They say war makes strange bedfellows, and so does business. Google announced its acquisition of Motorola Mobility Inc. (MMI), the recently spun-off cellular handset and set-top box maker. MMI primarily sells its products to telcos–cable and wireless/wireline service providers, customers that Google has had a tenuous relationship with at best. Google has been a force behind net neutrality regulation in the US, trying to prevent being charged for providing its services across Internet providers. However these same providers watch the traffic on their networks (YouTube being the number one instigator) increase with content from a variety of sources gaining share from Google and others. These service providers are fighting for their mind and revenue share, and fighting with Google about who pays. And so are they going to trust Google/Motorola Mobility, will they continue to buy phones and set-top boxes from them?
Everyone is focusing on the handset manufactures in this deal. Can Google continue to support Samsung and HTC as well as compete against them? This scenario has never succeeded in the mobile industry. To me, the real interesting part of this deal is how will the telcos react? Since they know Google would like to take over the content delivery business, albeit riding on their pipes, how far will they let them go? And do telcos have a choice? Today, customers can get content from a variety of sources on the Internet and stream it to their mobile tablets, smartphones, TVs and PCs–without a box from a provider (though they still need a connection). The providers have locked in content–with premium channels like HBO–but how long will that last? Consumers are looking to NetFlix, Hulu, MLB and others and will eventually stop ordering cable TV. This deal is just another blow to the traditional telcos, pushing them further towards commoditization and being a pipe. How will they fight back? Is their future only in providing the connection? This will be interesting.
One thing for sure though–it has changed the mobile handset market forever, with names like RIM, Nokia and Motorola no longer driving the market, but for the foreseeable future, Apple and Google. Today software and content are key to success in the market, not how small or how cool your phone is. It’s a welcome change.
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