Watch CBSN Live

Schmidt's Moto-Mouth Puts Google in a Tricky Position

Yes, you really did say that.
Google (GOOG) sees the purchase of Motorola (MMI) as critical to its future. Not only does the company want patents as a litigation tool to protect Android (although it's not clear the strategy will work), but it likes the tax dodge potential. And there's another reason as well.

Chairman Eric Schmidt said that Google wanted to acquire Motorola's products. Boy, was that a mistake to say in public. Google's Android partners now know that the company wants to compete with them in the smartphone handset market. Not a really smart thing to spill when Microsoft (MSFT), for one, is ready to woo them away -- and has the resources to do it.

Come one, come all
The problem for Google -- well, for Google's hardware partners -- is the nature of the business relationships that have made Android a hit. As Microsoft did early in the days of the PC, Google recognized that if it made its mobile operating system available to all hardware vendors, it could overwhelm Apple's (AAPL) iPhone. Money would come in from advertising, and everyone would be happy.

Because Google's business model requires no payment from partners, and it had targeted the touch-and-feel of the iPhone, vendors had high incentives to adopt Android. But with Schmidt's latest statement, the company has dropped a big monkey wrench into the works.

Sure, we'd love to help you go into competition with us
Hardware vendors don't like competition from a partner. Google could have a huge design benefit from its better knowledge of Android and what will be coming up for the operating system. Furthermore, Motorola will now have Google's financial and legal resources backing it should it keep getting sued, giving it a leg up over other Android handset makers.

Up until now, those vendors have been cautiously supportive of Google. Expect that to end -- in private, if not in public. Smartphone makers now know that Google plans to take them on directly, no matter what it says going forward. That will give them strong incentives to consider alternatives, including Microsoft's Windows Phone and maybe even good old Symbian.

In other words, it's bad enough to get sued for patent infringement, as Samsung and HTC both have, for using Android. Who wants to go to all that trouble when Google also wants to kill your hardware sales in favor of its own?

Seems like old times
In a way, this has been like a homecoming. Ever since Schmidt left as CEO Larry Page took charge, there's been a void of ... irresponsibly foolish statements. Schmidt has a history of opening his mouth and inserting both feet.

And that's what he just did again. Expect a lot of nervous hardware vendors. But maybe that's what happens when there's a bad case of moto-mouth.


Image: Flickr user Charles Haynes, CC 2.0.
View CBS News In