Will the Motorola Mobility Deal Pay Off for Google (GOOG)?

Technology Stocks
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Google’s (NASDAQ: GOOG) latest acquisition was so big that it took nine months to complete.

On August 15, 2011, the search-engine giant agreed to purchase handset and electronic tablet manufacturer Motorola Mobility. The deal wasn’t completed until last week – in part because of the sheer size of the $12.5 billion transaction, the largest takeover in Google’s history by a wide margin.

The Google-Motorola Mobility deal gives the new parent company a foothold in the extremely lucrative mobile device market currently dominated by Apple (NASDAQ: AAPL). Motorola gives Google access to more than 17,000 patents on products such as smartphones, e-tablets, DVRs and Bluetooth accessories. That should give Google some legal leverage it hasn’t previously had in case one of its Android phones gets accused of copying aspects of Apple’s iPhone.

Motorola was one of the original cell phone companies that today specializes in making smartphones, tablet computers and cable-TV boxes. The company booked $13.1 billion in revenue last year.

However, Motorola Mobility isn’t quite what it used to be. Formerly the No. 2 cell phone maker in the industry, Motorola has slid all the way to eighth, with just a 2% market share.

So that raises the question: Is Motorola Mobility worth the $12.5 billion Google paid for it? It will be years before we know the answer to that. But we can make an educated guess based on the payoff Google’s gotten from some of its past takeovers.

Here’s how six of Google’s biggest acquisitions have paid off thus far:

  • DoubleClick: Until the Motorola deal was finalized, this was Google’s biggest-ever acquisition at $3.1 billion. DoubleClick is an online advertising company that provides ad management services for some of the world’s top digital media vendors. Google bought DoubleClick in 2007. While the $3.1 billion price tag was sizable, DoubleClick has been one of the company’s biggest money-makers. Google makes about $2.5 billion a year from display ads. This was a takeover that the company had to make.
  • YouTube: This has turned out to be one of Google’s savviest acquisitions. Google bought the popular video-sharing website for $1.65 billion in 2009; it has earned Google about $1 billion a year since the takeover. It’s no wonder – YouTube’s popularity has grown exponentially since Google bought it. The website passed the 4 billion views-per-day mark in January, quadruple the 1 billion viewers who visited the site every day when Google first purchased it.
  • Android: This 2005 purchase has probably given Google more bang for its buck than any other acquisition. The Android has become the most popular smartphone platform in the world, and Google bought it for just $50 million – a deal that now seems like a steal.
  • AdMob: At $750 million, this mobile advertising company is Google’s fourth-largest purchase. So far it’s looking like they overpaid. Since the deal was finalized two years ago, several top AdMob executives have abandoned ship, including former CEO Omar Hamoui, and the transition has been an awkward one.
  • Aardvark and Slide: In 2010, Google paid a combined $229 million for these two social media companies. A year later, both products were shut down. Aardvark was a question-and-answer service Google bought for $50 million. Slide was a social-gaming company it purchased for $179 million. They were shuttered within a week of each other late last summer.

So there have been some big hits and a few serious misses by Google in recent years. But all of those takeovers pale in comparison to the $12.5 billion the company shelled out to buy Motorola Mobility.

It’s clear that Google has gone all-in with this deal. While Motorola’s 17,000 patents will give Google some much-needed legal leverage, the company’s recent struggles do raise some red flags. Make no mistake: This deal is fraught with risks.

Its impact on Google’s bottom line won’t be known for months, or perhaps years. But the Motorola acquisition at least shows that Google is getting serious about entering the mobile device fray and giving Apple and Microsoft (NASDAQ: MSFT) a run for their money.

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