TECHNOLOGY TODAY: Google's next move: Buy Sprint?

NEW YORK, USA.- Google is best known as a search company. But with Monday's deal to buy Motorola Mobility, the company made a cannonball dive into a field it's long been edging toward: the mobile communications market.

Pending regulatory approval, Google's arsenal now includes Motorola (MMI), Android, Google Voice, a fiber optic cable infrastructure, an Internet phone service and experience in the mobile retail markets. It's also got more than $26 billion in cash left over, in case it wants to go buy another arrow for its mobile quiver.

Google (GOOG, Fortune 500) has bought itself a set of endless possibilities. But each potential next step comes with a serious set of drawbacks.

Keep Motorola at arm's length: Google CEO Larry Page said he plans to run Motorola as a wholly separate company. Handset manufacturing is not part of the search giant's core competency, he told analysts Monday on a conference call after the deal's announcement.

Google's other handset partners claim -- publicly, at least -- that they're not worried that Motorola will get preferential treatment. Executives at Samsung, LG, HTC, and Sony Ericsson all said they supported the move as a way for Google to stave off patent lawsuits from its rivals. Any manufacturer hitching its wagon to the Android star needs that patent protection just as much as Google does.

But $12.5 billion is a lot to pay just for patents. And Android has a critical fragmentation problem that Motorola could help solve. Which opens up Option #2 ...

Get a crash course in hardware 101: Google has been unable to create a consistent user experience across the dozens of manufacturers that license Android, but using Motorola to learn more about Android from a manufacturer's point of view could help fix some of those issues.

Google's lack of understanding of hardware has often been at the root of its missteps with Android. Thinking like a handset maker could help drive better customer satisfaction -- a metric that doesn't quite compare to that of Apple's (AAPL, Fortune 500) iPhone customers.

What Google learns from Apple

"With Motorola, Google will get a better understanding of how hardware works," said Ramon Llamas, mobile device analyst at IDC. "They can then offer better help to guide their partners about how to develop hardware for future Android products."

Set the bar for other partners: Google may decide to use Motorola to create "showcase" smartphones that it thinks best embody the vision it has for Android and the mobile market. The company could attempt to spark innovation among its other partners by challenging them to match Motorola's flagship devices.

Google said Monday it wouldn't do that -- though it's hard to believe that, as Motorola's parent company, Google will allow Motorola to continue on forever without any input.

But analysts say that kind of intervention could make Google's partners run away.

"If all of the sudden, Motorola gets to be the halo product and no one else gets software updates for two to three months, the other partners are going to start looking seriously at Windows Phone," said Ken Dulaney, analyst with Gartner. "They're all going to be nervous that Motorola will do something to anger them."

Close Android's gates: Some have suggested that Google could try to go head-to-head with Apple by shutting out its other partners and making Motorola the exclusive Android smartphone manufacturer.

But Google's open-source strategy is a key part of both its business model and its corporate philosophy. Because Android carries an open-source license, it can't be "taken back": Outside manufacturers will always be able to use, adapt and update all the Android code Google has released so far.

Google gives Android away for free because its goal is to put smartphones in as many hands a possible. The company makes its money on the back end, from ads served on its e-mail, search, maps and other apps on those devices. That strategy has been wildly successful so far -- meaning Google isn't likely to suddenly change course.

Plus, there's another catch: Motorola is small potatoes compared to much larger Android partners like Samsung, LG, and HTC. Each of those commands a smartphone market share that dwarfs Motorola's.

Buy Sprint: Sprint's market cap has fallen to just $10 billion -- down 15% so far this year. Google could probably afford to buy the struggling carrier with cash, even after the Motorola deal closes.

Google relies on the established carriers to sell and support its devices. But if Google could have the ability to deal directly with its customers,why not cut out the middleman?

Though analysts widely believe Google's mobile ambitions are strong, few think Google would actually try to become a wireless carrier anytime in the near future. The infrastructure needed to carry signals around the globe is incredibly expensive, reducing the profit margins of wireless companies like Sprint (S, Fortune 500) to next-to-nothing.

