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Google Picks a Fight With Apple


In a monster deal harkening back to the days of buyout Mondays, Google (GOOG) announced this morning that they will acquire Motorola Mobility Holdings (MMI) for $12.5 billion. The move gives Google a hardware platform, but more importantly patent protection for key aspects of the Android operating system. This gives the search juggernaut a more dependable pathway for monetizing Android's enormous success. Android is widely considered the only practical threat to Apple's (AAPL) wildly popular iPhone.

Now that Google has seemingly cemented its claim to Android revenues, the mobile phone operating system game is afoot. Apple hasn't lost a market-share war since the 2001 release of the iPod, and much of Android's success was predicated on its open source keeping it cheap for Google partners, while allowing them to give Android their own special sauce.

As should be obvious by now, the Google/Motorola deal has a lot of moving parts. Helping us sort out the implications Breakout was joined by Apple Shareholder Jon Fisher of Fifth Third Asset Management. Is Fisher nervous? "No, no, no, no, no, no, no," he says.

In other words, he's not exactly looking to dump his Apple shares on the Motorola news. The Minnesotan says pairing a handset business with the Android software will strain the relationship between Google and its hardware partners. "From a competitive standpoint, if you've been a Verizon (VZ), AT&T (T), Samsung or someone licensing the Android platform, now you're kind of feeding your competitor."

If those don't sound like a list of companies likely to make a meaningful dent in either Google or Apple it's because they aren't. Fisher says the death of the Nokias (NOK) of the world is fait accompli. Google is picking a fight with Apple and it's much more about patents than it is hardware.

Android is only part of the transaction. Motorola Mobility also has a set-top box division, one that has been competing with Cisco's (CSCO) Scientific Atlanta, among others. Set-top boxes are destined to join DVD's in the dustbin of history, but the patents Google is acquiring may give them a fighting chance in the long-envisioned marriage between the televisions and the Internet. Taking the net from the computer to the TV is something of the Holy Grail of profiting from the way consumers interact with content. Inroads have been made over the last few years ascent business, and Apple TV is at the head of the pack, but the winners are hardly clear yet.

Fisher says a battle for the living room between Google and Apple is a few years down the road, if it becomes a battle at all. Ultimately the hypothetical nature of any direct competitive advantage this deal gives Google is the problem for Google shareholders. Fisher says investors "don't know what and where (Google) is going to invest," giving them a lack of coherent or reliable plan for the search monster's next growth path. In Fisher's view the Motorola acquisition is going to amount to "just another overhang for Google stock."

Can Google morph from search king into a patent-squatting, phone-making, TV-integrated corporation with multiple, or at least two, viable businesses? These questions remain but, at least for now, Fisher says Google's MMI deal "doesn't enhance their position."

Let us know your thoughts below.