The Google-Motorola deal will shake up the Android ecosystem. In fact, it may drive one of the vendors into Microsoft's waiting arms.
Google buying Motorola Mobility is destined to cause a major shake-up in the Android ecosystem, but it's also going to reverberate across the entire mobile space. In light of Apple's success in vertical integration and Hewlett-Packard buying Palm, the Google-Motorola deal could now force Microsoft to buy out one of its hardware partners in order to keep pace with its rivals.
The deal is a big win for Motorola Mobility, which has produced some of 2011's most innovative Android devices — the Motorola Xoom tablet and the Motorola Atrix and Motorola Photon smartphones — but its products have suffered from tepid sales, been a little bit ahead of the market, and have sometimes gotten lost in the shuffle of the burgeoning market of Android devices. Putting the Google brand name on these Motorola devices would immediately give them a lot more marketing punch and consumer appeal.
But, Google is also going to have to deal with fallout from other Android partners. A lot of companies have been rallying around Android over the past 24 months — Samsung, HTC, LG, Lenovo, ASUS, and many more. Google just made all of them feel like second-class citizens in the Android ecosystem. They will start worrying that Google is going to keep its best Android innovations close to the vest, release them on their own Google-branded devices (made by Motorola), and then let the rest of their hardware partners scramble to find a niche to innovate on.
Google Android chief Andy Rubin tried to downplay those fears on Monday. He said, "Our vision for Android is unchanged and Google remains firmly committed to Android as an open platform and a vibrant open -source community. We will continue to work with all of our valued Android partners to develop and distribute innovative Android-powered devices."
Of course, he's going to say that. He has to. However, if you look at the way Google partnered with HTC for the Nexus One, Samsung for the Nexus S, and Motorola for the Xoom — and gave those companies a leg up on the latest Android software — then you have to assume that most of that kind of partnering will be done internally with its new hardware division run by Motorola.
Those worries are going to affect some companies more than others. Samsung isn't likely to get too bent out of shape about it. It is largely a manufacturing company that wants to sell as many devices as it can, and it already has a nice foothold in the Android market and great relationships with lots of telecom carriers. Samsung is more about price and hardware features than innovative design or being first to market. Not much will change for them. The same pretty much goes for LG, even though it's much newer to the Android ecosystem.
The biggest potential loser in the Motorola deal is HTC, a much smaller company that's focused primarily on smartphones. HTC is all about design, innovation, and being first to market with cutting-edge devices like the HTC ThunderBolt, which was the first smartphone to run on Verizon's next-generation LTE network. You have to think that in the future, companies are now going to partner directly with Google for leading-edge Android devices.
This could push HTC toward Microsoft. HTC was originally focused on Windows Mobile devices, but Android arrived on the scene at a time when Microsoft's mobile strategy was unclear, so HTC shifted most of its effort to Google and delivered excellent designs, such as the Nexus One and popular devices like the HTC EVO. Still, HTC has retained its ties with Microsoft. When Microsoft pulled off its mobile reboot with Windows Phone 7, HTC jumped on board as a partner and has produced two of the best WP7 designs — the HTC HD7 and HTC Trophy.
There is still a lot more sales potential in the Android ecosystem than the WP7 ecosystem, so I wouldn't expect HTC to abandon its Google partnership in favor of Microsoft. But I wouldn't be surprised if HTC was suddenly a lot more willing to listen if Microsoft came calling with a buyout offer.
An HTC acquisition would have two big benefits for Microsoft: 1) It would take one of the highest quality vendors out of the Android ecosystem (and the one with the best software layer - Sense UI); and 2) It would help Microsoft bring top-notch devices to market more quickly.
With all of its main rivals — Apple, Google, and HP — now vertically integrated in mobile, Microsoft is going to have to seriously consider whether it has to go the same route. If it sticks to the third-party model alone, it will have a hard time keeping up, since it takes a lot more time to release software and coordinate with vendors than to have hardware and software divisions working hand-in-hand throughout the entire product development life cycle.
There's also one other issue Microsoft has to consider: Nokia. Earlier this year, the two companies signed a huge deal to get Nokia to ditch Symbian in favor of Windows Phone 7 as its primary smartphone platform. If Microsoft bought HTC and started releasing Microsoft-branded WP7 devices, it could sour the Nokia deal and push Nokia to pursue Android devices in addition to WP7 phones. With a Nokia partnership and joint development already in progress, it may simply be more likely that Microsoft would purchase Nokia over HTC — although if Microsoft wanted to get really serious about vertical integration in mobile, it could potentially purchase them both.
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