Google Challenges Itself With Motorola Deal

Since taking the helm of Google (Nasdaq: GOOG ) in April, Larry Page has wasted
little time. He launched the Google+ social network, which is growing at a rapid
pace while trying to attack Facebook, Twitter, Zynga and Skype. Page is also
getting aggressive in mobile, with the company's Android operating system
seeing 550,000 activations per day. Great, but there are no meaningful profits
(the software is free). Instead, it is Apple (Nasdaq: AAPL ) that is cleaning up
in mobile. So to ramp up the monetization, Google has agreed to pay a whopping
$12.5 billion for Motorola Mobility (NYSE: MMI ). By far, it is the company's
largest deal actually, it is one of the biggest transactions in tech history.
Google says the deal is really about getting Motorola's extensive patent
portfolio and this is certainly a key. Google needs to find a way to protect
Android from major legal assaults. However, this may be just a cover. Rather, it
looks like Google wants to radically change its strategy and become a player in
the handset business, and Apple has shown the power of having tight integration
between software and hardware. But there will be some major challenges. First of
all, Motorola may not necessarily be a good choice. True, the company has made
great strides in developing good smartphone models. But they are not sold at
Apple-like premium prices. Motorola has also had an erratic history in terms of
creating popular handsets. What about Motorola's Xoom tablet business? While
it is getting momentum, Motorola only sold 700,000 of them for the first six
months of 2011. During this period, Apple sold a whopping 14 million the iPads.
But perhaps the biggest issue is that Google will essentially become a rival to
its partners, like HTC, LG and Samsung. Funny enough, the company has spent much
time building the ecosystem. But with Google owning Motorola, it's a good bet
that Google's partners will scramble to find alternatives. One possibility is
to team up with Microsoft (Nasdaq: MSFT ). Finally, Google will need to deal
with the mind-numbing complications of taking on a company the size of Motorola,
which has 19,000 employees. There is also the need to manage Motorola's
set-top business. Even though it may represent an opportunity to get a bigger
footprint in the consumer market and boost Google TV it will add to the
managerial complexities. Page has a lot on his plate. It does seem like he
really wants to achieve global domination – and as fast as possible. But this
strategy is downright scary. If history is any indication, pulling off
transformative acquisitions is nearly impossible. Just look at Cisco (Nasdaq:
CSCO ) with a substantial drop in the stock price over the past year, the
company has been working hard to unwind some of its deals and cut costs. Yet
there are some clear winners. Of course, Motorola's shareholders are quite
happy, especially Carl Icahn (who is the largest holder). His stock position is
up more than $470 million today. And another big winner is Apple CEO Steve Jobs.
He must be smiling right now. Tom Taulli is the author of various books,
including " All About Commodities " and " All About Short Selling ." You
can find him at Twitter account @ttaulli . He does not own a position in any of
the stocks named here.