Did Google buy Motorola to kill smartphone profits?
The idea has some merits, but we don't think the theory really hits what is actually happening in the market. We're of the mind that the theory may be something of a slant hit - it catches a bit of what will happen, but not the causation it puts forth or the motivation of Google either.
WSJ writer to the theory that maybe Google doesn't want to make profits with Motorola. Maybe, Google wants to use Motorola to erode the profits of every other company in the mobile space.
Essentially, the idea is that Google wants to shift the idea of a quality smartphone from being a luxury device to a commodity device. Motorola would be run as a hardware company with no interest in profits, and could then bring down the profits of other companies. Consider, most top-tier smartphones cost somewhere around $200 to $250 to manufacture, but sell for around $600 to $650 at full price. WSJ is saying that maybe Google wants to use Motorola to bring down those profit margins, because that leads to more people buying smartphones, which means more people on the Internet seeing Google ads.
It's an intriguing theory, and one that has some pull to it. We do see a couple of glaring issues with the theory though. First, in order to affect the profit margins of companies like Apple and Samsung, Motorola has to be more competitive in the market and put out more successful products. While the Moto X did capture the attention of some tech pundits, the reaction from the tech world was decidedly mixed on the device; and worse, the device flat out hasn't sold well.
$500 million on the campaign (to make that number believable, we would need to hear that Motorola paid TJ Miller about $300 million for his time as the Lazy Phone). Given its current level of success of Motorola, claiming that the company could have that much of an affect on the profit margins of the industry leaders is like saying that Nokia's success in the Windows Phone market would lead Samsung to build more WP8 devices (we've seen how that is going.)
The other big flaw in the theory is that the Moto X is following the same pricing structure as the competition. The Moto X cost about $221 to build, and Motorola has been selling the device for upwards of $599 at full price. The device launched at $199 on contract, but the price has dropped to $99 on many carriers already. WSJ points to this $99 price as if it is evidence to support the theory it presents, but we would see it more as evidence that the device is not selling well, and carriers are trying to move stock.
The market is pushing towards reduced profit, not Google
If Google really were trying to erode competitor profits, it certainly could do so with Motorola, but it would require the company to use more of a Nexus pricing structure, or at least something in the middle. Maybe if the Moto X launched at $99 and $450 at full price, we could see where the idea comes from. Even if it is a long-term play, there is little evidence to support the idea right now other than the fact that Motorola is continuing to lose money for Google. There is however supporting evidence to show that Google is simply following the trends in the market.
DVX which will be aimed at emerging markets and lower-income pre-paid markets, but there is nothing to show that the DVX will even marginally be a competitor to the iPhone or any Samsung Galaxy device. Maybe if the DVX is a runaway hit it could cause Samsung to shift its profit aims a bit, but it's unlikely we'll see Apple do the same. In general, the low-end market is where the growth potential exists for smartphones, because the high-end market is becoming saturated.
The idea that Google wants to use Motorola to get quality smartphones into the hands of as many people as possible is one that we've been in on since Google first announced its plans to buy Motorola. Google definitely would like to use Motorola to get more people using smartphones, which means using the Internet, and therefore seeing more Google ads. Google understands that emerging markets are the place to do that, and is likely pushing Motorola to target those markets as a strategy to help Motorola regain some standing in the market which it has lost recently as Apple and Samsung have been taking over.
In the end, it is very likely that smartphone manufacturers will have to reduce profit margins and shift towards more commodity products, because that's just the way the market works. Eventually, anyone who is going to buy a high-end smartphone will have a high-end smartphone, and the turnover in that segment will even out, but growth will most certainly not continue in the high-end market. But, there are a lot of people in emerging markets who could get a lot of value from smartphones, but few companies have been aiming products towards those markets.
That is changing right now, and Motorola is planning to be part of that change. Profit margins will be dropping, because manufacturers will have to find ways to sell more devices at lower costs simply to be competitive in the market. Amazon seems to be planning to get in on this, as are ZTE, Xiaomi, and plenty of other manufacturers. No doubt Google wants to profit from all of those new users regardless of if they use Motorola devices, but that doesn't necessarily mean that Google is pushing the trend.
1. Shatter (Posts: 1652; Member since: 29 May 2013)
Really the plastic on them is worse. than Samsungs. Have you ever used one? The plastic is horrid.
