It looks like a rare misadventure of Google’s Larry Page era is about to come to an end. Google (GOOG) says it is selling its Motorola handset business to the Chinese computer maker Lenovo (992:HK) for around $2.91 billion.
In May 2012, Page, then the newly installed chief executive of Google, acquired the storied handset maker Motorola Mobility for $12.5 billion. The company appointed longtime executive Dennis Woodside to the helm of the new subsidiary and talked about using the new hardware arm to push the boundaries of its Android mobile operating system.
But there were two other factors behind the merger that are key to understanding why it unraveled. Google, like so many other companies, had Apple (AAPL) envy—and wanted to exert the same control over design and manufacturing as its Silicon Valley rival has over the iPhone. Google also wanted to get its hands on Motorola’s deep patent portfolio and to neutralize the threats Motorola was making against Google and other members of the Android world.
Google succeeded in avoiding an all-out Android legal apocalypse. But as a way to mimic Apple, acquiring Motorola was a failure. Phones such as the Moto X have not performed spectacularly; at the same time, Google’s ownership of Motorola irritated other handset makers, such as Samsung Electronics (005930:KS).
Page admitted as much in a blog post on the Google website and said the company was not abandoning its other hardware efforts.
“This move will enable Google to devote our energy to driving innovation across the Android ecosystem, for the benefit of smartphone users everywhere. As a side note, this does not signal a larger shift for our other hardware efforts. The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry. We’re excited by the opportunities to build amazing new products for users within these emerging ecosystems.”
Chetan Sharma, a mobile analyst, said that Google wanted to relieve so-called channel conflict between Motorola and other big Android manufacturers, such as Samsung. “It didn’t make sense when they acquired them from a product point of view, and it was creating a lot of tensions in the ecosystem.”
Sharma added: “I think they very quickly realized they cannot compete on a global scale with Apple under the Google or Motorola brand.”
Meanwhile, Lenovo is rapidly expanding in the U.S., and in Motorola the Beijing-based company gets a valuable brand in the smartphone world. Page wrote:
“Lenovo has the expertise and track record to scale Motorola into a major player within the Android ecosystem. They have a lot of experience in hardware, and they have global reach. In addition, Lenovo intends to keep Motorola’s distinct brand identity—just as they did when they acquired ThinkPad from IBM (IBM) in 2005. Google will retain the vast majority of Motorola’s patents, which we will continue to use to defend the entire Android ecosystem.”