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Why Lenovo's buyout of Motorola is bad for you

Why would a corporate buyout concern us? Rajiv Makhni explains how having fewer big players in smartphone market would mean less competition, more monopolistic practices, higher prices and lesser innovation.

brunch Updated: Feb 17, 2014 15:21 IST
Rajiv Makhni
Rajiv Makhni
Hindustan Times
Motorola,Google,Moto G

Let me be clear from the start. I have nothing against Lenovo. I think it’s a great company – it’s the number one PC vendor in the world; it took on the IBM PC business and made it a better brand; it’s just bought out IBM’s server business and is taking it to great heights; it’s one of the few companies trying new things in the tablet market; and it’s a growing force in the smartphone business. I have great respect for the company and its business model. My problem lies with Google and what it’s doing with these knee-jerk reaction deals. Let me elaborate...

Why Google bought Motorola for $12.5 billion

Beats me! If this was a patent acquisition, then it was too expensive. There were better, cheaper ways to get the same. If this was to get a foothold into the smartphone hardware business, then it’s even stranger. Google was already doing a brilliant job with ‘Nexus’ and its outsourced business model. They were getting awesome smartphones and tablets made by LG and Asus, were reinventing the market and creating new standards in hardware and price points. By buying Motorola, Google made their Android partners nervous as it seemed they wanted to compete directly with their own hardware brand.

Motorola’s Project Ara is a modular smartphone concept

A Samsung size-cutter and the perplexing aftermath

A more plausible theory is that Google bought Motorola to cut its biggest Android partner to size. Samsung is pretty much the Lion King of Android and that makes Google nervous. But that theory also gets dashed with what Google has done with Motorola after its acquisition. It cut almost all international operations, withdrew the brand from multiple countries, cut staff by more than 6,000, released almost nothing new for a long time and racked up serious losses every quarter. Not a message to send out to Samsung to not get too big for its boots. Some chalk it down to Larry Page and Andy Rubin being seduced by the idea that they could own an iconic brand like Motorola and didn’t think things out. I’m going to veto that one too. These two aren’t known for sentimental outbursts. So it’s still a bit of a confounding mystery.

Why Google sold Motorola to Lenovo for $2.91 billion

So you buy something for $12.5 billion and sell it a short while later for $2.9 billion! Not a smart move, is it? Well, it is, for many reasons. First, they’d hived off the Motorola set top business for more than $2 billion. They’ve also retained the patents that are worth serious money. They’ve also kept the most wild and wacky part of Motorola, the Advanced Technology and Projects group (this is where Project Ara was born and where the world’s first modular phone in collaboration with Phonebloks may come out from). Add to that the fact that Motorola was losing about $250 million every quarter (that’s a billion dollars a year), which is not a pretty sight on any balance sheet. The selling of Motorola is also a confidence boosting measure to all Android partners that Google won’t directly compete with them as a hardware brand. So, all put together, this seems like the right thing for Google to do. So why am I cheesed off?

Lenovo, with products like the Vibe X, is a growing force in the smartphone business

The idealistic, romantic, overemotional wreck that I am...

I believe that brands are living, breathing entities too; I believe that the legacy Motorola created is now being bounced around like a ping pong ball; I believe that Google should’ve made Motorola a priority and taken the company and its products to lofty heights; I believe that the company that invented the mobile phone shouldn’t be thrown around like an orphan child who no one wants; I believe that the Motorola that stood for something truly iconic may soon no longer exist; I believe that the business world of mobile phones may soon consume the aura and story of a company once called Motorola. Okay, sappy rant over, time for some real facts.

The future of mobile phone brands
It is predicted that in about five years only five major brands of mobile phones will remain worldwide. All others will either be acquired or fall by the wayside. That’s a scary prospect, but even if one was to discount the doomsday exaggeration part, most of this process has begun. Microsoft taking over Nokia was the first catalyst, Lenovo buying out Motorola is the second, up next may well be BlackBerry, HTC (rumours suggest that Lenovo may lead the charge there too) and a slew of other big brands may well get snapped up in the next two years. The fewer the number of brands, the less the competition, more monopolistic practices, higher prices and lesser innovation! Not exactly a rosy future for consumers.

The Moto G is an elegant, understated and innovative phone at a great price point

What Lenovo should do with Motorola
Lenovo is a smart company that knows that an acquired brand should be nurtured. But mating two different cultures isn’t an easy task. So hopefully, this is what it will do. It’ll keep the soul and spirit of what Motorola is all about. Ever since Google bought out Motorola, it’s mainly come out with two phones – the Moto X and the G. Both are understated, innovative, have excellent hardware, great price points, and may well be the best in their category. Lenovo has to keep that legacy going. No bloatware, no add-on skins that destroy the OS experience, first on OS updates, and a reputation to lead from the front on hardware, experience, and price points.

Motorola opens up avenues and territories for Lenovo that it couldn’t have dreamt of getting into (including the tough US and European markets). It’s got to make sure that it keeps the brand, its people and its legacy alive. If Lenovo falters on any front, it will take an already weakened giant like Motorola and bring it to its knees. And the next headline may well be the sale of Motorola to Micromax for a price of about $25 million!

Rajiv Makhni is managing editor, Technology, NDTV, and the anchor of Gadget Guru, Cell Guru and Newsnet 3

From HT Brunch, February 16
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First Published: Feb 15, 2014 16:38 IST