Case Study 1.1. Google Acquires Motorola Mobility Latest 2023
CASE STUDY 1.1
Google Acquires Motorola Mobility in a Growth-Oriented as well as Defensive Move
• The acquisition of Motorola Mobility positions Google as a vertically integrated
competitor in the fast growing wireless devices market.
• The acquisition also reduces their exposure to intellectual property litigation.
By most measures, Google’s financial performance has been breathtaking. The Silicon
Valley–based firm’s revenue in 2011 totaled $37.9 billion, up 29% from the prior year,
reflecting the ongoing shift from offline to online advertising. While the firm’s profit growth
has slowed in recent years, the firm’s 26% net margin remains impressive. About 95% of the
firm’s 2011 revenue came from advertising sold through its websites and those of its
members and partners. Google is channeling more resources into “feeder technologies” to
penetrate newer and faster-growing digital markets and to increase the use of Google’s own
and its members’ websites. These technologies include the Android operating system,
designed to power wireless devices, and the Chrome operating system, intended to attract
Windows- and Mac-based computer users. Faced with a need to fuel growth to sustain its
market value, Google’s announcement on August 15, 2011, that it would acquire Motorola
Mobility Holdings Inc. (Motorola) underscores the importance it places on the explosive
growth in wireless devices. The all-cash $12.5 billion purchase price represented a 63%
premium to Motorola’s closing price on the previous trading day. Chicago based, Motorola
makes cellphones, smartphones, tablets, and set-top boxes; its status as one of the earliest
firms to develop cellphones and one of the leading mobile firms for the past few decades
meant that it had accumulated approximately 17,000 patents, With another 7500 pending.
With Less than 3% market share, the firm had been struggling to increase handset shipments
and was embroiled in multiple patent-related lawsuits with Microsoft. As Google’s largest-
ever deal, the acquisition may be intended to transform Google into a fully integrated Mobile
phone company, to insulate itself and its handset-manufacturing partners from patent
infringement lawsuits, and to gain clout with wireless carriers, which control cellphone
pricing and distribution. Revenue Growth could come from license fees paid on the Motorola
patent portfolio and sales of its handsets and by increasing the use of its own websites and
those of its members to generate additional advertising revenue. Google was under pressure
from its handset partners, including HTC and Samsung, to protect them from patent
infringement suits based on their use of Google’s Android software. Microsoft has already
persuaded HTC to pay a fee for every Android Phone manufactured, and it is seeking to
extract similar royalties from Samsung. If this continues, Such payments could make creating
new devices for Android prohibitively expensive for manufacturers, forcing them to turn to
alternative platforms like Windows Phone 7. With A limited patent portfolio, Google also was
vulnerable to lawsuits against its Android licenses. Innovation in information technology
usually relies on small, incremental improvements in software and hardware, which makes it
difficult to determine those changes covered by patents. Firms have an incentive to Build up
their patent portfolios, which strengthens their negotiating positions with firms threatening to
file lawsuits or demanding royalty payments. Historically, firms have simply cross licensed
each other’s technologies; today, however, patent infringement lawsuits create entry barriers
to potential competitors, as the threat of lawsuits may discourage new entrants. It now pays
competitors to sue routinely over alleged patent infringements. Risks associated with the deal
include the potential to drive Android partners such as Samsung and HTC to consider using
Microsoft’s smartphone operating system, with Google losing license fees currently paid to
use the Android operating system. The deal offers few cost savings opportunities due the lack
of overlap between Google, an Internet search Engine that also produces Android Phone
software, and handset manufacturer Motorola. Google is essentially becoming a vertically
integrated cellphone maker. Furthermore, When the deal was announced, some regulators
https://www.coursehero.com/file/12126877/CASE-STUDY-1/
CASE STUDY 1.1
Google Acquires Motorola Mobility in a Growth-Oriented as well as Defensive Move
• The acquisition of Motorola Mobility positions Google as a vertically integrated
competitor in the fast growing wireless devices market.
• The acquisition also reduces their exposure to intellectual property litigation.
By most measures, Google’s financial performance has been breathtaking. The Silicon
Valley–based firm’s revenue in 2011 totaled $37.9 billion, up 29% from the prior year,
reflecting the ongoing shift from offline to online advertising. While the firm’s profit growth
has slowed in recent years, the firm’s 26% net margin remains impressive. About 95% of the
firm’s 2011 revenue came from advertising sold through its websites and those of its
members and partners. Google is channeling more resources into “feeder technologies” to
penetrate newer and faster-growing digital markets and to increase the use of Google’s own
and its members’ websites. These technologies include the Android operating system,
designed to power wireless devices, and the Chrome operating system, intended to attract
Windows- and Mac-based computer users. Faced with a need to fuel growth to sustain its
market value, Google’s announcement on August 15, 2011, that it would acquire Motorola
Mobility Holdings Inc. (Motorola) underscores the importance it places on the explosive
growth in wireless devices. The all-cash $12.5 billion purchase price represented a 63%
premium to Motorola’s closing price on the previous trading day. Chicago based, Motorola
makes cellphones, smartphones, tablets, and set-top boxes; its status as one of the earliest
firms to develop cellphones and one of the leading mobile firms for the past few decades
meant that it had accumulated approximately 17,000 patents, With another 7500 pending.
With Less than 3% market share, the firm had been struggling to increase handset shipments
and was embroiled in multiple patent-related lawsuits with Microsoft. As Google’s largest-
ever deal, the acquisition may be intended to transform Google into a fully integrated Mobile
phone company, to insulate itself and its handset-manufacturing partners from patent
infringement lawsuits, and to gain clout with wireless carriers, which control cellphone
pricing and distribution. Revenue Growth could come from license fees paid on the Motorola
patent portfolio and sales of its handsets and by increasing the use of its own websites and
those of its members to generate additional advertising revenue. Google was under pressure
from its handset partners, including HTC and Samsung, to protect them from patent
infringement suits based on their use of Google’s Android software. Microsoft has already
persuaded HTC to pay a fee for every Android Phone manufactured, and it is seeking to
extract similar royalties from Samsung. If this continues, Such payments could make creating
new devices for Android prohibitively expensive for manufacturers, forcing them to turn to
alternative platforms like Windows Phone 7. With A limited patent portfolio, Google also was
vulnerable to lawsuits against its Android licenses. Innovation in information technology
usually relies on small, incremental improvements in software and hardware, which makes it
difficult to determine those changes covered by patents. Firms have an incentive to Build up
their patent portfolios, which strengthens their negotiating positions with firms threatening to
file lawsuits or demanding royalty payments. Historically, firms have simply cross licensed
each other’s technologies; today, however, patent infringement lawsuits create entry barriers
to potential competitors, as the threat of lawsuits may discourage new entrants. It now pays
competitors to sue routinely over alleged patent infringements. Risks associated with the deal
include the potential to drive Android partners such as Samsung and HTC to consider using
Microsoft’s smartphone operating system, with Google losing license fees currently paid to
use the Android operating system. The deal offers few cost savings opportunities due the lack
of overlap between Google, an Internet search Engine that also produces Android Phone
software, and handset manufacturer Motorola. Google is essentially becoming a vertically
integrated cellphone maker. Furthermore, When the deal was announced, some regulators
https://www.coursehero.com/file/12126877/CASE-STUDY-1/
