Today’s announcement of Google acquiring Motorola Mobility for $12.5B was quite a surprise and has all sorts of angles to consider as to why and whether it’s good or bad.   Here are just a few ways to look at it.

The rise of Android has been nothing short of spectacular and has completely changed the landscape for handset manufacturers.     Gartner’s recent Q2 stats on the mobile device show the story.

In the span of 2 years, Android smartphones have gone from 1.8% market share to 43%.   The losers in this race have been Symbian, RIM and Microsoft.   The effect on the overall device market is equally dramatic with smartphones now accounting for about 25% of all mobile device sales worldwide with a growth of 74%.   Here are the major players over the past 5 years.

As can be seen, Nokia is taking a beating as the market leader, as is Samsung, LG, and Sony Ericsson.   Motorola is also one of the big losers having significantly lost its #2 position in the market since 2006.   It has managed to somewhat stabilize recently with the shift to Android devices.  An interesting note is the rise of “Other” to the leading position in the past year, indicating the market is becoming increasingly fragmented as newer players, particularly from China, are entering the market.   This will also be a trend to keep an eye on.

So while there’s all of this cataclysmic activity going on, there is one other interesting piece of information not revealed by these charts - who’s making the money. While Apple accounts for only 5% of the unit devices worldwide, it is taking 66% of the industry profits and sucking the air out of the room.   Note that Nokia’s profit is at about ZERO, as are a number of others including LG, Sony Ericsson and Motorola.   (Google doesn’t show up on this chart, but it would be interesting to see the numbers if you included indirect profits generated by mobile devices, such as for search and m-commerce. )

So what is Google gaining by this acquisition of Motorola? Here are some thoughts:

1. Patents – Motorola has one of the richest mobile patent portfolios in the world and Google needs help.   A common use of patents is as a defensive maneuver - to be able to horse-trade when you’re attacked by competitors. Google recently paid $4.5B for Nortel’s patents, and this increases that inventory significantly.   This could provide a significant determent, or at least deflection, of the increasing legal challenges against Android.
2. Hardware/Software UX – Google is a software company but the market for mobile devices has always been about the sexiness of the hardware. Apple is still the king here, continually pushing the limits and standards of the mobile device hardware world.   Today, Google is entirely dependent on device manufacturers for creating the whole package and experience, specifically HTC and Motorola. Motorola has (or did have) world-class industrial design capabilities that could help Google compete against Apple and the “wait-and-see” combo of Nokia and Microsoft.
3. Price – At $12.5B, Motorola is a bargain, especially compared to the $4.5B paid for the Nortel patents and which aren’t inherently a profit center. The stock price for Motorola has dropped from a high of about $36 earlier this year to close to $20 recently.   HTC has a market cap of double that paid for Motorola and about the same market share.
4. Puts pressure on Microsoft – While this increases the pressure on the device manufacturers, Nokia and RIM, these two are already on the ropes with a trajectory that’s not pretty.   It creates a bit of a dilemma for Microsoft who needs to decide if it now must also go the full stretch of buying Nokia. This has been rumored for a while now and would create the largest acquisition ever by Microsoft.   It would also cost upward of $25B and be a significant risk that Nokia can recover from its free-fall and ever pay back the investment.

The only major risk for Google in this acquisition is that it can keep the rest of its OEM partners on its side in producing devices.   Since Motorola is not a dominant player in the market and because the Android OS is providing significant opportunities for some of these players, it’s likely that there will be no impact for now.   The long term picture is not so clear, however, and it will depend on how well Google leverages its newfound device capabilities – for Good or for Evil.