Why Google is going to sell Motorola’s set-top box biz

Google (s GOOG) has hired Barclay’s (s BARC) to shop around the home hardware business of Motorola Mobility just three months after the acquisition of the hardware maker closed, according to a Bloomberg report. Motorola’s home segment includes the manufacturing of cable modems as well as TV set-top boxes, and there has been speculation that Google could use those set-top boxes to finally get Google TV into millions of homes. So why would Google want to unload Motorola’s set-top box biz?

Cable companies don’t like open platforms

Turning Motorola Mobility’s set-top boxes into Google TV devices may sound good on paper, but it’s much easier said than done. Sure, cable operators like Comcast (s CMCSK) are looking to lease next-generation set-top boxes to their customers that combine traditional pay TV with internet content, hook into social networks and are capable of running apps and widgets. But in the end, these are going to be Comcast boxes, not Google boxes.

Cable operators love advanced set-top boxes, but they don’t want to give up control.

Operators want to have control of the devices they’re offering, and they’re not ready to hand over the keys to a third party. That’s especially important for any kind of app store running on a cable box: Pay TV operators want to have the final say on which apps are running on their devices. The Google Play app store, which doesn’t even require approval of apps from Google itself, is fundamentally incompatible with this kind of thinking. Add in Google TV’s ability to run third-party apps not distributed via Google Play, and you’ve got yourself a deal-breaker.

Google TV VP of Product Mario Queiroz told me at Google I/O that the company is still looking to distribute the TV platform via set-top boxes, but he acknowledged that the focus for this isn’t the U.S. market. Queiroz told me that Google is having conversations with pay TV operators outside of the U.S. about these kinds of partnerships.

However, three-quarters of Motorola’s home biz revenue comes from North America, where companies like Comcast and Verizon are some of its biggest customers. That’s why Motorola recently licensed Comcast’s reference design kit for advanced set-top boxes, and that’s why we won’t see a Motorola set-top box running Google TV any time soon.

The set-top box is slowly fading away

There’s another reason that Google may be losing interest in manufacturing its own pay TV set-top boxes: the market is slowly moving away from the product. Sure, your cable company is still eager to lease you one of its boxes as soon as you sign a contract with them. But at the same time, it’s increasingly providing programming to other devices.

TV Everywhere websites stream shows to authenticated customers, iPad apps can be used to watch live TV, and devices like the Xbox (s MSFT) are increasingly looking like a cable box as well. Add to this the rumors that Apple (s AAPL) is looking to add cable programming to a next-generation Apple TV product, and it becomes clear that pay TV is moving towards a “bring your own device” future.

That’s bad news for a hardware maker like Motorola, but actually really good for a platform like Google TV. After all, it could enable future Google TV devices to get a lot more programming without the current work-around that requires Google TV devices to come with two HDMI ports: one to ingest the signal coming from your cable box, one to pipe Google TV’s mix of cable programming and apps to the TV screen.

And TV Everywhere is only one side of this coin. The other is Allvid, the FCC’s proposal that would give device manufacturers access to encrypted cable feeds without the need for a set-top box or a Cablecard decryption module. Google is a big proponent of Allvid. Motorola Mobility? Not so much. In its 2011 annual report (PDF), the then-still-independent company wrote: “If adopted, such proposals could negatively impact our set-top box business and limit our ability to innovate.”

So what does this mean for Google TV?

All of this shows why it makes sense for Google to get rid of Motorola Mobility’s home business. However, it also proves yet again that there’s no magic bullet to help Google TV to succeed. Sure, the company could still partner with third-party manufacturers to build Google TV-powered set-top boxes for foreign markets. But in the U.S., it will have to do it the hard way and compete with Apple TV, Roku and others in the retail business, hoping that consumers will eventually bite.