Shelling out $12.5 billion for Motorola Mobility is an acknowledgement of the growing prominence of tablets and smartphones
Google's monster purchase of Motorola Mobility has made it clear: The digital future is all about portability.
Sales of desktop and laptop computers are sputtering as purchases of ultra-totable iPads mushroom, signaling that the next great technology battles will not be waged across computers, but over notepads and smartphones.
No longer content to merely dominate search, or provide a popular cellphone operating system in the Android, Google may end up diving head-first into the hardware business with its $12.5 billion acquisition of Motorola Mobility on Monday.
Like Apple and Amazon before it, Google has apparently decided that the key to monetizing online activity is controlling the platform and the software that runs on it.
The focus following the big buy has been on the tens of thousands of patents Google snapped up, but beyond any potential future innovations, Motorola is undeniably a substantial manufacturing company. In theory, if Google can whip Motorola into shape — a big "if" given the company’s also-run status — it could at some point cook up an in-house alternative to Apple's wildly popular iPhone and iPad.
“Apple in this world is a little like the opening credit of the old '60s show ‘The Outer Limits’ where it says, ‘We control the vertical, we control the horizontal,’” Paul Saffo, a technology forecaster at investment firm Discern Analytics, told TheWrap.
“When it was first conceived, the web brought the vast universe of cyberspace to us, but it did it at the one place nobody wanted to be — our desks,” Saffo told TheWrap. “What mobile did is bring it to where we spend our lives, with devices that sit on our laps or fit in our pockets. It shifts the cyber experience from being episodic to being continuous. That’s not going away.”
Google is already a major player in the smartphone game thanks to its Android software, which commands more than 40 percent of the smartphone market. But it doesn't yet have a big presence in hardware; it farms out its technology to the likes of Samsung and HTC.
That may change after the Motorola deal. Analysts aren't necessarily buying Google's insistence on Monday that Motorola — its first big bet on hardware — will remain a separate company forever.
“It’s a validation of Apple’s approach of tightly integrating software and hardware,” said Roger Entner, founder of Recon Analytics. “While Google says, ‘Oh we’ll operate this as a stand-alone operation,’ it didn’t buy Motorola to leave it completely alone.”
“It’s an entirely different avenue for them, but I think it’s a critical one,” Mike Hickey, an analyst at Janco Partners, told TheWrap. “It’s about innovation, about being aggressive. Apple was running away with the market, so it’s not surprising [Google] would want this asset.”
Importantly, mobile also may enable greater monetization of the digital space. Traditional online advertising has yet to prove as fruitful as most would have hoped, but smartphones offer the possibility of location-specific ads.
“Advertising works better as the advertising engine knows more about you,” Entner said. “If that device is always with you, it knows where you go, it knows what pictures you take. It can combine the search you do with the location you are. That makes advertising so much more powerful.”
And more powerful ads, mean more revenue.
Not so certain is what the deal means for Google's place in the tablet market, one of the most rapidly growing sectors in the tech space.
Tablet shipments are projected to hit 61.9 million units this year, up from 19.7 million in 2010, according to research firm IHS. And nowhere was the burgeoning popularity of tablets more pronounced than during Apple’s most recent quarterly earnings announcement.
Though iPad sales jumped an astounding 183 percent, only 3.9 million Macs sold during the period, far less than Wall Street analysts had projected. Even Apple COO Tim Cook admitted publicly that the runaway success of the iPad was dampening sales of home computers.
It’s a sector that Google must compete in, especially with Amazon rumored to be coming out with a tablet in the fall. With Android-based tablets accounting for a mere 20 percent of the overall market, it would seem this move signals that Google could be ready to get serious.
And Google has shown that it will not rest on past success.
Not only did it abandon its triumvirate leadership of Sergey Brin, Eric Schmidt and Larry Page (making Page sole CEO), it also shook up its bureaucratic structure and tried to reinvigorate its technology development operations.
The moves were all of a piece with Page’s stated ambition to run Google with “the soul and passion of a startup.”
Part of that “startup” spirit is manifesting itself in an eagerness to push the perimeters of Google’s brand identity — making another play for social networking with the launch of Google+ and reportedly sniffing around Hulu.
Bolstering the company’s ability to offer users more ways to share photos with friends or stream episodes of “30 Rock” on their mobile devices will be central to keeping the company current and vibrant.
Yet it all comes back to the need to both innovate and make money simultaneously. The smartphone market, with its growing clientele, utility and advertising opportunities may be just the ticket.
“The most important thing for Google is optimizing search revenue,” Entner added. “That is by far the most important thing. Everything else is secondary.”