Will Google's $12.5bn Motorola buy spark an 'Android civil war'?
In one fell swoop, the search-engine giant puts itself in competition with the very smartphone makers who use its operating system, and that's good news for arch-rival Microsoft
Stephen Foley is a former Associate Business Editor of The Independent, based in New York. He left in August 2012. In a decade at the paper, he covered personal finance, the UK stock market and the pharmaceuticals industry, and had also been the Business section's share tipster. Between arriving with three suitcases in Manhattan in January 2006 and his departure, he witnessed and reported on a great economic boom turning spectacularly to bust. In March 2009, he was named Business and Finance Journalist of the Year at the British Press Awards.
Sunday 21 August 2011
They are the deadliest of rivals.
The Silicon Valley upstart that parlayed a wonderful new way of searching the web into one of the most lucrative internet businesses ever, versus the technology establishment giant whose dominance of computer operating systems and office software had been unchallenged for decades.
Google has strayed on to Microsoft's turf with new business word processing and spreadsheet software; Microsoft is trying to dislodge Google from its top spot in search and search-related advertising with its own Bing search engine.
And nowhere is their rivalry more profound than in the sphere of smartphones, the frontier of tech development, where the winner walks away with who knows how many billions of dollars in spoils – and where Google's Android operating system has been wiping the floor with Microsoft's Windows for mobile.
A once-in-a-generation changing of the guard appears to be upon us, with Google taking over from Microsoft as the world's tech titan.
So here's the thing about the past week. Has a strategic error by Google just saved Microsoft's bacon? This is the question that has got the mobile-phone industry ringing with excitement since Google agreed this week to buy Motorola Mobility, the famous handset maker, for the handsome sum of $12.5bn.
For four years, Google has been giving away free copies of Android to any smartphone manufacturer that wants to use it as the basic operating system for its devices, and Android has grown to be the most widely used system in the world.
Motorola, HTC, Samsung and several other manufacturers have created devices that use Android to run their applications, and now Google's software is on 43 per cent of new smartphones.
Compare that with Apple's iPhone operating system, which had an 18 per cent share of the market in the second quarter of this year, according to Gartner market research. The Symbian operating system, used on old Nokia phones, had 22 per cent, and the BlackBerry operating system had 12 per cent. As for poor Microsoft, its Windows operating system had a market share of just 1.6 per cent – and no, that decimal point is not a misprint.
The reason Microsoft's executives and supporters woke up excited last Monday morning is that Google's acquisition of Motorola changes the game. Suddenly, Google has gone into competition with the rest of the smartphone manufacturers that have adopted Android.
Shaw Wu of Sterne Agee said the acquisition could spark an "Android civil war". The technology analyst said: "The biggest risk for Google in pursuing hardware is a potential civil war between itself and its Android partners, Samsung, HTC, LG, Sony-Ericsson, Huawei, ZTE, Dell and others. History has proven that it is tough to be partner and competitor at the same time."
The fear, for these rival manufacturers, is that Google will begin to design special Android features exclusively for its Motorola phones, and to build a closed system similar to Apple's iPhone, where the operating system and hardware are tightly integrated in a way that users love and rivals cannot replicate.
In announcing its takeover of Motorola, Google argued that it was not attacking its other manufacturing partners, but in fact protecting them. For HTC, Samsung and the like, Android is increasingly threatening not to be the free software that they expected. Although Google gives it away under an open-source software licence, using Android has opened manufacturers up to patent challenges from rival firms, including the smartphone pioneer Apple.
Patent litigation has become the scourge of the industry, since every device contains technology that is subject to scores, if not hundreds, of separate and overlapping patents – patents on everything from the way phones synch with users' email, to the look and feel of a touchscreen. Patent litigation usually results in cross-licensing deals between manufacturers, like the ones signed this week between LG and Sony, or recently between Apple and Nokia, and the royalties that one side might pay to the other represent the balance of power in those settlement negotiations. The larger and broader one's portfolio of patents, the stronger one's hand in those talks.
So it is not the manufacturing business of Motorola that Google was most interested in, the company said, it was its 24,500 technology patents. Last month, Google lost out in the auction of a portfolio of patents by bankrupt Canadian firm Nortel Networks, outbid by a consortium of rivals including Microsoft and Apple. Buying Motorola was its way of countering that loss and ensuring that manufacturers are not put off using Android by the costs of litigation and potential patent settlements, Google said.
This was why the company's partners-turned-new-rivals came out in support of the deal.
"I welcome Google's commitment to defending Android and its partners," said Sony Ericsson's chief executive, Bert Nordberg. Jong-seok Park, head of LG, said: "We welcome Google's commitment to defending Android and its partners." And HTC boss Peter Chou said: "We welcome the news of today's acquisition, which demonstrates that Google is deeply committed to defending Android, its partners, and the entire ecosystem."
However, the cut-and-paste nature of those endorsements suggested that they may be public relations-template thin. And Google's rivals certainly scent blood.
Shares in Research in Motion, maker of the BlackBerry, were in demand after the Motorola deal. BlackBerry has been losing market share, laying off staff and suffering an existential crisis this year, as its effort to crack the consumer market faltered and Android and the iPhone eroded its dominance of a corporate smartphone market that it practically invented.
And Microsoft supporters were cock-a-hoop. It was only a few months ago that Nokia announced it was abandoning its unloved in-house operating system, Symbian, to develop smartphones based on what it believed was a better platform, the new Microsoft Windows. The first devices will start appearing around the end of this year, and Nokia's chief executive, the former Microsoft executive Stephen Elop, has become one of Windows' biggest cheerleaders. It was Mr Elop who wrote, in a memo to Nokia staff, that the company was standing on a burning platform and had to take the dangerous plunge into the unknown or face certain incineration.
There are several factors driving the consolidation of the market. Operating systems are the basis for an entire ecosystem of applications, games and other software that can be downloaded on to smartphones. Software developers cannot develop for every single platform and so are concentrating on the main ones, making them ever more useful, flexible and popular. It was the diversity of apps available for the Apple iPhone that really made that device a must-have, and it is the growing number of apps for Android that has fuelled its growth, too.
BlackBerry has been struggling to seed its own ecosystem, but is hoping to catch up, with additions such as a subscription music service, said to be under development. Symbian has not managed to seed such an ecosystem, but Nokia decided in February that Microsoft Windows might, since it has all the clout and interoperability of its heritage from Windows for personal computers.
Mr Elop said his first reaction to the Motorola-Google deal was that "the importance of the partnership that we announced on 11 February is more clear than ever before". He added: "If I happened to be someone who was an Android manufacturer or an operator, or anyone with a stake in that environment, I would be picking up my phone and calling certain executives at Google and saying, 'I see signs of danger ahead'."
In a corporate statement, Nokia was even more explicit. "This could prove to be a massive catalyst for the Windows Phone ecosystem."
Sterne Agee's Shaw Wu agreed. "There is a window of opportunity for Research in Motion, Windows Phone, and Hewlett-Packard's webOS. The Android camp will likely see some disruption as Motorola is integrated into Google and, from our conversations with carriers, they would love to have a stronger No 3 supplier to counter the growing dominance of Apple and Google."
There is all to play for, and rivals still to overcome, but from being dead in the water in smartphones, Microsoft suddenly has an opportunity for resurrection. And for that, it has Google to thank.
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