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Acquisition of Motorola by Google Inc

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  • Introduction
  • Economies of scale
  • Economies of vertical integration
  • Combining complementary resources
  • Elimination of inefficiencies
  • Increased power in the market
  • Speed of growth
  • Financial benefits
  • Conclusion
  • References


Google Inc. announced an agreement to acquire Motorola Mobility on August 15, 2011. The deal was approved by the board of directors of both Google and Motorola. The deal was an example of a vertical merger where the software client, Google acquired the hardware client, Motorola. The deal was not an easy one for Google considering that the company had to put in a lot of effort for obtaining the regulatory approvals for the same (Reuters, 2012). The deal was announced at $40 per share which added up to a total of $12.5 Billion which was at a premium of 63% to the price of Motorola shares at the end of August 12, 2011. The acquisition of Motorola was aimed at protecting the viability of Google android considering the fact that Google was recently facing a threat due to patent war existing throughout the industry, due to which the major android manufacturers like HTC and Samsung were being sued by giants like Microsoft and Apple for the infringement of patents (Gaughan, 2011, p.5). Google also confirmed that Motorola would be handled as a separate company. In early 2012, the agreement was approved by the lenders, as well as the US Department of Justice and the European Union. The sale was finalized on May 22, 2012, after receiving approval from Chinese authorities. The transaction was Google Inc.’s toughest threat to Apple Inc., which was the industry leader in smart phones and tablets at the time.

Economies of Scale

A vertical merger generally has a lower potential for economies of scale than a horizontal merger but the merger of Google and Motorola saw the achievement of economies of scale in both financial and risk bearing economies (The Economist, 2008). Technical, organizational, bulks buying as well as financial economies of scale were achieved from the merger (Thompson, 2012). Coordination improved in terms of cost fit, timing fit, size and communication fit within the business (Arnold, 2005, p.45). The merger immediately showed a success effect by increasing the market share in the world market for smartphones from 46.9% in the first quarter of 2012 to 68.1% in the last quarter of 2012. Economies of scale was achieved by getting other byproduct benefits such as the development of the next generation device for mobile computing, extra services, for example, advertising to living rooms through Motorola’scable TV boxes which helped in boosting the staggering set top box business, in smartphone designs aimed to fulfil the government regulations and competing with Microsoft’s new release of Windows phones. The company achieved a higher output with lowering the average cost, thus increasing the profitability and ensuring lower price for the customers (Rosenbaum, 2012).

Acquisition of Motorola by Google Inc

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