Have We Seen the End of Google’s Hardware Dreams?

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Jan. 30 (Bloomberg) –- IDC Research's Crawford Del Prete and Bloomberg's Cory Johnson discuss Google’s bet on Motorola. They speak with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “Market Makers.” (Source: Bloomberg)

It, this is a deal that had to be made.

Google needed the ip, but when you think about the complex relationship between google and all of those that are building the devices, it did not seem that in the long-term they were going to be able to be a successful hardware supplier.

On the other side of the equation, lenovo is making very big moves.

There was the low-end server move last week, and they need to break into the market.

They need to break into the western hemisphere, if you will, and this gives them the carrier relationship, some license for i.p., and it lets them change their brand profiled in this market, so it makes sense, but, again, from the google standpoint, it was an experiment.

They did end up walking away from $7 billion.

So nice for the guys who blew billions in patent deals?

They had the set top boxes, which they sold, and the handset business, which they sold, and some cash, so they are left with about a 4.2 billion dollar cost for these patents, and the question is, what are these patents worth?

It used to be that you sold a patent, and you could -- you sold your product, and you could point to the patent to defend your product, but now, it is the protection of lawsuits, and it is not clear that google got any value for the $4 billion they spent on those.

Crawford?

I disagree.

From the google standpoint, they are fighting for the future of the android operating system, and they want to get as much as they possibly can in order to differentiate that operating system down the line.

As one of the eye and ears in handheld computing and smartphones, there is a lot of i.t. there.

The downside risk probably beats out the upside that they would have potentially gotten with motorola.

This is probably a $9 billion patent portfolio, and now we see they got it for $4 billion.

We had a great guest on from a patent advisory service based in d.c., and they have actually gone through and look at these, and it looks like rather they were trying to buffer the thing that the android system was already doing and may have been violating other patents, so they wanted to build up the patent profile that they had.

Crawford, on top of what i do not understand, on top of what he just said -- you did not understand what i said?

No.

you on or what -- honor what erik said.

Why they messed around with the handset operation for 22 months.

We know the ceo of lenovo -- at least he and eric schmidt had conversations around the time the deal was done where he expressed an interest, and google just proceeded to lose money for 20 straight months.

Why>?? this is where the deal was inside out.

Google made a mistake, and they should have done the separation early.

When you are already established as a smart phone maker or with any technology, for that matter, the idea of building an interdependent rotted, where you are going to meld the hardware and software together -- the idea of building an independent product -- i think google kind of lost sight of it.

They got intoxicated by starting out that way, and they have learned from it.

You cannot move from being an open architecture to something that is welded together, and i think that was a mistake.

You think samsung, the largest seller of google software, do you think that samsung likes seeing motorola -- no.

That is exactly what we were talking about at the time that google did the motorola deal.

How do you supply software to the companies that are ostensibly your competitors?

Recognizing the mistake.

Google recognize the mistake, but microsoft has not recognized the mistake.

The nokia handset.

Admittedly.

That said, google did not need motorola, someone else selling motorola phones.

They need nokia to survive.

Crawford, let's talk a little bit about that.

I would just jump in on that and basically say to further that point, their are a few things that are different about the nokia deal than the google deal.

Microsoft is in a position where they do not have anybody else building their phone, so they can meld them together to build a different experience.

Additionally, nokia had something like 70 carrier billing relationships around the world, which means you buy the game, you pay for it directly on your phone bill, which was really, really important to microsoft and affects their abilities to work with companies around the world, a very different deal.

And there is access lenovo did not have before but will have now.

Totally agree, and i think that was a big motivation for this deal.

Can we for a moment compare lenovo buying be motorola business and the other?

The idea here, google, in theory, supports lenovo manufacturing the handsets, and they become proselytizers for the google operating system, but just how much good was it for lenovo buying the ibm system?

All of them run microsoft.

Particularly with the ibm system that lenovo bought, they thought they could really get into china as that i.t. structure grows.

They could be even stronger with this set of phones from motorola.

Do you agree that this is a china plate for android more than anything else?

I think it could be a china play for android.

The ibm deal with lenovo, what lenovo wanted there also is they wanted relationships and the thinkpad brand, and they leverage to that with resellers all around the world to have basically a very premium product, and i think that is maybe the mistake year, is that motorola is no longer a premium phone brand -- maybe the mistake here, is that motorola is no longer a premium phone brand.

It will come down to how much those carrier relationships are worth and how fast they can resurrect the brand.

There might be a problem there.

I will also say, let's not ruled out the fact that there is a lot of students in china.

This does sort of increase the conversation between lenovo and google and potentially opportunities to do some innovative things on the client side in china, so don't ruled out those kinds of possibilities, as well.

I think that is an interesting point.

From the 30 thousand foot level, big tech mergers just don't work.

Name one.

I cannot think of a single big- tech merger that has worked.

Hold on.

That is a big statement.

Crawford, can you think of one?

I think efc.

Totally agree, but that was not a big company in the purchase.

Android was a tiny, little thing when it was purchased.

This text has been automatically generated. It may not be 100% accurate.

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