC that Motorola's devices won't get souped-up versions of the software or receive other preferential treatment.

Motorola's cable TV boxes could provide Google with a springboard for delivering more of its services, including advertising, to living rooms. However, cable companies control the market for set-top boxes, and they resist any intrusion into their realm.

Turning around Motorola will likely require layoffs, a painful process that belies Google's carefully cultivated image as a cuddly employer.

Google acquisitions

Here are some other notable acquisitions Google has made:

DoubleClick (2008): Google bought the provider of online advertising services for $3.2 billion to help it provide more dynamic, multimedia ads besides the short text links that appear next to its search results.

YouTube (2006): Google's $1.76 billion acquisition of the online video sharing site turned out to be a good bet. The site once known mainly for pirated material and home videos of kittens has become an entertainment destination on the Internet.

AdMob (2010): Google paid $681 million in stock to buy this mobile advertising service provider in a move to push ahead in this fast-growing market.

ITA Software (2011): The $676 million purchase of this airline fare tracker helped Google muscle into the online travel market, though it had to make big concessions to clear regulatory hurdles.

Postini (2007): Google bought the email security company for $546 million to beef up the security and storage products it offers to businesses

Motorola deal provides Google with new challenge 05/22/12 [Last modified: Tuesday, May 22, 2012 11:05pm]
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