TIME Google

Motorola Was a Gargantuan Mistake Only Google Could Afford to Make

A Google logo is seen at the garage where the company was founded on Google's 15th anniversary in Menlo Park, California
Stephen Lam / Reuters

After agreeing to acquire Motorola Mobility three years ago for $12.5 billion, Larry Page, Google’s chief executive, gushed with optimism for the phone-maker’s future. No, he didn’t buy the company merely for its patents. Rather, he promised to reinvigorate Motorola by creating innovative phones to better compete against rivals Apple and Samsung. “I think this is a unique opportunity and one that I’m tremendously excited about,” Page said at the time.

But making headway in the crowded smartphone market proved to be far tougher than he anticipated. On Wednesday, Page all but admitted his mistake by agreeing to sell Motorola to Lenovo Group, the Chinese electronics colossus, for $2.9 billion. “There’s no way to see this whole adventure as anything but a failure,” said Jan Dawson, an analyst for Jackdaw Research. “It’s not just as a loss on the acquisition, but also the money Motorola lost for Google along the way.”

Google’s exit after just 22 months isn’t exactly surprising. The decision to buy a major phone-maker, with the inevitable low margins and complex manufacturing operation, never seemed convincing.

Most analysts believed Google simply wanted Motorola’s 17,000 technology patents. Owning them would help Google defend its Android operating system from infringement attacks. Google executives acknowledged patents played a role in the original Motorola deal. But they insisted that they also wanted to sell smartphones, which Google had been trying to do on its own with its Nexus line of smartphones, but with limited success.

How much money Google ended up losing on Motorola is debatable. What’s clear is that Google recouped much of the money by selling Motorola’s phone business on Wednesday and its television set-top box business last year.

In the end, the cost to Google should be around $4 billion. But Google will retain most of Motorola’s patents, which considerably softens the financial blow. The patents haven’t proved to be as iron clad as once believed, however. Google has lost or received unfavorable rulings in a number of patent cases.

In explaining the Motorola sale, Page said in a blog post that the smartphone market is “super competitive” and that “to thrive it helps to be all-in when it comes to making mobile devices.” By unloading Motorola, Google will now be able to focus its innovative energy on Android, the most popular operating system for mobile devices.

Although it is selling Motorola, Page explained that Google would continue to move ahead with other hardware including Nexus phones, Chromebook laptop computers and Glass, the company’s futuristic eyewear. Additionally, Google is expanding into Internet connected home appliances through a planned $3.2 billion acquisition of Nest, a start-up that sells smart thermostats and fire alarms.

“This does not signal a larger shift for our other hardware efforts,” Page wrote. “The dynamics and maturity of the wearable and home markets, for example, are very different from that of the mobile industry.”

Google will keep Motorola’s Advanced Technology and Projects team, a skunk works for experimental devices.

Ross Rubin, an analyst with Reticle Research, said that Google executives initially thought they could supercharge Motorola’s business, much like they did with prior acquisitions like YouTube and Android. After an initial lull, Motorola introduced two phones designed under Google’s leadership. The Moto X, a mid-priced phone, and the Moto G, a lower cost device, generally received positive reviews. Google even splurged on television commercials and billboards to stir up interest among consumers.

But Motorola’s sales have been sluggish and have failed to stem the division’s big losses. In the quarter ending in September, revenue fell nearly one-third, despite the premiere of the flagship Moto X. The phones didn’t stand out against rivals and never managed to get enough distribution from telecom carriers. Finding a buyer for Motorola seemed like the logical thing to do, Rubin said.

Investing more money in the effort was risky and tangential to Google’s more important Android software business. “The handset business always seemed to be something that Google thought ‘this is something we’re interested in, but if it doesn’t work out, we’ll just sell it,’” Rubin said.

Google is, of course, not like other companies. Making big bets of risky projects is part of its culture. Usually, the failures are relatively small and disappear quietly, never to be seen again. This time, the misstep was big and unavoidably public. “Motorola fits in the mold of acquisitions that Google made with the attitude, ‘Why don’t we try this just because we can,’” Dawson, the analyst with Jackdaw said. “Google makes decisions that other companies wouldn’t.”

Ultimately, selling hardware is a business of scale with enough room for only two or so major companies in each category, he said. Samsung and Apple already dominate higher-end smartphones.

Early on, Google executives argued that owning Motorola would help in accelerating innovation with Android. Following Apple’s lead in owning both the hardware and software sounded great. But the realities of the market made it nearly impossible. Google couldn’t play favorites with Motorola for fear of alienating other handset manufacturers that also use Android.

