Google’s $12.5 billion purchase of Motorola Mobility has set the technology and investing worlds aflutter, with much of the commentary positioning it as a play by Google for Motorola’s strong IP portfolio. But a single point of focus is incorrect and misses a bigger point: The MMI purchase is the result of Google’s miscalculations about the way value is captured in mobile computing. These strategic missteps placed Google in a position of weakness and forced it into a costly and desperate move.

To understand why that’s the situation Google is in, first we should look at the company’s mobile Android software in the context of Google’s product portfolio. There’s a great consistency with Google’s products: they are services “in the cloud.” All except for one: Android. It’s a peculiar Google product for two reasons.



1) Android is not an end-user application or service. It’s system software; the customer for Android is not the end-user but a system builder or integrator. Typically a phone or device vendor needs to license Android and then build a product which must then be accepted by another intermediary — usually a mobile operator — before sale to the end-user. System software is “plumbing” which, like Windows, enables applications that “run on top” of it. It’s a platform.



2) Android is one of many enablers for other Google services. Google offers the same services on other system software. For example, Gmail and Google Search and Google Maps work very well on iPhones (or Windows). So Google’s own platform is not the only venue through which Google’s money makers can reach the market. Although Google services can run on any platform, mobile platforms are not as open as traditional computer platforms. This means that a platform owner (e.g. Apple or Microsoft) can “turn off” Google services on a whim. By distributing its own platform, Google can thus ensure that its services will have unhindered access to users. In other words, they gain distribution. By being a plumber, Google can ensure that its services will flow freely.

It’s an innovative, if not convoluted, business model: Building and giving away the plumbing so that homes are granted unhindered access to free Google utility services (whose meter readings are sold to the highest bidder). But it comes with more complications.

When it took its approach to mobile software, Google made a big bet that smartphones and tablets were sufficiently mature and thus could be built in a way that didn’t require Google owning all points of the value chain. For the last year it seemed that Google bet right. Android was very quickly adopted by licensees to the point that it achieved nearly 50% share in smartphone shipments last quarter.

However, lately, cracks began to appear in the strategy. Issues with intellectual property in Android caused some licensees to have to pay royalties to patent holders, increasing the cost. Fragmentation took hold where some versions of the software were used by some licensees on some products without the option or incentive to upgrade. Finally, some vendors modified the software resulting in missing features or inconsistent user experiences — even to the extent that Google’s own services were omitted.

All of these problems are a direct result of the approach Google chose with its big bet on Android. As a consequence, it has become increasingly difficult to ensure that Google’s revenue-generating services are properly “flowing” to the end users. The smartphone as we know it today is not good enough or mature enough to support Google’s initial strategic approach with Android. The big bet may have been lost.

Instead, with Motorola, Google got a hold of the vehicle through which it can create and sell integrated products. The company is thus no longer just a plumber but also a house builder and real estate developer. It can now build showcases that demonstrate the value of its services. The challenge then is how it will sell plumbing to contractors while it also competes with them by building houses. Android’s big bet has yet to pay off and Google just doubled down.