Google Motorola Takeover

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Business Economics Report | 5

2 Essay – Microeconomics
Evaluate the decision by Google to buy Motorola. What economic concepts would support this investment and in your opinion why might the purchase of Motorola be anti-competitive? “We are on a turning-point in the world of personal technology. For around 30 years PCs in various forms have been people’s main computing devices. Now the rise of smartphones and tablet computers threatens to erode the PC’s dominance, prompting talk that a “post-PC” era is finally dawning.” (Miles, 2011) On August 15 Google announced a $12.5bn deal to acquire Motorola Mobility. Until then, Google was known for its search engine and AndroidTM Operating System (OS). It had always avoided involvements in the hardware market in the past (Halliday, 2011). So therefore this was a quit exceptional deal and also Google‘s biggest acquisition so far. This deal will allow Google to step into the market of making both smartphones and tablets, a new, big step in the gadget-market1. Where it avoided involvement in the hardware market in the past, it is now turning itself into one of the main competitors for RIM‘s Blackberry and Apples iPhone. In acquiring Motorola Mobility Google will pit itself against manufacturing giant Nokia wit hits strategic partner Microsoft. But does this deal supercharge Google and its AndroidTM ecosystem? This essay will attempt to evaluate Google‘s decision by looking at the underlying economic concepts and will draw up an opinion on whether the purchase is anti-competitive or not.

The rise in the availability of network connectivity, online services and social networking has shifted the focus in the Technology Industry from corporate customers to consumers. By blurring the line between working and personal life a new tech landscape is shaped that offers consumers access to computing almost anywhere. Smartphones are at the forefront of this change. A shift in a more consumer way of developing technology, where Apple led the way with devices such as the iPod and iPhone - a trend that tech types refer to as the ―consumerization‖ of IT (Wikipedia, 2011) - created a new market, the gadget-market. The demand in the gadget-market has grown rapidly in the last few years and is predicted to grow explosively in the upcoming years (figure 1).

Figure 1 | Growth of the gadget (*forecast) (20111008_SRM111.gif n.d)

1

Gadget-market: The market for mobile devices (eg. smartphones, tablets, etc)

Business Economics Report | 6

The gadget-market can roughly be divided in three segments, hardware (eg. smartphones), software (eg. apps like Notes Plus, Angry Birds) and Operating Systems (OS). Google now holds a strong position in the latter. With AndroidTM Google holds 52.5% market share (Gartner, 2011) in this segment (table 1).

Operating System Android Symbian iOS Research In Motion Bada Microsoft Others

Unit (x1,000,000) 60.49 19.50 17.29 12.70 2.48 1.70 1.02

Market Share (%) 52.5 16.9 15.0 11.0 2.2 1.5 0.9

Table 1 | Worldwide Smartphone Sales to End Users by OS, 3Q11(Gartner, 2011)

What could Google do to keep its advantage to its competitors in the future? The most feasible option is to grow! The three main growth options will give an first insight in decision of Google to buy Motorola. The options are horizontal and vertical growth and diversification. Looking at horizontal growth it is not likely that this growth option can be taken into consideration. Motorola and Google are two diverse companies, which are manufacturing mobile devices for Motorola and developing ―software‖ for Google. But operations of both companies have a strong relation in the gadget-market. The relation and the strong interdependency of both growth options makes evaluation of vertical and diversified growth option more likely. For Google growth in the vertical chain of production could be interesting. The huge gap with its main competitors is also Google‘s major concern. Unlike Apple,...
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