Google Motorola Takeover Essay Example

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.

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 oftware 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, Google relies on 39 manufacturers (Rusli, 2011) - like Samsung, HTC and Motorola - to make its gadgets.

These manufacturers use different versions of AndroidTM, which Google cannot control, resulting in variable performances. For

the gadgets to work properly OS has to be constantly updated. But on many AndroidTM devices this does not happen and customers are beginning to cotton on (Garside, 2011). Apple, by contrast, controls its entire product — device and software. With an acquisition of a hardware manufacturer, Google, too, could exert greater control over its products.

If Google doesn‘t want to loose customer trust it had to take action in this field. Google needs to control more stages in the vertical chain of production to stay in the lead. With the acquisition of Motorola Google makes a move in the vertical chain. By controlling another stage in the vertical chain of production, the manufacturing of the gadget-device, has more control over its products and Google can also generate growth in an vertical way. As stated above the markets were Google and Motorola operate in are strongly related, but also diverse.

Both markets however are in a way in the same vertical chain of production. Especially if we compare the Google-Motorola-combination with RIM and Apple. Therefore in this specific case Google‘s vertical growth is closely related to its diversified growth. By this diversified growth Google can also reduces the risk from loosing customer trust as stated above. When controlling the manufacturing of the gadget-device the risk of a non-functional AndroidTM OS can better controlled.

Google‘s growth strategy has an additional advantage. By controlling more stages in the vertical chain and diversifying its portfolio Google can exploit the principles of economies of scale and  economies of scope. By doing so it reduces long-term average costs. As a result prices can be decreased. Since the

gadget-market is a highly elastic market and taking the  law of demand (Ceteris paribus) into consideration this will result in higher customer demand and increase of the market share in short- and long-run.

Reflecting Andy Rubin‘s comment on the acquisition of Motorola (Halliday, 2011) it seems that Google does not see it as a potential anticompetitive action. By assessing  Porter‘s five forces model (figure 2) on the gadget-market we can determine the level of competition in the market. Threat of substitute products With the Motorola-deal Google will attempt to gain more control on the entire product and by doing decreasing propensity of customers. Hereby controlling the threat of substitute products.

Porter's five forces (Porter five forces. png n. d. ) Bargaining power of customers In the gadget-market price sensitivity is high, resulting in quick switching from customers to other devices and OS. With the acquisition Google can exploit ? economies of scale? and ? economies of scope? to decrease its selling price and keeping customers to stick to Google‘s products. Bargaining power of suppliers For Google there are lots of suppliers (39 at the moment (Rusli, 2011)).

If Google wants to keep its market share it needs these suppliers to sell AndroidTM. The Motorola-deal is a gamble, Google has a chance now to make phones as good as Apple's, but if rival manufacturers feel pushed aside, they could desert the Android ranks (Garside, 2011). Threat of new entrants In the gadget-market patents are needed to accelerate innovation in smartphones and tablets. With the acquisition of Motorola Google added roughly 17,000 patents, as well as 7,500 patents that are under government review, to

its portfolio.

With the patents Google is able to defend itself in this fastgrowing market (De la Marced, 2011), where warfare over patents is leading into lawsuits and paying of royalties for the use. Entry barriers are high and with a good patent portfolio Google does not need to get involved in the million-dollar-consuming warfare. Competitive rivalry within the market The competitive rivalry within the gadget-market is extremely high, with patent battles on daily bases.

The urge to get customer satisfaction and shifting it from one OS and / or device to another makes the market one of top-level performance. Although the number of firms is limited, stakes are high with an expected industry growth of approx. 8-9bn devices in the next 10 years (figure 1). The market has the character of an oligopoly, where strategic interdependence exists between few large players in the market. Especially when looking at the ? patent war? the entry barrier is high for other firms to penetrate the market.

Finalizing the evaluation of the Google-Motorola-deal we can conclude that from a growth perspective the acquiring of Motorola Mobility by Google is a logical decision considering future growth perspectives in the gadget-market to an astonishing 10bn devices in 2020. With this diversification of its product portfolio and the growth in the vertical direction of the production chain as a result Google can also manage to keep customer trust by producing better products at lower pricing level. It also gives Google the opportunity to develop devices as user-friendly as the Apple.