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Originally published August 15, 2011 at 9:24 PM | Page modified August 16, 2011 at 6:23 AM

Motorola deal gives Google even more mobile muscle

With its surprising $12.5 billion deal to buy Motorola Mobility Holdings, Google is gaining new ammunition for its ongoing patent battles with competitors like Microsoft, while strengthening its position in a tech industry that is moving beyond PCs.

San Jose Mercury News

Video | What Google's Motorola buy means for you

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SAN JOSE, Calif. — With its surprising $12.5 billion deal to buy Motorola Mobility Holdings, Google is gaining new ammunition for its ongoing patent battles with competitors like Microsoft, while strengthening its position in a tech industry that is moving beyond PCs.

Analysts said the deal announced Monday could put Google in a stronger position to compete head-to-head against Apple, which in many ways has set the standard for smartphones and tablets in recent years.

Buying Motorola Mobility will allow the search giant to produce its own mobile devices, with hardware and software designed to work elegantly together, which experts say is one big reason for Apple's success.

Google's Android software is widely used by Motorola and several other mobile device makers, but Google itself has not been a device maker before now.

The deal — Google's biggest acquisition ever — is also part of the Mountain View, Calif., company's efforts to position itself for the future of the Internet, as people increasingly use smartphones, tablets and even the living-room TV set to access the Web.

Google CEO

"It's no secret that Web usage is increasingly shifting to mobile devices, a trend I expect to continue," Google CEO Larry Page said in a conference call announcing the deal.

"With mobility continuing to take center stage in the computing revolution, the combination with Motorola is an extremely important event in Google's continuing evolution that will drive a lot of improvements in our ability to deliver great user experiences."

The deal has been approved by the boards of both companies. It is expected to face close scrutiny from U.S. and European regulators, although analysts and antitrust experts said they expect it will be approved.

If so, Google would take its place among a select group of companies that make both hardware and software for handheld computing gadgets.

Apple, whose iPhones and iPads run its iOS software, is the most prominent. But that group also includes BlackBerry maker Research In Motion, Hewlett-Packard with its webOS software, and the new alliance between Microsoft and Nokia in which Nokia will use Microsoft's Windows software to power all new Nokia smartphones.

In the past year, Android has become the most popular operating system for mobile devices in the world, and is used by larger Android phone-makers Samsung, HTC and LG.

Google vowed it will continue to let other manufacturers use Android on an equal basis, and it released upbeat statements Monday from those manufacturers, saying they welcomed the Motorola deal.

Phone-maker fallout

But several analysts said many of those companies are likely worried that Google will favor Motorola products — by providing the latest features for Motorola phones first, for example — and that their ability to use Android may be jeopardized in the future.

"There's no question this is going to be an interesting opportunity" for other companies that make competing mobile software, said Bob O'Donnell, a veteran industry watcher with the research firm IDC. Device-makers may look at HP's webOS as well as Microsoft's Windows Phone 7 as alternatives to Android, he said.

"Neutral" Microsoft

Michael Gartenberg, an analyst with tech-research company Gartner, thinks Microsoft "is going to be positioning itself as Switzerland here."

"I'm sure (Microsoft) is busy reaching out to its device vendors pointing out that while it has a close relationship with Nokia, it doesn't own Nokia," he said.

"A lot of third-party dealers were not overly thrilled with the Microsoft-Nokia deal," he noted. "On the other hand, they can't be thrilled that they were originally competing with Motorola on a level playing field."

The Google-Motorola deal would "give third parties reason to pause and say: Who's the lesser of two evils here?" Gartenberg said.

That seems to be the tack Microsoft was taking in a statement Monday from Andy Lees, president of the Windows Phone Division.

"Investing in a broad and truly open mobile ecosystem is important for the industry and consumers alike, and Windows Phone is now the only platform that does so with equal opportunity for all partners," he said.

The Motorola acquisition would give Google access to more than 17,000 patents relating to wireless technology held by the cellphone pioneer. That will expand Google's patent holdings by more than eight times as the company plays catch-up in a Cold War-like race among tech companies to build intellectual-property arsenals — or risk destruction as they increasingly sue one another for idea theft.

Having more patents means a company can make money by licensing technology to other companies, or a company can target rivals by either launching patent-based lawsuits or sitting on patents to ward off litigation.

In the past year, for instance, Microsoft has gone after a handful of companies that make Android phones and tablets, either suing or persuading the companies to pay it license fees for some technologies Microsoft contends it has patents for.

Page acknowledged the value of the Motorola patents, saying in a blog post: "Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anticompetitive threats from Microsoft, Apple and other companies."

Analysts said the deal could also boost Google's faltering efforts in Internet-connected TVs. Motorola is a major supplier of set-top boxes for cable-TV providers.

"It's reasonable to assume that Google expects that working with Motorola will give them access to a lot of the decision makers in the cable world," said Gartner analyst Andrew Frank.

The decision to buy Motorola underscores the growing importance of mobile computing to Google, which draws most of its revenue from selling advertising associated with Internet searches.

Google's lead in mobile search is thought to be even greater than its search dominance on desktop computers, and Google executives believe as much as 80 percent of the company's revenues may come through mobile devices in the future.

Separate unit

Google said it would run Motorola Mobility as a separate business.

Illinois-based Motorola Mobility became a stand-alone company this year after venerable electronics manufacturer Motorola decided to split its operations into two independent units.

Its sibling, Motorola Solutions, focuses on commercial data and telecommunications systems.

Google said it will pay $40 a share in cash for Motorola Mobility's stock, a premium 63 percent higher than the stock's closing value Friday. Shares in Motorola Mobility closed up 56 percent Monday, while Google closed down 1.2 percent.

Information from Seattle Times technology reporter Janet Tu and The Washington Post is included in this report.

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