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Business Breakdown: Googolrola

Google has always specialized in software. Why would it want to buy the company that makes the phones?

A Google executive watches HTC's CEO show off the company's Google-powered phone. Will things be so friendly now that the company has bought Motorola, an HTC competitor?

The big business news on Monday was Google’s decision to spend $12.5 billion in cash—nearly a third of what the company had on hand—to purchase Motorola Mobile, the cellphone company that saw its fortunes revive after adopting Google’s Android phone operating system.

The move was a bit of surprise. Starting with its groundbreaking search algorithm, Google has always specialized in software that works across platforms. Why would it want to buy the company that makes the phones?

PATENTS. If you go by Occam’s Razr—pun intended—the simplest explanation is that Google is facing several legal challenges related to its intellectual property, and in buying Motorola (which owns more than 17,000 mobile tech patents) it will be have the legal ammunition it needs to defeat suits from Microsoft and Apple.

What does that mean in practice? Right now, the big smartphone companies are suing the heck out of each other, exploiting a loosey-goosey patent system to argue they own a competitor’s work: Apple had one Android product pulled from the stores last week. With Motorola’s store of patents, Google will have more strategies to prevent things like that from happening and defend its all-important mobile operating system from challenges.

The other question we’re waiting to have answered: Will Google use its patent library only to defend itself, or will it follow Apple in using IP suits to go after other companies (far too aggressively, critics say) for developing technologies similar to its own?

A BETTER PHONE. Some observers think Motorola’s hardware expertise might benefit Google. While the challenges of managing factories, supply chains and carrier relationships will be new to the Google crew, closer integration of software and hardware design could produce phones better positioned to compete with the Apple’s industry-standard iPhone. While patents are valuable, the thought process goes, Google isn’t going to buy one of the world’s leading phone manufacturers and just ignore its prime business.

That issue might spark problems with the other manufacturers, including HTC, LG, and Samsung, that use Android to power their smartphones—future Googlerola (that's what we're calling it now, right?) phones will be in direct competition with these firms’ offerings. Judging by the scripted quotes from the CEOs of Android’s phone-making partners, they’ve apparently put the need to defend Android intellectual property (and preserve their most popular phones) ahead of competitive concerns. But it’s a looming problem—and one that will surely come up when the government is asked to certify that the merger doesn’t violate anti-trust laws.

LARRY PAGE, IN CONTROL. This is the first major acquisition by newly installed CEO Larry Page, the Google co-founder who assumed full-time control earlier this year. It is a big, bold move, with plenty of immediate benefits, future potential, and lots of caveats, not to mention a major realignment of business strategy—not an entry-level maneuver, in other words. It takes some confidence to do that (and to spend a major chunk of change in the process).

Some are even suggesting that Google’s absurd bids—pi-billion (or $3.14159 billion), among other famous numbers—on a different set of patents auctioned just a month ago were just gamesmanship to force Apple and six other companies, the consortium that won the auction, to pay a higher price for the IP while Google’s leadership made the much more valuable Motorola deal behind the scenes.

That's the breakdown. What do you think of the new, Page-led Google?

Photo via (cc) Flickr User Robert Scoble

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