Martin Hingley's Blog

Google-Motorola Highlights

• Motorola introduced the first mobile handset in 1983
• Google derives 97% of its revenues from advertising
• Motorola Mobile is similar in size (19k staff) to Google (29k)
• Motorola has around 17k patents, but only a 3.1% market share
• In the last year Android handsets accounted for only $10 billion
• For its OEMs Android was free, but not Open
• Apple’s massive, rapid success as a handset supplier makes matrix – not horizontal – integration essential for all suppliers

This week Google announced its intention to purchase Motorola Mobile for $12.5B. We want to add some perspectives from ITCandor’s market sizing and forecasts, as well as talk about vertical, horizontal and matrix integration. For an update of our smart phone market share and forecast click here.
In terms of employment Motorola is of a similar size (19k compared with Google’s 29k staff), which is unusual, but not as extreme as when Compaq bought the larger Digital back in the days.
Google may indeed be buying Motorola mainly for its 17k patents, as much of the early analysis of the announcement suggested; it may even be arming itself with IP to protect it from legal cases from other big players. However patents are not just legal assets and there are clearly going to be many opportunities for Google to innovate through both its own and its OEM business as a result.

Motorola’s Current Status Belies Its Major Role In The ITC Market

The world mobile handset market (not just the smart phone part) was worth $200 billion in the year to the end of June 2011, accounting for 1.38 billion phones. Of this:

• Motorola had a 3.1% share of value and 2.7% of unit shipments (see Figure 1).
• In the higher-end ‘smart phone’ area Android OEMs accounted for $10 billion of the $92 billion total – lagging far behind Apple, Blackberry and tying with Symbian.
• Perhaps the most startling change in the year to the end of June was Apple overtaking Nokia to become the world leader in all handsets – quite remarkable for a company which shipped its first phone in 2007.

Motorola of course has been around the longest. Having specialised in AM and FM ‘Walkie Talkies’ for military use in the Second World War, it produced the DynaTAC 8000X in 1983 – the first ever consumer mobile phone. It might have introduced it sooner had it not had to build the cell tower transmitters to get them to work. Its best selling phone – the RAZR – came to market in 2004. For much of the early 2000s it was second only to Nokia in the overall handset market.
Outside the mobile phone market it also produced microprocessors (The 68000 was used in the Atari ST, Commodore Amiga and the first Apple Macintoshes introduced in 1985). It was also one of the first RISC chip producers, although its 88000 was eclipsed by proprietary Alpha, Sparc, Power processors.
Motorola has been going through a peiod of disvestment, having sold its Networks business to Nokia Siemens Networks for $975m in April 2011 having announced it a year earlier. Unfortunately NSN has already announced 1,500 redundancies among the 6.9k acquired staff. Motorola’s remaining Solutions business provides communications to enterprise and government accounts. It had revenues of $2.05 billion in Q2 2011 and (if our calculations are right) a headcount of around 25k.

Google Android – The Last Major Horizontal Market Play

Despite launching at the same time in 2007 Apple and Google have had diametrically opposed business models for the smart phone market. In particular:

• Apple took direct responsibility for the developing the entire value proposition, building on its iPod and Mac experience and picking its partners very carefully
• Google decided to offer an easy to adopt operating environment allowing suppliers such as HTC, Samsung and Motorola adopt modern strategies without massive investment

Google copied the strategies of Microsoft with its Windows Mobile – now Windows Phone operating system or Nokia’s Symbian. Unlike Meego Android is free, but not Open.
Google’s approach is unusual for a company deriving 97% of its revenues from advertising. Its development of search engines, Apps, Chrome and Android helps it wrest users away from incumbent suppliers through exploiting the horizontal nature of the PC and phone designs – where components are often interchangeable. Apple’s choice of a controlled proprietary strategy broke the mould in the mobile phone business which has changed totally changed the rules of engagement. In addition Apple’s approach is allowing it to compete more effectively with Google.

Motorola Is Just One Victim Of Apple’s Success

Nokia’s recent partnership with Microsoft, HP’s acquisition of Palm and push behind WebOS, T-Mobile’s sale of its US operations to AT&T and its merger with Orange in the UK to form Everything Everywhere – all of these can be seen as events related both to Apple’s success and the rise of a new type of supplier strategy, which we call ‘matrix integration’. Vendor success is now linked to the ability to control and build integrated products, built on (but not predicated by) standards.
We’ve optimistically added Google to our list of ‘matrix integrated’ vendors in Figure 3 – to take a strong position it will need to get serious about building integrated platforms and make its customers and users one and the same thing.

Some Conclusions – Signs Of Things To Come

For mobile operators, apps and services companies, successful future relationships with handset manufacturers will be vertical one-on-one rather than horizontal. For other handset companies such as Audiovox and Sony Ericsson it also raises the possibility of other M&A activity. The sheer speed of Apple’s rise in the handset market has taken many of its competitors by surprise. We believe that Google is emulating Apple by buying Motorola and that it will need to negotiate a specific and different relationship with each of its pre-existing Android OEMs.

Filed under: Google, Matrix Integration, Mobile Phone Handset, Motorola, Smart Phone Tagged: | Android, Apple, Google, Motorola