Google (NASDAQ: GOOG ) isn't afraid to go on shopping sprees. With more than
75 acquisitions since 2006 from the $3.1 billion buyout of DoubleClick to
bolster its online advertising presence, to the $1.65 billion buyout of YouTube
the cash-rich tech giant has made these deals a normal part of its growth plans.
But the announcement this week that Google will be snatching up Motorola
Mobility (NYSE: MMI ) for about $12.5 billion is by far the most dramatic deal
in the history of the company. The partnership could forever change the makeup
of Google and the landscape of the smartphone business, and it might finally
create a gadget that can give Apple (NASDAQ: AAPL ) and its iPhone a run for the
money. Here are the specifics of the deal: The $12.5 billion price tag is
calculated based on a $40 per share cash offer of Motorola Mobility stock, an
impressive 63% premium over Friday's close. Why would Google spend so much
dough on this buyout? First, because its Android smartphone software has huge
momentum right now, and the company is looking to strike while the iron is hot.
And second, because even if Google can't leapfrog Apple to become the premier
smartphone brand, it will make a heck of a lot more money by cutting out the
middle man. You see, Google's Android operating system runs on third-party
devices from manufacturers including HTC, Motorola and Samsung (PINK: SSNLF ).
Think of it like Windows on your laptop where Microsoft (NASDAQ: MSFT ) only
gets paid for the software. The display, chips and other hardware components are
all revenue streams for different companies. This is in contrast to Apple, which
offers its iconic iPhone to consumers start to finish from the software on the
device to the hardware manufacturing to even the point of sale in Apple Store
retail outlets nationwide. It's no surprise, then, that the iPhone represents
about half of all Apple's revenue. In the second quarter of 2011, the iPhone
tallied $12.3 billion out of $24.7 billion. When you can cut out the middleman
every step of the way, you streamline operations and cut costs. That is part of
Apple's success and a model Google clearly wants to imitate.
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