Google’s recent $12.5B acquisition of Motorola mobility is a great “ripped from the headlines” case. Here are a series of news articles that one can distribute (not all are really needed). In order to assess Google’s prospects for creating value, one must evaluate the following key sources of uncertainty:
Intellectual property as a resource. Will the patents help Google beat Apple in court (or reach a favorable settlement)? The litigation is a critical part of Apple’s global strategy to limit the threat that Android poses to the iPhone.
Vertical integration. Apple has created a great product that works very well. Part of the reason may be that the operating system and hardware are better integrated. Can Google produce a better product that commands a higher willingness to pay?
Alliance partners. Will Google lose partners who are now direct rivals (to Windows or new operating systems)? Samsung has a proprietary operating system in the works. They may also increase their commitment to the new Windows operating system to avoid partnering with a direct rival. Of course, in order to keep its partners, Google cannot overtly signal that Motorola will be favored in any way. As such, vertical integration value may be more of a long run ploy (if at all).
Crunching the numbers. I have developed a spreadsheet analysis of the value creation possibilities using a decision tree (available on request). This is based on the financials for Motorola on p9 and on p11-12 (of the news articles) you can find some interesting notes on the financial performance of Android for Google. These financials provide a starting point to value the scenarios (branches in the decision tree). You would need Palisade Decision tools to edit it but I think you will get the gist. Of course, the assumptions (e.g., the probability of winning in court) are not knowable and should be the subject of a rigorous sensitivity analysis. That is the point — you need to build the model in order to test the implications of changing these assumptions.
Discussion. Obviously each of the sources of uncertainty (intellectual property as a resource, vertical integration, and alliances) are critical topics in a strategy course. There is quite a lot to discuss. Here is a short news story discussing the implications of Google’s choice for a CEO of Motorola has for the type of value that will be created and how partners may respond. Here is a slideshow presenting Apple’s case to Samsung in an effort to get them to pay for IP they felt had been used inappropriately in Samsung’s products. Finally, below is a video interview of Sanjay Jha, Motorola’s former CEO, describing the value Google sought (not surprisingly, he focuses on the patent portfolio).