3. kozza3 (Posts: 524; Member since: 17 Oct 2012)
Oh calm down Shatter... It's not that bad. Everyone calls their plastics "premium". Also, I'm pretty sure Michael H. was referring to the optional wood back.
5. Berzerk000 (Posts: 3269; Member since: 26 Jun 2011)
First of all, Michael never said the Moto X was made out of premium materials, quite the opposite actually.
"it strives for performance, and easily understood value propositions over cutting edge specs and premium materials."
Meaning, Motorola gave up on quad core processors and a metal/Kevlar body for properly optimized software, useful software features, and a truly customized device. Or maybe I'm just reading it wrong.
Second, the Moto X's plastic is FAR better than any Samsung device that I've ever used. It's very solid, has a nice texture, isn't glossy, and looks nice. Plus, the little concave Motorola logo on the back gives a nice place to put your index finger on, a very nice little touch that I appreciated.
9. androiphone20 (Posts: 490; Member since: 10 Jul 2013)
I don't usually agree with the guys from wall street but they might really be onto something here, thanks PA for trying to go around brushing over this theory but this doesn't do away why Motorola is not gaining any profits
10. androiphone20 (Posts: 490; Member since: 10 Jul 2013)
I see where they're going with this one, the whole idea behind the aquisition of android (and being open-source) was to get so many people to use google's services anyways, this is a really good theory, wow
2. Omar-BHR95 (Posts: 182; Member since: 23 Dec 2012)
Did stephan FLOP join nokia to be a TROJAN HORSE?
6. TwentyWendy (Posts: 53; Member since: 12 Aug 2013)
Dedenne think, Google knows what's they doing... No need to worry so much :3
7. artealis (Posts: 98; Member since: 15 Dec 2010)
that because motorola only sell their phone in US, in asia and europe there is no motorola.
that is why it is good if apple ban samsung for selling their phone in US
we will see an interesting future because of this US - apple policy will actually killing their own economy and innovation in technology.
5 or 10 years latter dont forget to thx to apple
8. xfire99 (Posts: 262; Member since: 14 Mar 2012)
Google bought Motorola Mobility most for its patents portolio and the hugest of all.
Back 2008 then Apple did sued everyone that had do anything with Android to do and included Google Nexus devices. Jobs wanted to destroy Android and said will do anything to destroy it. Apple also wanted android source code, after all suing they did to all Android OEM comapnys.
After Google gained Moto Mobility division and they used it to sue Apple back.
Non profit are more the Google Nexus series, since they are really cheap with latest hardware inside and too bad not available worldwide.
11. OldNorseBruin (Posts: 71; Member since: 12 Mar 2013)
Jobs & KrApple tried to destroy ANDROID...and FAILED! Now Jobs is just steaming 24/7/365 in HELL!
26. RomeoJDR (Posts: 236; Member since: 09 Dec 2011)
Exactly. This has to be one of the dumbest Wall Street Jounal articles ever making their publication. Everyone following Googles acquisition of Moto at the time HTC was paying a settlement to Apple and Apple going full steam ahead after Samsung, applauded Google for proactively expanding their defenses. Even if that obvious reason didn't exist Android manufacturers already put out several tiers of phones with low to high price and feature range associated to them. The price of the phone is pretty negligible compared to the $30+ a month data package that is most likely reason people choose not to have a smartphone.
12. Taters (Posts: 1757; Member since: 28 Jan 2013)
Lol it doesn't cost most companies $221 dollars to make a smartphone, the $221 is parts only and doesn't factor in R&D, marketing, wages, Apple asking for money they don't deserve, lawsuits, Nokia asking for money they don't deserve, Microsoft asking for money they somewhat deserve, moto and Ericsson asking for money they deserve, logistics etc. I say the cost for everyone is closer to 500 or more. If every cell phone company was making 400+ on each handset they wouldn't give a crap if they are Apple or Samsung. They would be swimming in their money scrooge McDuck style. HTC lost money this quarter and LG sticks around because of Apple buying displays money, LG doesn't profit much from their own mobile products.
The only company that probably manages a $221 pure cost is Apple but that is because they buy parts in super bulk and takes the profits away from the retailers and carriers.
Most companies lose money and just give up like Panasonic and Sharp.
