Google Finally Opens Its War Chest

Google has acquired dozens of companies over the last two years, and perhaps 100 over its lifetime, but never has it shelled out so much cash. The $12.5 billion bid represents roughly 30 percent of Google’s current cash and securities total. It’s a bold move, akin to what most analysts might have expected from Apple.

Motorola has more than 17,000 patents, with 7,500 more pending. This sort of high-tech protection made the buy a no-brainer for Google. “The bottom line is that while the acquisition may not necessarily accelerate the Android adoption curve, we believe it will afford Google and its handset partners protection as Android continues to grow,” said Piper Jaffray analyst Gene Munster in an Aug. 15 research note. See the patent portfolio chart from Global Equities Research here.

Apple and Microsoft forced Google to trigger this deal after they outbid the search giant for Nortel Network’s patent portfolio, which includes core wireless and 4G LTE (Long-Term Evolution) patents. Motorola Mobility CEO Sanjay Jha said he has patents that were “non-essential” that will protect Google in the long run from future suits. Indeed, Motorola’s current patent position wasn’t strong enough to prevent Microsoft and Apple from suing it late last year. Patent expert Florian Mueller told eWEEK: “Apple and Microsoft sued Motorola last year and presumably analyzed Motorola’s portfolio beforehand but decided to litigate anyway.”

In one key way, Google is following in Apple’s footsteps with this deal. While the deal is being made to protect against Apple’s rampant patent litigation versus Android OEMs, the deal will enable Google to join Apple as a phone maker that offers the OS and application stack along with the hardware.

The timing is good for Motorola, whose CEO Sanjay Jha said as recently as last week that he would consider building phones with Microsoft Windows Phone 7, which is the road Nokia is taking. While Motorola struck gold with the first Motorola Droid and followed it up with a popular Motorola Droid X line last summer, the company stumbled with the first Motorola Xoom Android “Honeycomb” tablet and failed to get the Droid Bionic to market in time. Google will give Motorola the financial and Android software support it needs to thrive.

If we’re HTC and Samsung, we have to be wondering what this means for their Android phone businesses. The good thing is that Google could license Motorola patents to partners like HTC and Samsung, which are also being sued for patent infringement by Apple. Even though Android is open source, there is an assumption to be made that Google could give preferable treatment to Motorola. Will, for example, Google continue to build its Nexus phones with HTC and Samsung devices? We doubt this will be an issue, and even Andy Rubin, Googles senior vice president of mobile, said he spoke to the other OEMs. But the situation bears scrutiny all the same.

Of course, if these vendors don’t trust Google, they could abandon Android, which has grown to include more than 150 million Android devices activated worldwide from 39 manufacturers and 231 carriers in 123 countries. And it’s not just HTC and Samsung, the Android smartphone leaders. It’s also other Android OEMs, such as LG, Huawei, ZTE and Sony, as well as tablet makers Acer, Toshiba and Asus. Google and Motorola could force these companies to take a pass on future Android development. That opens up more opportunity for Apple iOS and especially Microsoft Windows Phone 7.

There is one other side benefit Google could gain from this acquisition. Motorola is a major set-top box provider for cable television. Theoretically, Google might integrate its Android-based Google TV software directly into Motorola’s set-top boxes. That would cut out the Logitech Revue companion box that has suffered from slow sales, giving Google tighter integration with the hardware.

Of course, all of this is moot if the bid doesn’t pass regulatory scrutiny. The Justice Department and Federal Trade Commission, which is currently investigating Google for antitrust actions in search (and possibly Android), will put the offer under the microscope just as it did Google’s recent acquisitions of AdMob and ITA Software. But those deals were in mobile ads and search, respectively. Google doesn’t sell a whole lot of hardware, which is what Motorola is all about. The deal should pass muster on that basis alone.

It will be a big blow to Google if the Motorola Mobile buyout falls through. The damage wouldnt just come from the $2.5 billion kill fee Google would have to pay to Motorola. We’re talking about the big miss on Motorola’s massive, promising patent portfolio. Then Google will be forced to buy InterDigital patents, with Apple gunning for them as well. It won’t be pretty if Google fails here.