With Motorola sale and Samsung peace, Google finds practical exit to an unconventional (and expensive) deal

In the nearly ten years Google (s GOOG) has been a public company, it has been defined by a curious mixture of ambition, futurism, and unpredictability. This week, Google showed that it also knows when to move on.

The big announcement was Google’s decision to offload its Motorola handset business to Lenovo for $2.91 billion. Snap reactions were easy to come by Wednesday afternoon. Those aligned with Google rivals Apple (S AAPL) and Microsoft (S MSFT) were quick to hoot at the bargain-basement selling price compared to the $12.5 billion Google agreed to pay for Motorola back in 2011. Those more inclined to support Google pointed out that Motorola’s patents helped Google defend Android against patent attacks (to some degree) and that Google’s intervention likely prevented an iconic mobile phone maker from folding completely.

(L to R): Google CEO Larry Page, Lenovo CEO Yang Yuanqing shake hands on the $2.91 billion Motorola deal.

(L to R): Google CEO Larry Page, Lenovo CEO Yang Yuanqing shake hands on $2.91 billion Motorola deal.

There are some nuggets of truth and gaping holes in each of those arguments. But a fundamental problem created by Google’s Motorola acquisition is now solved: Google is no longer an operating system licensor that is also engaged in direct competition with its customers.

Let’s look back at the week in full.

The dawn of a new Android?

On Sunday, Google and Samsung, which was the company arguably most offended by Google’s Motorola buy, worked out a global patent licensing deal. Earlier on Wednesday, Re/code reported that the companies had worked out an agreement in which Samsung would dial back its own software ambitions — attendees at Samsung’s Galaxy S 4 launch last March could have been forgiven for not realizing it was an Android phone — and described the deal as “a sea change” in the relationship between the two companies.

What was the biggest obstacle to the relationship between Google and Samsung? Motorola.

It wasn’t so much that Motorola’s handsets were competitive: Samsung is dominating the Android handset market and leading the overall market for mobile phones. But the perception that Google intended to be a viable contender in the mobile phone business forced Samsung’s mobile group to reconsider its dependency on Google.

Blurred lines

Operating system developers who have tried to have it both ways — licensing their software for a fee while also making hardware that competes with those customers — have not done well. This was one of the (many) factors that sent Apple into a near-fatal tailspin in the 1990s, and forced Palm into a disastrous spin-off of its OS group in the 2000s. Once Microsoft absorbs Nokia’s handset business, it’s going to have some tough decisions to make about the future of its Windows Phone licensing model.

Competing with your customers is a delicate dance. Your customers are naturally suspicious of your intentions, and the division of your company engaged in direct competition with the customer starts to wonder why it’s being treated like any other customer by the licensing department. There’s a conflict of interest inherent in such an operation, no matter how many times you insist that you run the competitive business as a separate concern.


Eventually those customers make contingency plans, which threatens the reason you got into the original business in the first place. Android has always been a way for Google to dominate mobile search and advertising to the same degree it dominates desktop search and advertising. If Samsung had found a way to control its own software destiny — a tall order, no doubt, but not impossible — Google would lose out on a huge source of mobile traffic.

The secret to survivin’

With this series of deals, Google has rid itself of a money-losing operation while keeping the patents it wanted in the first place (at quite a steep price, to be very sure), strengthened its relationship with its most important Android partner, and given Lenovo a way to spread Android even further. Google even held onto Motorola’s advanced R&D unit, which could pay huge dividends for its Google X projects.

Sure, by the standards of most companies, this was a rather expensive adventure. But the cash machine that is search advertising allows CEO Larry Page to make mistakes and chase unicorns for years to come.

Always remember one thing about Google: it does not intend to become a conventional company. Yet sometimes even unconventional companies have to acknowledge that some conventional wisdom — such as the lessons learned from competing with your customers — makes an awful lot of sense.

This post was updated late Thursday to correct a really stupid licensee/licensor mistake.