Google's announcement that it will buy Motorola Mobility Holdings for $12.5 billion in cash was quite a Monday-morning wake-up call for the mobile phone industry.
So what does it all mean?
For starters, it means Motorola Mobility shareholders will start the week with an extra spring in their steps. Google's purchase price of $40 per share is a 63% premium over Motorola's Friday closing price of 24.47.
The acquisition pushed Motorola's (NYSE: MMI) share price to 38.74 in early trading Monday. Meanwhile, Google shares (NASDAQ: GOOG) dropped 2.3% to 550.78 soon after the market opened.
But that's short-term stuff. In the long-term, the search giant's entry into the smartphone manufacturing game has more to do with mobile patents than anything. (Though not everyone would agree; see patent expert Florian Mueller's comments below from his Monday blog post on the deal.)
Despite the success of its Android mobile OS, Google lacks sufficient wireless patents, something Motorola Mobility, which split from the rest of Motorola in January, has plenty of -- more than 14,000, with maybe another 7,000 in the pipeline.
Eric Jackson over at Forbes writes:
Today’s deal is all about acquiring Motorola’s backlog of mobile-related patents. When Google lost out on the batch of Nortel patents, they worried that Android was significantly at risk.
Apple, Microsoft and Oracle have been barraging Android vendors with intellectual property lawsuits involving Android technology they claim was stolen from them. And while Google Chairman Eric Schmidt recently dismissed the litigation as "legal fun," they clearly pose enough of a threat to prompt Google to make its largest-ever acquisition.
Further, Motorola has gone all in on Android, pumping out Droid smartphones to an eager market for a couple of years now. So Google is marrying an already-faithful partner.
"Motorola Mobility's total commitment to Android has created a natural fit for our two companies," Google CEO Larry Page said in a statement announcing the deal. "Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers."
The transaction has been approved by both companies' boards of directors, though, as usual with Google these days, there are regulatory hurdles to overcome. Google said it hopes to complete the transaction by early next year.
Should it be completed, the acquisition raises many questions. One big one is how other licensees of Android phones -- Samsung, HTC and LG Electronics -- will react, since they're essentially now going to be competing with the search giant and its new subsidiary. Google thinks things will remain hunky-dory.
Andy Rubin, Google's senior vice president of mobile, said, "Our vision for Android is unchanged, and Google remains firmly committed to Android as an open platform and a vibrant open source community. We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices."
I'm not so sure Samsung, HTC or LG Electronics will agree. If any of them make a statement, I'll add it in here. So far, none have commented.
Another question is how -- and whether -- Google's competitors respond. Wall Street seems to think the move could force Microsoft to buy outright its new smartphone partner, Nokia (NYSE: NOK). Shares of Nokia soared more than 14% in early trading Monday to 6.13.
Meanwhile, shares of BlackBerry maker Research in Motion (NASDAQ: RIMM) were up nearly 6% to 25.99 shortly after the opening bell. Investors may well believe that Google's purchase puts RIM in play.
Finally, patent expert Florian Mueller argues that Google's move goes beyond patents. From his "first reaction" blog post:
It would be a mistake to look at this as just (or primarily) a patent deal. We're looking at a deal that would fundamentally change Google's Android-related business model. ... Google said in the conference call that it would operate Motorola Mobility as a separate business, but the price Google agreed to pay is not reflective of the value of Motorola Mobility as a stand-alone business: that's the kind of price paid by a strategic buyer who plans to use the acquisition target as leverage for its (Google's) own core business.
Food for thought.