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Dropping Motorola frees up Google to fix mobile monetization, manufacturer relationships

By giving Motorola the boot this week, Google eliminated a big distraction, freeing it up to repair relationships in the Android ecosystem and redouble efforts on the mobile advertising front, where cost per clicks continue to decline and Facebook presents a growing threat.

While Google is the king of mobile advertising and Android is the largest mobile ecosystem, the company?s foray into hardware manufacturing via Motorola may have damaged critical relationships with Android manufacturers. The search giant?s latest quarterly financial results, which were released late yesterday, also point to its ongoing struggles monetizing the quick growth in mobile, with the average cost-per-click decreasing 11 percent year-over-year and two percent from the previous quarter.

?Google is the king of online advertising, but it is starting to feel the heat in mobile advertising from Facebook and perhaps Twitter,? said Neil Mawston, London-based executive director of the global wireless practice at Strategy Analytics.

?With Motorola divested, Google can now refocus more resources and time on its core advertising businesses in 2014,? he said.

CPCs drop again
Google said on Wednesday that it is selling Motorola to Lenovo for $2.9 billion.

The fourth quarter results underscore what a drag Motorola was on Google and the necessity of dumping it so the company can better focus on how to make money in mobile. The hardware division posted an operating loss in the fourth quarter of $384 million compared to a loss of $152 million in the previous year.

Going forward, Google is likely to focus on repairing relationships with some Android manufacturers that may have felt threatened with Google as a direct competitor.

The drop in the cost per click is another problem facing Google. CPCs have been trending downward over multiple quarters, in part driven by the growth in mobile, where the average has been lower than on desktop.

At the same time that the cost per click dropped, the aggregate number of paid clicks across Google?s offerings increased approximately 31 percent year-over-year and 13 percent from the previous quarter.

Google is attempting to address the ongoing cost-per-click issue with Enhanced Campaigns, which were introduced last year and make it easier for marketers to deliver paid search campaigns across mobile, tablets and desktop.

Financial results for Google?s fourth quarter ended Dec. 31 show total revenues of $16.86 billion, up 17 percent year-over-year.

?Motorola has been losing between $150 million and $250 million on a quarterly basis every quarter for the last year and a half,? said Boris Metodiev, London-based senior analyst at Yankee Group. ?I think that Google basically tried to get rid of this distraction that kept sucking money away from the company.

?It also created a huge amount of tension within the Android community, because other Android vendors were not sure whether to consider Google a partner or whether to consider them like a competitor,? he said.

Manufacturer relationships
As Android continues to grow, Google needs handset manufacturers to build in its software offerings such as Maps, search and many others, in order to support its advertising ambitions.

However, with Google viewed as a competitor in the hardware market, some manufacturers have started to build their own software services into their devices. Amazon Kindle is a prime example of this.

By selling Motorola to Lenovo, Google can focus more on supporting its handset manufacturers while making the manufacturers themselves feel less threatened.

The deal also creates a second, relatively strong Android handset manufacturer in the newly combined Lenovo, Motorola entity, thereby balancing an ecosystem somewhat that has been very much dominated by Samsung.

The deal makes Lenovo, which is based in Beijing, China, the world?s third largest smartphone vendor, according to Strategy Analytics, with the combined entity of Lenovo and Motorola having captured 6 percent of global smartphone shipments in 2013. This puts Lenovo behind Samsung, with a 32 percent share, and Apple, with 15 percent.

Niche manufacturing
While Google?s foray into handset manufacturing was a bust, the company has not written off hardware completely. Earlier this month, it acquired Nest, which makes smart thermostats, for $3.2 billion. And, Google continues to build Google Glass.

?I think that Google admits defeat and admits its mistake in buying Motorola in the first place a couple of years ago and it will focus on the niche markets where they can actually be ahead of the game,? Mr. Metodiev said.

Not everyone is convinced selling Motorola is an admittance of defeat by Google.

This is because Google retains many of Motorola?s numerous patents, which many have suggested is the real reason Google acquired the company in the first place. Lenovo, which previously had no mobile patents, walks away with approximately 2,000 patents while Google retains 10,000.

For Lenovo, the deal gives it access to the valuable U.S. smartphone market and the fast-growing Latin America region. The challenge the company faces is turning around the long-struggling Motorola business.

For Motorola, the deal could help it gain a bigger presence in the quickly growing Chinese market for smartphones.

?The Android space is very unbalanced, with more than 50 percent of the devices being made Samsung and the rest of the players were not really so strong and they were not making much money,? Mr. Metodiev said.

?With this acquisition, Lenovo will be a relatively strong second player, so it will balance things out a little bit,? he said. ?There would not be this big discrepancy between Samsung and everyone else which means Samsung is able to apply some pressure on Google.

?This puts Google in a much better position.?

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York