Why Google Bought Motorola: Huge Boost for Android

One reason why Google said it will acquire Motorola Mobility for $12.5 billion is to increase traditional search traffic. The other is to bash rival Apple in the swelling market for smartphones and tablets, where more search is more likely to reach more people quickly.

Google has achieved enormous success with its Android OS for mobile phones, an open-source model adopted by Motorola Mobility and many of its rivals including Samsung Electronics, HTC and others. Indeed, market researchers like Gartner estimate Android is the top platform, with a nearly 43 percent share in the second quarter, compared with Apple's 19 percent.

"Our bet on Android has really paid off," said Google CEO Larry Page after the deal was announced Monday. Motorola Mobility, based in Libertyville, Ill., will operate as a separate Google business.

"Google lost out on June's auction of wireless patents owned by Nortel Networks of Canada, which went for about $4.5 billion to a syndicate that included Apple, Sony, Ericsson, EMC, Research in Motion and Microsoft. It had participated in the auction, apparently bidding $900 million at the start but dropped out in later rounds.

Now, the Mountain View, Calif., search giant gets Motorola Mobility's 15,000 patents, decades of experience in mobile platforms dating back to when Motorola's founders, the Galvin family, designed the first taxi radios. It also gets Motorola Mobility's huge consumer access into mobile phone operators in the U.S. and abroad.

The move also gets Google quickly into the world's living rooms because millions of cable TV users already have Motorola Mobility DVRs installed by their cable operators.

Google, which reported cash and short-term investments exceeding $39.2 billion in the second quarter, can easily finance the deal, which may take a while to close. On Monday, Page and other Google executives declined to discuss timing.

The purchase also moves Google away from its role as a pure service company, advertiser and search partner into consumer electronics, a move that is risky but could follow on Apple's success at transforming itself from a mere maker of Mac PCs into a global provider of entertainment devices, content that includes music and video. Apple has also become a savvy retailer.

Could Google stores be next?

Indeed, some had suggested Google might purchase Sony, Japan's consumer electronics giant, which has never recovered its image and profitability after the retirement and death of founder Akio Morita.

No matter when the Google-Motorola Mobility deal concludes, several problems won't go away.

The first is competition. Apple had no immediate comment Monday after the takeover was announced but it surely will react.

The second is lawsuits. Apple has aggressively fought alleged infringements of its OS technology by suing many of the manufacturers but not yet suing Google, which this month beefed up its legal team by hiring a senior lawyer from the U.S. Federal Trade Commission. Conceivably, it could target Google as a giant that could dominate the industry, especially now with the Motorola Mobility patent portfolio.

The third is regulators poking around into Google's market dominance in search. The FTC has already begun a probe and seeks more information. Meanwhile, the European Commission, which started looking at Google last year, this month apparently broadened its focus. Conceivably, governments could seek to break up an enlarged Google as they previously tried to bust Microsoft, which entered into various consent decrees that expired just in May.