"If you look at the margins Google enjoys compared to the margins carriers enjoy, why would you ever want to trade one for another?" asked Charles Golvin, analyst with Forrester Research. "Also, you can't be a carrier with just one device. It would create questionable competitive dynamics."

Then again, no one thought Google would want to buy up a handset manufacturer -- or launch a head-to-head assault on Facebook, as it did with Google+. Four months into Larry Page's tenure as CEO, he's already proven he's not afraid to make high-stakes bets.

Forget "don't be evil." Google's new motto seems to be "expect the unexpected."

What Google is buying: Motorola's 83-year history of invention

Motorola's creations stretch from a pioneering walkie-talkie to the first cell phone.

When Google agreed to buy Motorola Mobility, it bid for a company that predates it by 70 years.

Brothers Paul and Joseph Galvin founded the Galvin Manufacturing Corporation in 1928, based in Chicago. Their first product was a battery eliminator, a power converter that allowed battery-powered radios to be plugged into household electrical outlets.

The company soon began to try its hand at revolutionizing the radio itself, putting radios in everything from cars to backpacks to hands. Three-quarters of a century and one name change later, Motorola has amassed 17,000 patents and developed some truly groundbreaking technology.

Motorola founders Paul Galvin (left) and Joseph Galvin

 

 

Customers furious, staff defiant at China's fake Apple Store

KUNMING, CHINA—Customers at an Apple Store in the Chinese city of Kunming berated staff and demanded refunds on Friday after the shop was revealed to be an elaborate fake, sparking a media and Internet frenzy.

Long a target of counterfeiters and unauthorized resellers, Apple Inc was alerted to the near flawless fake shop by an American blogger living in the southwestern city, more than 1,600 kilometres from the nearest genuine Apple stores in Beijing and Shanghai.

"When I heard the news I rushed here immediately to get the receipt, I am so upset," a customer surnamed Wang told, near tears. "With a store this big, it looks so believable who would have thought it was fake?"

Wang, a petite, 23-year-old office worker who would not give her first name, spent 14,000 yuan ($2,050 CDN) last month buying a Macbook Pro 13-inch and a 3G iPhone from the Kunming store. She wasn't issued a receipt at the time, with staff telling her to come back later.

"Where's my receipt, you promised me my receipt last month!" Wang shouted at employees, before being whisked away to an upstairs room.

Staff were also angry at the unwanted attention after more than 1,000 media outlets picked up the story and pictures of the store from the BirdAbroad blog.

"The media is painting us to be a fake store, but we don't sell fakes, all our products are real, you can check it yourself," said one employee, who didn't want to give his name.

"There is no Chinese law that says I can't decorate my shop the way I want to decorate it."

While upset at the coverage and unwilling to be fully identified, staff were cooperative when Reuters visited the store, answering questions and allowing the shop to be filmed.

Another employee, surnamed Yang, said business had been affected, with customers demanding they prove the authenticity of their products.

Apple has declined to comment on the fake store or others like it dotted around China. The Cupertino, Calif.-based firm has just four genuine Apple Stores in Beijing and Shanghai and none in Kunming.

With about 3.2 million inhabitants, Kunming, the capital of the mountainous southwestern province of Yunnan, is small by Chinese standards and not well known in the West.

Located not far the borders of Laos, Vietnam and Myanmar, the city's fast-growing industrial and manufacturing base is emblematic of China's ascent on the world stage.

The fake Apple Store is situated along a crowded pedestrian-only shopping street, its black Apple logo gleaming. Inside, with its Apple posters on the walls and iPads and Macbook computers displayed on wooden tables, the store looks every bit like Apple Stores found all over the world but for some slightly shoddy workmanship and one or two errant details.

Not all customers were bothered by the revelations that the store was not the genuine article.

"As long as their products are real it's okay – after all, you enter a store not to look at anything except their products," said Hu Junkai, 18. "If the products you buy are real, why do you care whether the store is a copy?"

Wang was not convinced.

"The biggest thing I'm upset about is that I spent so much money at this store and I don't even know whether it is real or not," she said.

"What can I do? They aren't going to give me a refund."