The patent war: providing new revenue streams to outsiders, slowing down Android

The patent war has been raging lately among the titans of the mobile industry, with Google Legal Chief Officer David Drummond illegitimately complaining about Microsoft and Apple "ganging up” against Android using patent litigation. With Apple dominating the mobile market, companies have found an easier way to make revenues by banking on the success of Android instead of building innovative products.

The best example is probably Microsoft, which makes more money from the Android royalties than it does with Windows Phone 7. Oracle stepped into the battle in August last year, suing Google over alleged patent infringement associated with Oracle’s Java software used in Android, claiming billions of dollars in damages. More recently, Samsung was forced to halt/delay sales of its Galaxy Tab 10.1 in Australia and in Europe, after Apple filed a law suit for patent infringement of its iOS.

In that hostile environment, Google may have made a good decision by acquiring a valuable patent portfolio (over 17,000 + 7,500 pending) for a somewhat "reasonable” price, giving it a better chance to fight back on the mobile intellectual property (IP) ground. However, it could create some unexpected side effects and more battles to come.

Patent acquisition was a priority, but what about turning valuable partners into competitors?

At its core, Google is not a hardware company and the Internet giant is all about search/web with a noticeable absence of the "design” gene. Most people in the industry agree that this acquisition primarily aims at protecting the company against multiple patent litigations (or allow for a counter-suit), and is not really a move to rush into the handset manufacturing market, which is now a (big) side effect.

Samsung and HTC have both greatly helped the Android success by building state-of-the-art hardware on top of it, and we all wonder what will be the reaction of these valuable partners when Google will enter the arena as a new competitor, with possibly a slightly more advanced version of Android. That said, chances are that in the next generation of devices, Google will make sure that its most important partners can launch the next Android at the same time that Moogle does.

My take on it: it might be a great opportunity for Windows Phone 7. Except for the lack of key applications, WP7 is an excellent mobile OS with a compelling user experience and sexy look and feel. I expect Samsung and HTC to maintain some vendor balancing between Google and Microsoft, now that their main OS provider has become a competitor, literally overnight.

The lack of design sense of Google, and Motorola’s mixed track record, might give HTC and Samsung a slight advantage for a while, but it would be foolish to underestimate the possible threat of Moogle.

Large scale talent acquisition?

Considering Motorola’s recent $56 million Q2 net loss, adding over 19,000 employees to Google’s 29,000 workforce may seem a bit risky. Both companies, including management, have their own cultures and such an acquisition may be hard to manage, even if both companies are expected to stay independent in the near-future.

However we know that the search giant has recently been on a hiring frenzy, especially in the mobile division, so we could bet that some of the Motorola developers will join the Android team.

Very few companies in the world have the expertise to build a compelling Operating System for complex computing tasks (not for my fridge) , whether the device is mobile or not, it requires a very large engineering team and experienced managers, especially for maintaining backwards-compatibility over decades. The Motorola acquisition might help for this goal – although it is important to note that Motorola’s strength was never in the OS.

Will Moogle be like Apple?

In the official press release, Larry Page (CEO of Google) said "Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers”. Structurally, he is right: together, Google and Motorola have the opportunity to act like a vertically integrated company that has a better control of the end-user experience… like Apple. And while, the opportunity is there, Google and Motorola still have a lot of work before the combined companies can prove that it can truly compete head to head with Apple.

What’s for certain is that Motorola can provide valuable information to the Android team, without having to worry about politics. This should make the next generation of products better, for everyone.

What won’t change in the short term, is the competitive position of Motorola versus Apple. Apple not only has an edge in terms of industrial design, it also has a big advantage in terms of purchasing power with its contractors. Because Apple has a very limited number of phone designs, and a gigantic production volume, it benefits from unparalleled prices for anything ranging from raw materials to labor. Apple then re-injects the gains into its industrial design, creating a virtuous circle. This aspect of the business is a key barrier against Apple’s competitors, unless Google wants to use its cash to overcome this challenge…

Conclusion: what will it do for the end-users?

Moogle should make Android better for everyone, thus keeping the pressure on every mobile OS providers such as Apple, Microsoft and others. It’s hard to see anything bad coming out of this for smartphone users. If Google can fend-off legal attacks that block the shipment of Android devices in various regions of the world, this is a good thing for end-users.

We need to keep in mind that Google has acquired Motorola Mobility to "protect Android”. The threat is real, and Google certainly took it seriously enough to justify a $12B purchase