August 15th, 2011
11:12 PM GMT
London (CNN)–Google's $12.5 billion acquisition of Motorola is a huge bet both financially - this being its biggest ever acquisition - and strategically.
Android, the operating system which Google built and developed to bring its money making services such as Search to the mobile phone, dominates the low-to-mid price smart-phone market.
It does this by offering phone makers such as Samsung and HTC powerful software to run on their hardware. With this set-up the phone makers do what they do well - make the phones - while Google provides the software.
By buying Motorola Mobility, a hardware company, they appear to be shifting away from that strategy.
So why do it?
According to analysts and commentators, patents are most likely at the top of the list.
To put that in context: Currently there is something of a patent war happening between technology companies, with significant figures being paid out in settlements when disputes arise.
The technology industry appears to be moving toward a sue or get-sued world, so it is crucial as a main player to have a cupboard full of watertight intellectual property to barter with. Last month, for example, a consortium of six companies including Apple, Microsoft and Blackberry maker Research In Motion paid $4.5 billion for a pile of patents from the bankrupt Nortel Networks, but Google decided to pass on the deal.
Motorola - with one of the longest histories in the mobile communications space - owns one of the best patent portfolios, including intellectual property over 2G and 3G technology. Google, with this deal, will now own those assets.
Even so, $12.5 billion would be a very expensive patent portfolio. It is, of course, not all that Motorola has to offer. The company is a blue chip hardware business, focused on two of the hottest areas in tech: Mobile and internet TV.
TV is ripe to be shifted entirely onto the web. Whichever company is successful in leading the way will chalk up a huge win.
As Larry Page, Google's founder and new CEO noted in his statement; "With the transition to Internet Protocol, we are excited to work together with Motorola to accelerate innovation in this space."
Google will face challenges. There are few companies who can do software and hardware well. Benedict Evans, of Enders Research, follows the sector and says the challenge will be how Page, as Google's leader, will deal with owning Motorola.
"There will be a concern that they'll buy it and run it into the ground because they think that they know better than all the Motorola guys, so there is a major execution concern here," Evans says. "There's going to be a massive culture clash and Google need to be very careful in finding the right balance between innovation and humility."
And so, Google will now look to shake out results from one of the biggest acquisitions in the tech industry's history. This deal will be dissected for days and weeks to come, with more insight into the logic revealed as the industry investigates the details.
One thing today's news does show: Google remains a company comfortable making the bigger bets. And in the technology sector, more than any other, it's critical to move with the times.
From around the web
About Business 360
CNN International's business anchors and correspondents get to grips with the issues affecting world business, and they want your questions and feedback.