27. RomeoJDR (Posts: 236; Member since: 09 Dec 2011)
Good point. If profit margins were that great than companies like LG, HTC, Sony... etc would be able to seriously undercut Samsung and Apple to steal a huge chunk of the market while still making a profit. Since competition exists the prices are already going to be driven down as low as reasonably possible. After all this the tech industry doesn't have a cartel like oil companies.
13. Andrewtst (Posts: 200; Member since: 25 Jan 2009)
Google buy Motorola is for protecting itself against Apple as Motorola holding a lots of patents.
15. funchumm1206 (Posts: 52; Member since: 04 Mar 2013)
Google cant fully control Moto because of anti- trust issues right?
16. daveydog (Posts: 11; Member since: 01 Sep 2013)
Been thinking this too.... Anyone notice that droid maxx is now 499 off contract? And droid ultra is 449...
17. roldefol (Posts: 2855; Member since: 28 Jan 2011)
Maybe Verizon realizes that few people are going to buy a Droid off contract, so it doesn't really matter what they charge. $700 is a ridiculous price to pay for any device, especially since it'll be obsolete in 2-3 years.
18. harpdogg (Posts: 18; Member since: 17 May 2012)
Wasn't the Moto X in development before Google even bought Motorola? Google is probably doing exactly what they said they would do with Motorola not become a phone manufacture. Them losing money now is not a big deal because they are probably going to shut most of the company down. The Motorola purchase was a patent play. It does not make much sense for a Ad company to buy a phone manufacture when its cheaper for them to simply find a partner to manufacture thier phones. After the dust settles expect to start hearing about lay offs at Moto.
19. Nayabandaa (Posts: 26; Member since: 15 Mar 2013)
Yup. Developing countries have lot of scope and Google is right if if it thinks aiming for them..but somebody tell Google US, only country having Moto X, is not a developing country.
20. jan25 (Posts: 327; Member since: 26 Feb 2012)
not only that, but the Moto X isn't as cheap as Google is letting us to believe.
21. Zero0 (Posts: 533; Member since: 05 Jul 2012)
The problem with this approach is that it seems like an anti-trust case waiting to happen. That's why I don't think it's Google's motive.
22. sprockkets (Posts: 667; Member since: 16 Jan 2012)
" but this latest theory comes from a (generally) reputable source: The Wall Street Journal. "
Sure. Ever since Google said they won't filter bad search results about Rick Santorum, the republican owned WSJ has been flinging mud on Google whenever they can.
23. 14545 (Posts: 880; Member since: 22 Nov 2011)
The glaring flaw, as pointed out in the article, is the fact that the X was priced at 600, not 350 or even 450. So if they were using moto as a trojan then they would actually sell phones at a full retail of 400ish, not 600.
24. werthedroids (Posts: 40; Member since: 15 Sep 2013)
There are a few possible scenarios.
The WSJ writer is still having a hangover from Sunday night
The WSJ writer has lost a bet and has to now embarrass himself
The WSJ writer is a butthurt Apple fan who wants to make Google look bad
The WSJ writer is trying to entertain his cranky boss
The WSJ writer wrote this cuz he was bored and had nothing better to do
25. Suo.Eno (Posts: 55; Member since: 17 Feb 2013)
"Essentially, the idea is that Google wants to shift the idea of a quality smartphone from being a luxury device to a commodity device."
Definitely not El Goog's primary objective when they've splurged 12.5 mega big ones on Moto, because basically they'd be doing a job that CARRIERS have for years now w/ device subsidies already so where's the fire? Even a luddite knows now that a smartphone being essentially a small PC shouldn't be a luxury device categorically. Vertus for example are commodity class device wrapped up in expensive and ridiculously gaudy designed materials.
It'd be a lot cheaper for Google to instead (for sake of argument) buy off Chinese co.s like Xiaomi or Oppo (because of all Chinese phone companies these 2 actually puts out decent non-KIRF quality products), push for a bit lowered production costs if it's not already easy enough and just flood the gates. Clearly this didn't happen...
That being said so far it doesn't look like Google are that minutely interested to get newer Motos out of NA market even if demand is there and that's probably the main cause for all of this conspiracy cooking. Which is half intriguing because at this point I'm done defending Google's previous "friendliness" towards their Android device partners (name it; Samsung, LG, HTC etc) because their doing a fine job of half assing their future Android plays as the day pass. Hell I even think that Google are keeping the Nexus program active more as a corporate social responsibility gig nowadays if the top Nexus appointed Android OEMs aren't careful.