Still, the potential conflict led to tension with manufacturers, particularly with, Samsung, Google’s biggest Android partner. On Sunday, both companies called a truce by agreeing to share their existing patents along with those issued in the next 10 years. Few details were made public. But the deal seemed to set the stage for Wednesday’s announcement that Motorola would have a new owner.

As usual, Google appeared to have emerged from it all in pretty good shape. Lenovo will continue to churn out phones that use Android, creating a new rival to Samsung’s dominance. Meanwhile, Google will no longer saddled with losses from making phones in-house.

TIME Labor

How Amazon Crushed the Union Movement

Amazon.com Fulfillment Center
Ross D. Franklin / AP An Amazon.com employee stocks a shelf at an Amazon.com Fulfillment Center

Repair workers voted against organized labor after the company put up a prolonged effort to stop them

Amazon.com, like many big businesses, isn’t a fan of labor unions. In contract negotiations, organized workers demand higher wages, layoffs by seniority and sometimes threaten to strike. Amazon has successfully fended off U.S. labor unions since its founding in 1994. On Wednesday, it did once again.

A small group of maintenance and repair technicians at an Amazon warehouse in Middletown, Del., voted 21-6 against joining the International Association of Machinists and Aerospace Workers. The results marked a major victory for Amazon, which risked organized labor gaining a toehold within its operations and using it to recruit tens of thousands more fulfillment center workers across the country.

“The workers at Amazon faced intense pressure from managers and anti-union consultants hired to suppress this organizing drive,” John Carr, a spokesperson for the union, wrote in an e-mail. “We responded when these workers initially reached out to us, and we’ll continue to work with them to pursue the collective bargaining rights they’re entitled to under federal labor law.”

Last month, group members made up of electricians and machinists filed a petition with the National Labor Relations Board to organize the union. It set off a major lobbying campaign by both sides.

Amazon brought in a law firm that specializes in fighting off organized labor. It also held employee meetings during which management tried to discourage votes in favor of the union. The vote held Wednesday was the first of its kind in an Amazon fulfillment center. The NLRB monitored the election, which was held in a meeting room inside the Delaware facility.

“With today’s vote against third-party representation, our employees have made it clear that they prefer a direct connection with Amazon,” Mary Osako, an Amazon spokeswoman, wrote in an e-mail. “This direct connection is the most effective way to understand and respond to the wants and needs of our employees. Amazon’s culture and business model are based on rapid innovation, flexibility and open lines of direct communication between managers and associates.”

Carr, the union spokesman, said that workers who voted—a small fraction of the 1,500 at the facility—had hoped to use collective bargaining to negotiate guidelines for seniority, promotions and vacation time. In addition, he said that they wanted to establish “an effective safety committee in the fast-paced workplace.” He downplayed the desire for better wages or benefits.

Despite the union’s overwhelming loss, Carr said that the workers at the facility “understand a successful organizing campaign often requires several election cycles before representation is achieved.” Federal rules require any follow-up vote to be held at least year from now.

Amazon has held off attempts at union organizing in the past. In 2000, for example, the Communication Workers of America started a campaign to unionize 400 customer service employees. But Amazon soon closed the call center where they worked as part of broader cuts following the Internet boom years. In other instances, the company gave managers anti-union material to hand out and warnings of how to spot union organizing by being on the lookout for hushed conversations.

Amazon’s workplace practices have come under fire in recent years. News outlets have detailed everything from the exhausting nature of warehouse work (employees can walk as much as 15 miles daily) to ambulances waiting outside a facility to collect workers who overheated because of a lack of air conditioning. Warehouse workers in Germany have walked out several times over wage issues. Some later traveled to Seattle to picket in front of Amazon’s headquarters.

Meanwhile, the U.S. Occupational Safety & Health Administration is investigating the death of a contractor at New Jersey package sorting facility owned by Amazon, but managed by Genco, a logistics firm. Amazon is also being sued in a number of states for failing to pay workers for time spent waiting in security lines before and after work.

Steve Tadelis, a professor of economics at University of California at Berkeley who focuses on e-commerce, said that unionization would make it more complicated for Amazon to fire workers, among other things. Higher labor costs could also narrow the company’s already thin profit margin. Although Amazon has a high-tech image, blue-collar employees do most of the work. Invariably, they earn much less than high-paid computer programmers.

“Even though the typical layperson on the street thinks Amazon belongs to the same group as Google, Facebook and Twitter, it’s more like Walmart without the bricks and mortar,” said Tadelis, citing another company that has successfully fought off labor organizers over the years.

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