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Why Google-Motorola Isn't an Anti-trust Issue

As with any large business acquisition, there is bound to be a high degree of scrutiny when it comes to Google's purchase of Motorola. Generally speaking, the larger the companies are, the more they are scrutinized. The proposed purchase requires approval from anti-trust regulators throughout the world at a time when Google has seen a dramatic surge of regulator conern. Google launched the news addressing regulators' fears right out of the gate:

"Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats.."

- Larry Page, CEO, official company blog post.

The final paragraphs of the post seem to be a thinly-veiled effort to cast Google as the friend of competition in the face of anti-comeptitive Apple and Microsoft. We can expect this kind of rhetoric to continue as Google tries to sell the governments of the world on the fact that the acquisition does not harm consumers and does not make Google a monopoly. Here's why I think Moto-Google shouldn't be a problem for regulators:

The Acquisition Increases Mobile Search/OS Competition

Handset makers and service providers have a strange symbiotic relationship, and it's often hard to tell where one ends and one begins. Do you know, for example, who pays for the smartphone ads you see on Hulu? Do you know who makes the decision regarding software specifications? When you buy an LG phone from a T Mobile store, who gets the money? The answer to all of these questions is, with very few exceptions, "both."

Imagine the questions that Nokia, LG, HTC, or Samsung must have. Up until this morning, Google was your partner: they made handsets cheaper by providing a free and open operating system, and they made it easy for developers to make apps for your phone. Handset makers had no problem with allowing Google to make ad revenue with Google search plastered all over the phone by default. Suddenly, Google is their newest competitor, and they have to be asking questions like, "Should we continue to give ad revenue to a (now) direct competitor? Should we follow Verizon's lead and make more phones powered by Bing on Android?"

Expect Windows/Bing-powered phones to appeal more to device makers; we will see about whether they can pass such a preferences on to consumers.

Hardware Isn't Software

In many markets, Google is dominant in search, but this is their first real forray into hardware. It could be argued that this isn't vertical integration at all - it's an entirely new, closely-related vertical. Google's expansion into online services like travel, email, and social media contrasts sharply with the Motorola deal. Regulators are concerned when an industry is dominated by a single entity. Motorola is, by no means, dominant in the mobile handset industry. In fact, they've been getting killed until recently.

The bottom line is that consumers' choices remain almost unchanged by the deal. Sure, we probably won't be seeing those Windows 7 devices by Motorola, but they were likely to be a very small percentage of one company's sales. The deal has almost no impact on Google's search market share (most Motorola phones used Google search already), nor does it alter the market share in the handset industry at all.

Do Regulators Care?

As mentioned previously, the larger the company, the more scrutiny it will receive. Walmart was bloked from expanding into the banking industry in the U.S., even though they would have begun operations at an almost 0% market share. Many regulators conform to the popular mentality that "big is bad," and feel the need to protect (or at least appear to protect) the all-powerful and nebulous "little guy." Expect the merger to be tied in red tape for several months while it is examined and scrutinized from every angle, with particularly sharp criticism from the EU. I wouldn't expect Microsoft to lodge any compaints agains the buy, while Apple sits back and laughs at the fragmenting competitors.


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