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Google's Motorola Acquisition Shifts the Battle

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Most companies try to defeat their competitors by beating them at their own game. Great companies change the game and the playing field. Google's acquisition of Motorola Mobility does just that. Most see the acquisition as Google's effort to gain control over the hardware platform for Android phones, and to obtain a new war-chest of patents. It's more than that.

This is your living room. This is your living room on Android. With Motorola Mobility comes Motorola's set-top box business. Motorola has spent decades earning the trust of cable companies to control the gateway into consumers' homes. No small feat. It is that lack of trust that doomed Microsoft's set-top dreams after buying WebTV Networks Inc. for approximately $425M. It's one reason why cable operators rebuffed Tivo and built their own DVR boxes. If Google can keep that trust, it can sell into a massive install base of cable subscribers who would love a better user experience and haven't yet ditched their cable box for Samsung's SmartTV, Apple TV, and the like.

Apple TV hasn't become "THE" product the way that the iPhone and iPad were from day one. Perhaps this is because Apple TV doesn't integrate broadcast feeds, cable feeds or Hulu, or because Apple charges for TV episodes. Even so, it is such an elegant product that Apple is reportedly selling half a million Apple TVs a quarter. If Apple TV becomes "THE" product in the living room -- the one everyone wants if they can afford it -- the value of incompatible Android phones and tablets will suffer. And vice-versa. So by buying an "Android phone maker," Google forces Apple to get to the living room faster, treat it as mission critical, and race towards an install base that Motorola has built over decades.

Apple's quiet, sweet, unassuming Borg is AirPlay. AirPlay is a comprehensive networking technology that will let Macs, iPads and iPhone move music and video to anywhere in the home, wirelessly, provided what's on the other side is an Apple product or a consumer electronics device enabled by AirPlay. So far, few besides Apple have enabled their products with AirPlay. But the more Apple products you have, the more AirPlay-enabled products you will want, and then -- all resistance is futile. Apple owns the home.

Unless, Apple finds Google sitting comfortably on the couch. In addition to set top boxes, Motorola Mobility manufactures other products you might find around your house. The kind you find indispensable. Cable modems, DSL modems, routers, Bluetooth headsets. Even baby monitors. While Apple has been rolling out AirPlay, Google has built a toolbox of all-encompassing technologies (Project Tungsten, Accessory Development Kit, others) for controlling media and devices. Yes, you can stream media around as Google showed developers in May 2011. But you can also control your lights. Your alarm clock. Just about anything. Integrate all of this and you have a home that knows to turn off the alarm and turn on the lights when it sees you and your Bluetooth headset coming back from work. A home that automatically shifts the Pandora stream from your phone to your living room as you enter. And then plays lullabies when your baby starts crying.

We doubt that any company will ever equal Apples ruthless capability to make products that consumers adore. Motorola Mobility will not be much of a help there. However, Google TV might benefit from MEDIOS, which Motorola Mobility recently launched. MEDIOS is software system that integrates web and walled-garden content, offers onscreen guides, and lets consumers use it on multiple TVs and devices that know how viewers wants to see it. It even facilitates social viewing. It's designed to satisfy the needs of content owners and cable operators -- stakeholders that Motorola Mobility knows well.

The MEDIOS development team is either re-energized or terribly scared for their jobs. At least they have seen their stock price go back up to where it was in February, and may now have a chance to make products for a brand with verve. The Motorola Mobility team increased net revenues to $2.4 billion in the second quarter of 2011, an increase of 41% compared to net revenues of $1.7 billion in the second quarter of 2010. Much of that was Android. But the team also increased net revenues of set-top boxes by 10% in that same period -- a period that ended with 500,000 fewer cable subscribers.

Hey, Let's Sell to the Biggest Customer in the USA, Set the New Standards and Create a Channel for Entrepreneurship. The federal government had a $80 billion IT budget. Smart IT venders also notice that state and local government buy quite a bit. Unfortunately, to sell to the government you need a government contract. They take a long while to get, and even then, the government needs to decide that they actually want to buy what you can now sell. Rather than take this arduous path to near-certain failure, IT companies partner with an old, old "gatekeeper" that has long-established government contracts and sales. For example, Motorola.

When Motorola split into Motorola Mobility and Motorola Solutions, all the government products and sales went with Motorola Solutions. However, we suspect that old ties have stayed in place and that it is easier for Motorola Mobility to partner with Motorola Solutions than, let's say, Apple. ***Google wants to sell Android devices, cloud-based apps, and services to the Feds. Motorola Solutions has the contracts to do so. A sampling here and here.
In Q2 of 2011, it sold $1.3 billion of the stuff. In one quarter.

Meanwhile, Apple has partnered with.... Unisys. Bloomberg reported in October 2011 that Unisys will "provide maintenance and other services to companies and government agencies that purchase Apple devices." Nice, but not quite on par.

Google leapfrogging past Apple to get to government customers would have two very powerful effects. First, smaller tech companies that want to target the government (e.g., to sell cloud-based healthcare IT to Medicare, or to sell specialized Android tablets to the IRS) might be able to do so through partnerships with Google, and would become more valuable to Google in an acquisition. Currently, VCs shy away from start-ups that might face a two-year sales-cycle to sell to government customers. If Google can facilitate that channel, it would pave the way for a queue of start-ups that can innovate with Google technology and sell it in volume to government.

Second, our IT standards for networking, operating systems, database topologies and other things that you shouldn't mention on a first date have historically been set according to the products that the Federal government buys. The closer Google gets to the Federal government checkbook, the more likely it will set the standards.

To defend against a punch to the head, pull out the rug. Oh yes, the patents. Apple's ongoing patent battles focuses on the smartphone and how to use the user interface to utilize all of the phone's functions. It's where Apple has dominated, innovated and, we guess wildly, built its patent portfolio. We haven't had time to look through the Motorola Mobility patent portfolio, but we have noticed that the patents that Motorola is asserting in the Apple v. Motorola wars focus on fundamental networking and radio technologies. Included are patents over antennas, cryptographic protection of data streaming, digital speech encoding, and packetizing. Patents focused on fundamental technologies prove more difficult to design around than those that cover interfaces to fundamental technologies.

Who will win? Apple and Google are both outstanding companies that have changed the daily lives of everyone who's lucky enough to have enjoyed their products and services. We hope that they both win. As these titans have battled, we've been the ones winning. Now that's a game-changer.

This post was co-written by Stephen Estes and Adam Ettinger. As an attorney, Adam helps entrepreneurs build great companies, focusing on ecommerce, online and mobile apps, network services, and online marketing and adverting. However, he is not advising you as your attorney via this post, and you would be foolish to rely on it in any way. Full Disclosure: Adam Ettinger previously represented Apple and Tivo as a clients and still has their products littered about his house.

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