Google to buy Motorola for $12.5 billion

Google (s goog) is delving into the Android hardware business and plans to buy Motorola Mobility (s mmi) for $12.5 billion. The news is a shocking turn for the fast-growing Android ecosystem, which was built on Google’s operating system but didn’t include any actual hardware built by the company. Soon Google will have a hardware platform it controls and could offer the sort of integrated hardware-OS package that Apple (s appl) is famous for. Google said it will run Motorola as a separate business, but the acquisition raises a lot of questions about how partners will react.

Larry Page, CEO of Google, said the move will supercharge the Android platform but doesn’t change Google’s commitment to keeping the operating system open. The acquisition, however, appears to be a bid to bulk up Android’s patent strength, which will benefit from Motorola’s deep portfolio of mobility patents. Apple, Google’s rival in the smartphone sector, is suing Motorola, but the deal does provide much more protection because it provides Google with more patents — a weak flank for the search giant. He said:

We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to ‘protect competition and innovation in the open source software community’ and it is currently looking into the results of the Nortel auction. Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies. The combination of Google and Motorola will not only supercharge Android, but will also enhance competition and offer consumers accelerating innovation, greater choice, and wonderful user experiences. I am confident that these great experiences will create huge value for shareholders.

The boards of the two companies have approved the deal, which provides a 63 percent premium over the closing price of Motorola on Friday. The transaction is expected to close by the end of this year or early 2012.

The sale provides a big exit for Motorola Mobility, which was spun out from Motorola and has struggled in the face of growing competition from Android manufacturers. Motorola was one of the earliest supporters of Android and helped kick start the momentum for the OS with the Droid handset. Sanjay Jha, CEO of Motorola Mobility said:

This transaction offers significant value for Motorola Mobility’s stockholders and provides compelling new opportunities for our employees, customers, and partners around the world. We have shared a productive partnership with Google to advance the Android platform, and now through this combination we will be able to do even more to innovate and deliver outstanding mobility solutions across our mobile devices and home businesses.

Again, will this supercharge Android or will this give Android partners another reason to hedge their bets and perhaps look at Windows Phone 7 (s msft), the polished operating system from Microsoft that has failed to catch any traction so far?

Andy Rubin, who leads the Android effort, tried to assure partners that Google was still committed to them, but how will they react when their OS vendor suddenly enters the hardware business? Some partners haven’t always been happy with Google’s efforts to build a Nexus One smartphone. And some handset makers grumble that they have to work with Google to get early access to Android releases. But this also gives Google a chance to build very integrated devices that combine hardware and software well, something Apple products are known for. But it will, again, pit Google against its manufacturing partners.

Now, we’ll have to see how if this adds momentum to Android or saps it. Will it be worth it ultimately for Google to get more patent protection and its own hardware maker, or could this slow down the Android Express?