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Unloading Motorola Mobility: Google’s Sly Maneuver?

By Robert Salomon

Robert Salomon_article

The competitive context of the marketplace is key to understanding Google’s action.

Last month, when Google sold Motorola Mobility to Lenovo at a huge loss, the techno-pundits were gloating. Wrote The New York Times: “Selling Motorola is an acknowledgment that Google is better off focusing on its core competencies — making software and selling ads — particularly as the profit margins for phones are shrinking over all.” One analyst likened the sale to “slipping the millstone off your neck.”

Not so fast. The minds that made Google may have had some method to their madness. For one thing, according to the Times’s own analysis, Google didn’t quite lose as much money as the headline numbers might suggest. But even if we concede that the transaction was not a total failure, it likely involved much more strategy than might, at first, meet the eye.

The competitive context of the marketplace is key to understanding Google’s action. Samsung is, by far, the largest manufacturer of Android devices, with some 65 percent market share. It is the 800-pound gorilla of Android hardware, and it can therefore exert a lot of power over Google.

It is in Google’s best interest to have as many makers of Android devices as possible, to alter that balance of power. The ostensible reason Google acquired Motorola was to have a captive manufacturer of Android devices, reducing Google’s dependence on Samsung and any threat to Google posed by Samsung. For example, if, Samsung stopped manufacturing Android devices, Google still had a viable manufacturing partner in Motorola. So why the about-face, one might ask.

Here’s the rub: By selling Motorola Mobility to Lenovo, Google bolsters an Android device maker, especially in the US market (where Motorola is strong and Lenovo weak). Google also retains all relevant patents owned by Motorola Mobility, not only ensuring some licensing income, but preserving the right – and the know-how – to reenter the hardware market should the need arise.

So don’t take this sale simply at face value. At first glance, it may seem like a huge loss and embarrassing misstep by Google. But if you dig a little deeper, it looks like a pretty sound strategic maneuver.

See more at: http://www.robertsalomon.com/motorola-googles-remorse-or-well-reasoned-maneuver/#sthash.YuprNa5y.dpuf

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Robert Salomon is an Associate Professor of Management and Organizations.