Jenson Taylor Blog

21 August 2011

The real reasons why Google is acquiring Motorola Mobility

Potential benefits brought by Motorola to Google
I've been reading blogs and news articles about why Google is acquiring Motorola Mobility and the reasons speculations vary
  • obtaining more patents to protect Android
  • giving away free mobile phones to obtain larger mobile advertisement market share
  • providing a seamless mobile hardware/software integration similar to the Apple smart phones.
  • production of tablets with Android OS
  • integration of Google TV with set-top box technology of Motorola
However one aspect which is under-reported is how various Google services could be used together and speed up their introduction to the users with Motorola in particular the use of Google Wallet and Google Offers in conjunction with Google's location based services.

Google Wallet + Google Offers
Google attempted to acquire Groupon a while back for a large sum. Based on the reported estimates on how much Google was willing to pay for Groupon, it is apparent that Google was keen to make this acquisition. Since that deal did not happen, Google has started a similar pilot scheme called Google Offers. The aim of services such as Groupon, LivingSocial and Google Offers is to help increase customer numbers to a business and perhaps preferably during the more idle hours.
Customers are encouraged to do a transaction with a local business as a result of an offer coupon, so not only are the profit margins smaller for the business but the profit will be shared with the referrer(i.e. Google Offers or Groupon etc). The potential benefits for merchants who take part in such schemes are:

  • obtain new loyal customers
  • gain business that would not otherwise be there despite a thinner profit margin
  • distribute hours of customer arrivals to make more efficient use of resources

Google has a lot of tools and services that could contribute immensely to this business model in particular the ability to combine user data with location based services. Another new service Google is rolling out is Google Wallet which allows users to use credit cards and royalty card in an electronic form and use them with a tap on the counter to pay for goods, receive royalty points and become aware of local offers. Think of Google Wallet as Google's way to collect user data offline!

So lets see how it will all fit together:

Google has been pushing the Nexus S phone on the Google homepage for its use of Near Field Communication (NFC) which enables users to use the Google Wallet service. Samsung enjoys the partnership as the hardware manufacturer and Google continues its business direction, i.e. the use of Google Wallet. Now imagine if every single Motorola handset sold is a Google phone which has the necessary means to use Google Wallet and Google Offers as well as the other usual Google services available on Android.

Here are a few interesting quotes from the Google Wallet website which I feel somewhat relate to the Google-Motorola deal:
"Google Wallet can be installed on Nexus S 4G available on Sprint, and potentially over time, other mobile devices and platforms as well."
"Google continues to partner with many kinds of companies for Google Wallet, including:... Mobile handset manufacturers..."
It could be the case that mobile manufacturers are not interested in investing in a technology such as NFC for Google Wallet if it does not directly benefit them financially. So for Google to push forward its vision it needs closer collaboration from "mobile handset manufacturers". The current level of collaboration is perhaps not quick enough! The Motorola acquisition will surely speed things up.

Apparently, each year Google will advertise a mobile handset that is labelled as the "Google phone". The Android partners will bid for this privilege, in order to become the preferred partner. The preferred partner will benefit substantially from the free advertisement on the Google.com home page, in return Google will benefit from the inclusion of its technology including the necessary NFC chip for functioning of Google Wallet. My guess is that Google will not (and should not in my opinion) give this preferred partnership to Motorola as it could scare off other Android partners, in particular Samsung which has its own operating system called "Bada". Samsung also has a lot of cash to protect itself or change its course of action without incurring a major financial hit.

So a large portion of the premium price for Motorola is justified for Google's ability to collect offline purchase habits via Google Wallet and potential profits from the success of Google Offers. Imagine purchase skiing equipment offline and have your Google phone prompt you for a discount offer in a nearby store to purchase ski goggles then later that day when you browse the internet you are presented with advertisement for potential places close to you for a skiing holiday. In this example; 1) Google has received some valuable user data about you but this time it's about your offline habits 2) Making a purchase using the Google Offers' coupon has produced some profit for Google and 3) The targeted advertisement on your home web browser will most likely produce some profit for Google.

There are a lot of scenarios that Google can explore in the area of local commerce with Google Offers. You have probably seen QR bar-codes on posters and other types of printed advertisement. By enabling a mobile device to communicate with billboards using technologies such as QR bar-codes or other feasible forms of digital communication such as NFC, RFID and Bluetooth on bill boards, Google can present users with Google Offers which are based on 1) the product in the poster 2) your location 3) your online user data.

The wave and pay method offered by Google Wallet isn't going to suddenly explode but together with simple partnerships between Google and major retailers it can easily become the preferred choice of payment, if customers know they can earn extra royalty points by using this system they will happily make the switch. As witnessed previously looters customers will do anything for some free points (Nectar was offering 100 free points for signing up onlineLink2).

Personally I don't carry any loyalty cards simply because the space it would take up in my wallet and the inconvenience of using them each time I need to pay for goods. It is too much inconvenience to justify the benefits for me. However if I could pay and obtain some loyalty rewards in one action and without carrying any extra items with me, then I would certainly use a loyalty card and make use of "offers". Currently many stores offer credit cards that include their loyalty program but Google Wallet will let you use any credit card.

If your 2011 attention span allows you to watch this long video, then it will become apparent what Google is planning in this market domain.


Data Collection via Google Wallet
Data collection and user identification is at the heart of any advertisement agency. To deliver effective advertisement which entices users to engage in a transaction with the advertisers, the advertisement has to be related to the users' interests. These interests do not stay the same over time and can vary depending on the location you are in. So being able to collect more data about users whether its through the videos you watch on YouTube, the purchases you make offline/online, the content you engage with on Google Plus, the keywords you use to search on Google or your mobile location can contribute to identifying you as a user and allowing the delivery of more targeted ads.
Acquiring Motorola by Google does not necessarily miraculously change the mobile devices' scene to benefit Google however it solidifies Android existence and Google penetration in the mobile market and lets Google collect offline user data via Google Wallet. It is very difficult to quantify how much value the Motorola deal will contribute to this, but it surely helps.


Android
There is no doubt in my mind that Google is committed to make Android successful. Part of making Android successful includes defending and helping other hardware manufacturers, so to say that because the patent portfolio is not strong enough the acquisition value does not include a big price for the patents is rather naive. Motorola mobility has 17,000 mobile related patents and another 7,500 pending patents. I must admit I have not inspected Motorola Mobility's patent portfolio, but I believe purchasing of this many patents regardless of their quality would not be cheap and counts for a respectable part of the price tag that Google is offering Motorola. It remains to be seen how beneficial the patents will be to Android.

Google TV
Some say the Motorola set-top box technology could potentially be integrated with Google TV and it brings new potential in this direction. I have not investigated this side of things however I would not assume that this aspect of the deal will carry much weight in terms of the price that Google is paying for Motorola.

Conclusion
Large organizations usually take a direction with each branch of their business, so Google is taking strongly to the mobile domain. The Motorola acquisition can benefit Google in a number of areas of which all are not easily quantifiable. In regards to the Motorola deal it is clear to me that local commerce using Google Offers and offline data collection using Google Wallet are two important factors for Google. However, to say that the Google-Motorola deal was because of an unknown secret goal and nothing to do with patents seems rather naive. Perhaps patents wasn't the only reason for the acquisition of Motorola but it surely contributes some value. That being said, the strength of the Motorola patent portfolio or lack of it does not change the direction in which the company is moving at all.


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