Thursday, October 18, 2012

Google, Motorola, and Android

When Google purchased Motorola's cellphone business, it became vertically integrated.  In other words, it now owns produces the mobile phone hardware and the software, much like Apple.   We all know that Steve Jobs extolled the benefits of vertical integration in the various businesses in which Apple competes.  He believed fervently that one could only produce a "magical" device if you made both the operating system and the hardware.  

Vertical integration has many benefits, but it also comes with certain challenges.  In particular, it can be quite challenging when you start out competing in one portion of the value chain and then enter a downstream business.  Google did so when it began by making Android and then acquired a cellphone maker.  In so doing, Google now has entered into competition with its customers.  After Google's customers for its Android software include Motorola's competitors: Samsung, HTC, and the like.  That competition with customers can be a tricky thing to navigate at times. 

According to this article in Fast Company by Farhad Manjoo, Google has chosen to deal this sticky situation by "erecting a firewall between Android and its new Motorola division. The new rules ensure that Motorola's hardware teams get no more access to Android's engineering teams than any other device maker would."   Surely, the firewall helps allay customer concerns that Google may be favoring its internal Motorola division over other cellphone makers.  On the other hand, such a firewall clearly diminishes the very benefits of vertical integration that presumably drove Google to make the deal in the first place!   What's the explanation here?  Could Google have underestimated the push-back from customers when they made the acquisition?  Or has Google chosen this firewall strategy as a temporary transition mechanism as they work through customer relationship issues?  Surely they won't leave the firewall in place forever, will they?  If so, then why buy Motorola at all?  What value does owning the hardware business bring if you don't make the software and the mobile device work together harmoniously?

1 comment:

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