Four ways the Google-Motorola deal will change the tech industry

Google’s $12.5 billion purchase of Motorola Mobility will go down as one of the most important events in tech during this era. Other deals, such as AT&T’s $39 billion buyout of T-Mobile USA, are worth more money, but none of them will have as big of an impact on the tech industry (and as much fallout) as the Google-Motorola deal. As I discussed on Twitter with Technologizer editor Harry McCracken on Monday, this is the most important acquisition in the technology space since the HP-Compaq $25 billion deal a decade ago.

Here are the top four ways that Googlerola will change the course of the tech industry.

1. The Android patent wars are over

Before Google bought Motorola, the Android ecosystem was in real danger of having innovation stymied by litigation. Microsoft, Oracle, and Apple were all bearing down on Google as well as Android partners Samsung and HTC over patent infringements. Motorola hadn’t entered the fray yet, but with its long history in the wireless business there was the potential that it could use its treasure chest of patents to pile on to its chief Android rivals, Samsung and HTC. On August 11, my ZDNet colleague James Kendrick posted, “If Motorola turns its patents on other Android phone makers the platform will implode.” And, that was on top of the overall intellectual property issues with Android itself, which affects all of the Android device makers. The problem for Google was that it didn’t have enough mobile patents to fight back. That’s the way these things usually work. One big company typically says to another big company, “Yeah, we might be infringing you there, but you’re infringing us over here” and then it turns into a draw. With Motorola’s 17,000 patents on its side, Google has essentially put an end to the Android patent wars. There will still be some final skirmishes, but don’t expect much carnage.

2. Vertical integration has won

While Google is pledging to keep Android an open ecosystem and claiming that it will run Motorola as a separate business, it’s pretty clear that Google also wants to have the option of producing its own hardware devices so that it can build prototypes, concept hardware, and leading edge devices to demonstrate its vision and point its ecosystem partners in the right direction. Google wanted to do this with the Nexus One smartphone and we also saw Google’s hardware itch in the CR-48 laptop running Chrome OS. Of course, Google didn’t have the expertise or infrastructure in place to handle the hardware business. With the Motorola Mobility acquisition, it will add over 19,000 new employees with supply chain, customer service, and hardware development skills. When Google wants to do its next leading edge Android device like the Nexus One, Nexus S, or Motorola Xoom, we have to assume that it’s going to use its new hardware division to build it so that it can deliver exactly the device it wants and get it to market much more quickly. With Apple’s continued success in mobile, BlackBerry’s large (albeit fading) market share, HP’s new hardware/software unification with WebOS, and now the Google-Motorola deal, it’s becoming clear that vertical integration is winning in mobile. Going forward, look for the latest, greatest, high-end devices to all be vertically integrated, while many of the low-cost, copy-cat devices will come to the market later and be made by mass market manufacturers like Samsung.

3. Mobile consolidation has begun

Over the past couple years, the arrival of new mobile platforms and the expansion of mobile vendors have given buyers lots of new choices in smartphones and now tablets. However, even in a fast-growing market like mobile, the good times can’t last forever. In 2011, we’ve already seen BlackBerry and Nokia drastically losing momentum, Windows Phone 7 and WebOS struggling to gain market share, and Android and Apple increasingly hogging the spotlight. Even within the Android ecosystem itself, there have been lots of new upstarts recently, including LG, Lenovo, Acer, and ASUS. All of them have been grasping for a piece of the expanding Android market, which has been dominated by the big three — HTC, Samsung, and Motorola. However, leading up to the Google deal, Motorola was the only one of the Android vendors that lost market share in the smartphone market in Q2. Obviously, that’s likely to change if and when Motorola morphs into the Google-branded Android devices. Nevertheless, Motorola’s Q2 struggles are a sign that the Android market itself is already beginning to whittle down to fewer big players.

4. Google has to grow up

As a company, Google is only a little over a decade old. Despite its recent kerfuffles with government regulators and its dust-up with China, the company has lived a bit of an idyllic, Peter Pan existence. Its offices are like college campuses with free food, free transportation, and free personal services (cleaners, barbers, etc). Its employees are loosely organized, don’t have to deal with a bunch of overbearing middle managers and bean counters (in most cases), and even get the ability to use work time to dabble with some of their own pet projects. Because Google’s search engine has been such a major cash cow, it has given the company freedom to hire lots of engineers and computer scientists and loosely organize them in this unique environment. However, with search under greater pressure than ever from the social web, it could finally be time for Google to grow up and act like an adult company that has to closely manage expenses and account for the value that each of its employees brings to the organization. The Motorola acquisition could hasten the process, since it will add over 19,000 employees to a Google that currently has 29,000, and Motorola is a much more established company with traditional organizational standards. Of course, Google will talk about wanting to maintain its startup-like culture, but it will be interesting to watch and see if Motorola influences Google to become more of an accountable, grown-up company.

 

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