Free Smartphones? Top 5 Reasons Google Wants Motorola

Aug. 17, 2011 — -- Motorola has had its moments in the cellphone business, long before Google's announcement that it was buying Motorola Mobility. In 1983, it was Motorola that marketed the first cellphone in the United States, and from 2003 to 2007, its Razr was by far the best-selling cellphone of all time.

Then came Apple's iPhone, and Motorola has struggled ever since to keep up. Its one success -- not a lasting one, but a success -- was the Droid, a smartphone that ran on Google's Android software.

So why would Google spend $12.3 billion to buy Motorola's smartphone business? And how could it affect you? That, as they say, is where the plot thickens.

Here are five top reasons cited for the deal, starting with Google's own -- if you choose to believe it:

1. "Supercharging Android." This is what Google says it's after -- a boost for its Android software, which it first rolled out three years ago as a system to compete with Apple's. Android software is now reported to run 40 percent of smartphones, but it still doesn't have the aura that surrounds the iPhone, and Google would like to change that.

In a blog post, Google's co-founder and CEO, Larry Page, wrote, "In 2008, Motorola bet big on Android as the sole operating system across all of its smartphone devices. It was a smart bet, and we're thrilled at the success they've achieved so far. We believe that their mobile business is on an upward trajectory and poised for explosive growth."

2. Creating free smartphones. There are already wireless carriers that, for years, have been giving away low-end cellphones, knowing that the real money to be made is in charging you for calls and downloads. Would you go for a free smartphone -- one that will make calls, play music, give you web access, take pictures, do word processing and give you driving directions? Or can we sell you on a free tablet -- an iPad, only one made by Motorola and running Google software?

"The expectation is that this eventually will result in a free smartphone and possibly a free tablet," said Rob Enderle of the Enderle Group in San Jose, Calif. "Google's implied strategy is to own, and fund through advertising, most of what we currently use to access the web, including PCs -- Chromebooks -- and TVs. It will likely take a few years to get them close to free, but by owning Motorola they can move more quickly."

3. Offering you a "seamless experience." They really talk this way in Silicon Valley, and there are reasons for it.

Think about your laptop, if it's made by, say, HP, Dell or Acer (the 2010 market leaders). They sell you the machine itself -- but it runs on Microsoft Windows, may have a Firefox or Google Chrome web browser, music from Apple's iTunes, a PDF reader from Adobe, computer games from any number of makers ... and soon enough your PC has enough bugs in it that you have to restart it twice a day just to get anything done.

Compare that to Apple, which sells you an iMac or iPhone or iPad and loads it with its own software, or hammers developers to make apps that work together.

"Probably in the long run -- like two years or so -- a Motorola phone will give you an Apple-like experience where there's a tight relationship between hardware and software," said Roger Entner, founder of Recon Analytics in Massachusetts. In other words, your phone will work, and the different apps in it will work similarly. More fun, more reliable, easier to use.

4. Killing off "patent trolls." Patent trolls, eh? It's another bit of tech-speak for people who file patents on new ideas and, if companies invent the real thing, demand compensation, saying they were there first.

"It's killing innovation and it's slowing innovation," said Paul Saffo, a managing director and technology forecaster at Discern Analytics. "It's classic extortion."

Google likes Motorola because, over time, it has been granted something like 24,000 patents (the company won't confirm the number) on cellphone technologies -- powerful ammo if they want to put them in actual phones.

5. Taking over the world. Well, not quite, but taking on Apple, Microsoft, Amazon and other contenders. They'd all like to sell you service contracts, apps, and wireless minutes, and unless antitrust regulators get in the way, "GoogleMoto," as Saffo called it, will have a leg up.

"Google can't sell anything to save its life but it is the only multi-national that seems to understand how to get advertisers to pay for everything," said Enderle in an email to ABC News. "By controlling the hardware they can close in on Apple's quality, and Apple can't match them on price. If they execute -- a big if because this merger is between two very different companies -- they could unseat Apple."

Yes, but ...

It all sounds grand, except to people in one critical place: Wall Street. Google stock dropped about 1 percent Monday after the Motorola announcement, and another 3 percent Tuesday.

And then Standard & Poor's -- yes, the same S&P that downgraded the U.S. government's debt on Aug. 5 -- downgraded Google stock from "buy" to "sell."

"The purchase," wrote S&P analyst Scott Kessler, "would negatively impact GOOG's growth, margins and balance sheet. Based on revised DCF analysis, we are cutting our 12-month target price to $500 from $700."