Google, Motorola, and the Future of the Smartphone Market

On Monday, Google made a bold move that shook up the smartphone market. Google acquired Motorola’s Mobility division for a whopping $12.5 billion cash. That’s $40 a share, 63% above Motorola Mobility’s closing share price on Friday. So why did Google do this? Motorola not only came with the ability to make amazing smartphone hardware products, but they also have 17,000 patents, which Google now owns.

This gives Google the ability to become a smartphone software and hardware maker, just like Apple with iPhone and iOS and RIM with Blackberry. The smartphone market is a new market that is still developing, kind of like the automobile market once was, and there’s still room for growth. Eventually there will be a few big players in the markets, kind of like Chevy, Ford, and Toyota who dominate the auto market, with smaller players filling niche smartphone markets like BMW and Hummer.

All the companies are figuring out how to survive. Right now, the only big players software-wise are Apple, Google, Microsoft and RIM. Then we have the big hardware makers, Apple making iPhones, RIM making Blackberrys, and then a slew of others making phones running Android (HTC, Samsung, LG, etc.). It seems that vertical integration of hardware and software is the way to go, just by looking at the success of Apple and RIM. This gives companies the ability to control all aspects of the user experience. This control is lost when companies, such as Google, license out their software to hardware makers. Having complete control of the entire user experience is becoming crucial to the success of the smartphone players.

So now that Google has the ability to make their own Google/Motorola phone, how does this change the smartphone landscape? Well for one, it kind of pissed off other hardware makers who use Android, because Motorola phones will undoubtedly have an unfair advantage and will probably make better Android running phones. This means that HTC, Samsung, LG and others might decide to go with different software, such as Microsoft’s Windows Mobile, or HP’s new WebOS.

Second, Google’s acquisition could lead to more hardware-software partnerships making their own brand of smartphones. HP has done this by buying Palm, so they now run Palm’s WebOS on their smartphones and tablets. Nokia’s partnership with Microsoft means that Nokia is building a new phone running Windows Mobile, and there are rumors that Microsoft might just buy Nokia. Then that leaves HTC, Samsung, LG and other either to choose a platform to make smartphones for, or maybe even create their own software platforms.

Can the market really support half a dozen operating systems though? I don’t think so. But eventually I think each company may find their niche, giving the consumer more options. This will also be beneficial for carriers such as AT&T and Verizon, “They are very, very interested in having more than just a two or three horse race,” says Ben Bajarin, a consumer tech analyst at Creative Strategies in an article in Fast Company. “They want to be able to create more custom packages. Maybe leave the iPhone as premium, have some other devices as mid-tier, but then also have low-end devices that are still smart, have access to their services, and still have software and apps.”

But overall, Google’s move should be good for consumers, “Anytime we get that level of competition–it’s healthy for the consumer,” Bajarin says. “The bottom line is that once the market matures, people become very, very particular about what they want, and it becomes about making sure there is a breadth and depth of consumer choices covered. And that’s where we’re moving to.”

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