News came this morning that Google is acquiring Motorola Mobility for a hefty $12.5 billion. Motorola Mobility which focuses its efforts on mobile phones and tablet computers is a spin off from Motorola. Here is the story from Bloomberg:

Google Inc. (GOOG), maker of the Android mobile-phone software, agreed to buy smartphone maker Motorola Mobility Holdings Inc. for $12.5 billion in its biggest deal, gaining mobile patents and expanding in the hardware business.

Motorola shareholders will get $40 a share in cash, the companies said in a statement today. That’s 63 percent more than Motorola Mobility’s closing price on the New York Stock Exchange on Aug. 12. Both boards have approved the takeover.

If this is not about patents(which it most likely is), then it is a completely crazy move on the part of Google. What kind of message does it send to other Android handset makers?

This also shows how well Microsoft has played its hands with their new Windows Phone platform. Analysts and pundits forecasted (and even pressured) a possible Nokia acquisition by Microsoft. Microsoft instead got what it wanted without an outright acquisition of Nokia – an exclusive Windows Phone deal. I have to say that this move by Google has increased the attractiveness of the WP7 platform to handset vendors.

Now, back to the topic of patents – Google’s Android ecosystem was under relentless attack from competitors – not by outsmarting and out-innovating Android, but suing them for patent infringements. Also Android rivals colluded in order to exclude Google and Android from getting their hands on Nortel’s portfolio of patents. Microsoft, arguably, has been making more money from Android than Google itself. Apple was successful in blocking Samsung’s tablet from sold in the European markets. Something is badly broken in the patent system.

These companies are spending money on lawyers and lawsuits instead of spending it on engineers and technology. One has to really question the utility of the patent system itself. All these companies are clearly in violation of each other’s patents, and they use their own patent portfolio as a deterrent(nuclear style) against potential lawsuits. The biggest loser in this system is innovation. Does a new upstart, without the protective shield of a large portfolio of patents, stand a chance against these behemoths? What usually happens is startups are ignored until it achieves a level of success where patent trolling becomes a lucrative strategy.

This blog post from the maverick,Mark Cuban, deserves a more serious consideration. At the very least, I think it is time to rethink the patent system.

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People invest money in a business in order to take risk and to get a return beyond what they could get by just keeping it under the mattress or even depositing it in a savings account. While it might be important for companies to have large amounts of cash on their balance sheet, it is always kept for strategic investing purposes – like making an acquisition, or investing in new lines of business, major expansions etc. If all that an investor aspires from his investment is to get an interest rate, he/she could invest in a CD.

In the case of Apple, it is sitting on a ginormous stash of cash valued at 75 billion dollars. The “trouble” for Apple is that cash balance, in all likelihood, will spike further in the days, weeks, and quarters to come. For a company growing as fast as Apple, I do not see it investing that money in to organic expansion plans.

Secret to Apple’s success in recent years is its sharp focus on doing only a few things, and doing them extremely well. Apple has proven over the last few years that its new product lines, instead of being radically different from the existing ones, nicely compliment the existing ones. Apple has managed to create a whole array of products and product lines that work well as a complete ecosystem. R&D is not cheap, yet a new product line like the iPad could be created from the ground up with a really tiny fraction of that 75 billion dollars. So what is Apple to do with all that growing stash of cash?

It could do one of two things or a combination of the two, and, either way, for Apple, it will be a break from its past. So what are these two things? First, Apple could offer a large one time dividend (a la Microsoft in 2003) to shareholders, followed by regular quarterly dividends. Even though Apple is sitting on large piles of cash on its balance sheet, it will be under no pressure, at least not in the immediate future, to do this – for the simple reason that Investors are happy with the returns they are getting, despite Apple’s “inability” to reinvest that money.

That leads us to the second option in front of the mercurial gang from Cupertino. It could make strategic acquisition in the technology space, and there are a lot of attractive players in this space. However obvious this option may be to any other company, it is far from obvious for Apple to do such a thing. Apple has achieved all that growth without making any large acquisition, and I believe this has been a key to the success of Apple as a company – going back to my point about products complimenting each other and working well as one single ecosystem. Besides, acquiring and integrating another large organization is a risky, and tedious process. For a company that nurtures a special employee and customer culture, integrating an established alien work culture would be tricky, to say the least.

Let us just speculate for a moment that if Apple, indeed, were to acquire another company, which one should it be?

Before we answer that question, let us break down the Apple ecosystem for a moment –  one could break it down into 3 pieces – Mobile, Desktop, and cloud. In the mobile space they have the iPods, iPhones, iPads & iOS; in the desktop (including laptop), they have the MacOS books and cubes; and in the cloud they have the music, video, books etc. Then, of course, there is the Apple TV, which could, in the future, lead to a successful home entertainment console that, in addition to bringing multimedia into living rooms, could bring a lot of popular gaming. Apple also has its own browser, Safari, across all these platforms. Apple is gaining momentum and market share against competition in most of these product lines. If there is a slight weakness in their armor, it is in the cloud, especially communication, sharing, and social. Ping has not exactly been a rip-roaring success. More over, biggest success stories in the cloud/social space are not exactly cozy with Apple – Google and Facebook with its close ties to Microsoft.

