Why search giant Google is buying Motorola

For all its claims to transparency, the world of Internet media is so layered with mystery that figuring out something as straightforward as a big corporate takeover, where strategies are usually clear, is like trying to break a code written in an obscure foreign language.

Case in point is the Google-Motorola deal. Google, the reigning online colossus, is buying Motorola Mobility, the legendary consumer electronics company that now makes mobile phones and TV set-top boxes.

At $12.5 billion, it’s a sizable purchase, even for a lushly cash-rich company like Google, which has $39 billion in its sock drawer.  It will double Google’s workforce. But what’s impressive isn’t the size of the deal. It’s the purpose behind it, which seems, at first glance, inscrutable.

Google, after all, makes its money from search. Mainly, it auctions off search words to corporate clients that want to advertise alongside the responses Google delivers to online queries related to things they peddle. It’s a sweet business. Google made $3 billion last quarter on revenue of $9 billion.

Motorola Mobility, on the other hand, sells handsets and is the No. 2 provider—after Cisco—of the set-top boxes that cable operators rent to subscribers to carry TV channels into their homes.

So, what does one thing have to do with the other? Why is an extravagantly successful service company, the darling of Internet users worldwide, buying into the hardware business, where competition is fierce and margins are low? Why does a search-based behemoth want to spend billions on cell phones and cable boxes?

There are several answers, which together provide a glimpse of the swirling changes in the new media economy, and some disquieting clues as to how some Continue reading “Why search giant Google is buying Motorola”