David Prosser: There are 17,000 reasons for Google to buy Motorola
Outlook: Buying Motorola ramps up the pressure on Microsoft to buy its own handset maker – probably Nokia, or maybe even Research in Motion
For those with fond memories of Motorola's classic StarTAC handset, this may come as something of a surprise, but Google is not shelling out more than $12bn for the company because it wants to get its hands on its phones – at least, that's not its prime motivation. What looks like an aggressive first big move into hardware is actually a defensive strategy by Google aimed chiefly at protecting its Android mobile phone operating software.
It is less than a month since Microsoft and Apple, which each have their own rivals to Android, teamed up to pay $4.5bn for 6,000 patents protecting various mobile phone-related technologies. For $12.5bn, Google is getting its hands on 17,000 patents of its own.
That's vital, because Google thinks Microsoft and Apple see patents as the way to stop Android dominating the market. It fears intellectual property litigation will push up the cost of handsets using Android, prompting manufacturers to turn to its rivals. But with those 17,000 patents in its pocket, it will have a much better chance of beating such litigation.
There is a risk to the defence: if handset makers such as HTC, Samsung and others that currently use Android think Motorola is going to have first bite of the cherry on each and every improvement to the software, they might be tempted to go elsewhere. But this is why Google is at pains to insist that Motorola won't get any special favours and that Android will remain open-source and free. As long as it keeps its word, the handset makers should remain on side.
Not Nokia though, which has thrown its lot in with Microsoft, abandoning its own Symbian operating system after getting trounced by Android. And herein lies another reason for Google's purchase of Motorola. While the Nokia-Microsoft alliance has yet to get going, Google sees it as at least a potential threat. Buying Motorola ramps up the pressure on Microsoft to buy its own handset maker – probably Nokia, in which case the deal would be a huge distraction, or maybe even Research in Motion, which would be even more disruptive. Either way, Android enjoys a breather.
Why else does Google want Motorola? Well, don't discounttelevision, where Google's efforts have never really passed muster. Aside from the phones, Motorola has a market-leading set-top box business, important in its own right but also for the close working relationships it brings with US cable operators. This unit gives Google a real chance of finally breaking into television, particularly as Larry Page, its chief executive, has a vision of an internet-driven convergence of telecoms and entertainment.
Then, finally, there's Motorola's mobile (and tablet computer) hardware. Acquiring the hardware may come low on the list of Google's priorities, but it doesn't come without benefits. Google can hardly have failed to notice how Apple's vice-like control of its hardware and software in this market has been so lucrative.
All in all, the deal makes sense. It is not without risk – there will still be patent litigation, there's the worry about handset makers'loyalty and there will also be those who question whether Google is buying what feels like a relatively old-fashioned business compared with the cutting edge of the cloud. But make no mistake: its rivals will be feeling hugely intimidated.
It is an economic waiting game
We won't know until tomorrow exactly how the members of the Bank of England's Monetary Policy Committee voted at their August meeting. But although the clamour for a return to the MPC's policy of quantitative easing has been growing in recent months, the comments made by David Milesyesterday suggest no one has yet joined Adam Posen on his lonely crusade for a return to monetary stimulus.
After Mr Posen, Mr Miles is widely seen as the most doveish member of the MPC. On two occasions in the past, he has voted against the majority decision of the committee in favour of ramping up QE. So if he is not yetconvinced that the time is right for a return of that policy, it seems unlikely other members of the MPC are either.
Still, Mr Miles's comments are something of a surprise. A few weeks ago, he explained that he did not believe an interest rate rise was necessary to head off inflation because price rises were being driven by temporary factors such as commodity price increases, the VAT rise and higher energy bills. Without these, the rate of inflation would be "pretty close to zero", Mr Miles added.
That sounds like a man preparing to back a return to QE. After all, the MPC's mandate is to stay within a percentage point of its 2 per cent inflation target. That applies equally to both an under- and an over-shoot, so if Mr Miles thinks inflation will drop back to close to zero once the one-off influences have dissipated, one might expect him to be pro-QE.
In fact, Mr Miles' preference for the status quo, for now at least, is another indicator of just how uncertain the outlook is for the UK economy. Last week's Bank of England Inflation Report included the usual fan charts, which show its projections for where growth and inflation are headed (the central chunk of each fan shows the most likely outcome, with the rest of the fan designed to show the range of possibilities). Last week's fans were noticeably wider than usual.
The Bank can hardly be blamed for its reluctance to be pinned down, for the biggest influences on Britain's economy over the next 12 months are both highly uncertain and beyond its control. The extent to which the global economy (led by the US) slows and the eurozone debt crisis is resolved will be the crucial considerations.
It looks as if Mr Miles, like everyone else, is holding his breath as we wait to see how those questions are answered.
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