First and most obvious candidate for potential acquisition, I will say, is Twitter. It is very successful, not quite as large as Facebook, and has not aligned itself with any other behemoth in the, increasingly, tripolar technology industry. Apple could easily digest this acquisition. Besides, iOS5 comes with Twitter integrated into the OS. They could easily integrate Twitter into iTunes, to iCloud, and into the Safari browser itself.

A more risky acquisition would be Yahoo.  Yahoo clearly is a company in decline, yet it has a lot of assets in the cloud that could be valuable to a company like Apple which is battling it out with other giants like Microsoft and Google. Yahoo has a few popular internet properties in news, finance, movies, email etc. Yahoo was once involved in a search engine project code named Panama, which they later canned in favor of a partnership with Bing. Apple could even breathe some new life into the search effort with Yahoo. Apple already has Safari browser that could be already collecting a lot of data valuable to search engine technology. Yahoo Search could become the default search across all Apple devices, and Yahoo Maps could become the default Map/Local application across those same devices. The biggest challenge for Apple, if they ever end up acquiring Yahoo, will be integrating a company that is on the fast elevator down on the track to oblivion, a company that lacks excitement, and (from what I have heard from former Yahoos) a company that has a lethargic culture. A lot of heads will need to roll to transform Yahoo culture into a winning culture that is Apple.

The “trouble” for Apple is the cash acquisition costs of these companies are likely to be replenished in the balance sheet in a couple of quarters. At the same time, a bad acquisition could cost the company dearly, not just the investment but the impact that a rotten apple could have on the barrel full of excellent ones.

I have said  many times before that Google is a one dimensional company that makes money from Ads, almost exclusively through their search engine service. Here is a break down of their revenue from ads.

Chief Minister (somewhat similar to a governor of state in the U.S) of my home state of Kerala in India has installed live webcam in his office, viewable to the public 24/7. He is doing it in the name of transparency, but kickbacks, bribes etc happen outside of these offices. Oommen Chandy, from what I can gather, is a decent man for a politician, but corruption is all pervasive in India from the very bottom all the way to the top.

Staying on the topic of transparency of public officials in India, here is another incredible piece of news about the email accounts the officials use for official business – Yahoo Mail, Hotmail, Gmail etc.

Another strike against Keynesianism – this time from near impossibility of executing “the plan”. Here is Larry Summers as quoted by Ezra Klein on his WP blog:

And even if Congress was willing to green-light more money, spending it turned out to be harder than the Keynesians had hoped. “Anybody who is honest and knowledgeable will say it is harder to move money quickly and well in reality than it is in the textbook model. I don’t think the idea that lots more money could have been moved is credible unless there had been a whole set of prior planning,” Summers says.

For the last few days, I have been trying out brand new social networking site from Google: Google+. This is a very promising start from Google. The user-interface looks clean and well designed. It is easy to friend people by adding them to one of the circles. A circle is a category – like a family, friend, colleague etc. You can create circles with your naming schemes. A circle is exactly what makes Google+ stand apart from the closest thing to it in the social networking world – Facebook. You can watch the feeds from different circles one at a time or all of them together. You can also choose to share updates/photos/videos with only one or few of the circles.

One thing I did not like immediately is Google+’s integration of Picasa photos into Plus with viewing rights granted to all my circles. I did not know that everyone had viewing rights until one of them asked me if I managed to load so many photos within minutes of opening my plus account. Nevertheless, I like the idea of being able to share the photos with only some of the circles. I also like the fact that it is easy to drag and drop friends photos etc. Like I said earlier, the UI is smooth, clean, and modern.

On the flip side, I am a sophisticated technology user who can find his way around the web, but I have to wonder whether a novice user of technology will find the idea of circles too hard to use.

I will not go as far as to say that Google+ is a Facebook killer. I do not think there is anything radically differentiating about Google+ that is impossible for Facebook to respond to quickly. The concept of putting your friends into groups/buckets is not that hard to build on the Facebook platform. There have been numerous examples in the past, including the most recent “super awesome” video chat. Other such features, to refresh your memory, include features like status updates (Twitter), places & checkins (Foursquare), deals (Groupon), video chat (Google). Facebook’s cozy relationship with Microsoft will help them acquire any features that require major back infrastructure development without having to go through the pain of starting from scratch.

Good news is, this will keep Facebook on its toes, will force them not to rest on their past laurels. I don’t see any reason why Google+ gives everyone a big reason to switch to a platform when their roots are, probably, running deep into the fertile soil of Facebook. It will be an interesting battle to watch.

Apple Led Group to Buy Nortel Patents:

Apple Inc. (AAPL) joined with rivals Microsoft Corp. (MSFT) and Research in Motion Ltd. (RIM) to outbid Google Inc. (GOOG) for a patent portfolio from Nortel Networks Corp. and gain rights to technologies for mobile phones and tablet computers.

The group, which also includes Sony Corp. (6758), Ericsson AB and EMC Corp., agreed to pay $4.5 billion in cash for the assets, Ontario-based Nortel said in a statement. The companies aim to complete the sale this quarter pending approval from U.S. and Canadian courts, it said.

So who is the loser in this War?

The winning offer came after several rounds of bidding and was five times the $900 million Google had offered before the auction for Nortel’s remaining intellectual property.

What was Google’s response?

“This outcome is disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition,” Mountain View, California-based Google said in an e-mail. “We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers.”

Although I am very sympathetic to this view, I see double standards here from Google. Are they really open about innovation in areas that really matters to them as a company? Will they open source their search algorithm?