Is Google Throwing Good Money After Bad?
Thus far, Google's acquisition of Motorola hasn't gone so well financially. The gross purchase price was $12.4 billion, but after netting out the cash acquired and subsequent sale of the set-top box segment, that figure declined to $7.1 billion.
Big G always made it clear that patents were a driving factor behind the acquisition, and Motorola had a terrible April on that front, losing a slew of IP-related suits around the world. Meanwhile, Motorola's core operations of making handsets continues to bleed, generating $1.4 billion in operating losses under Google's umbrella through the first quarter. Not one to be discouraged, Google might be about to increase its bet on its smartphone-making subsidiary.
The Wall Street Journal reports that Motorola's upcoming Moto X phone might get a hefty $500 million marketing budget from its search giant parent. That would be enough for the company to have broad reach in the U.S. and Europe, among other key markets. The device should be available on all four major domestic carriers, a stark contrast from Motorola's prior strategy of giving Verizon Wireless device exclusivity with its co-branded Droid lineup.
While Google's Nexus phone program is in flux, with OEMs instead releasing Google Editions, Motorola has previously detailed its plans to release a mostly stock Android experience. The WSJ's sources say that Motorola is seeing success combatting pre-installed carrier bloatware, something only Apple has been able to do meaningfully thus far.
The power of a sizable marketing budget cannot be understated. Marketing has played a significant role in Samsung's rise to prominence, as the South Korean conglomerate has spent lavishly to ensure that the word "Galaxy" is never far from sight. HTC's lack of marketing has also been considered a major weakness. Apple's recent marketing has also left a lot to be desired.
A $500 million marketing budget is far more than Motorola loses in operations each quarter, but Motorola serves an important strategic purpose for Google beyond its patents. Google is hedging its bets with other Android OEMs should things turn sour. Samsung is gaining too much control over the platform, deliberately undermining it at times, and the company is about to launch its own open-source competitor Tizen later this year.
Google has publicly maintained that the partnership is all sunshine and rainbows, but behind closed doors that's not the case. The WSJ had previously reported how internally Google has expressed concerns about Samsung's dominance. The publication reiterated that concern again, noting that Google has considered removing its firewall between itself and Motorola if need be. The search giant had put up an internal block to ease concerns of favoritism among third-party OEMs, but if push comes to shove, Google could still tear down the wall.
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The article Is Google Throwing Good Money After Bad? originally appeared on Fool.com.Fool contributor Evan Niu, CFA, owns shares of Apple and Verizon Communications. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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