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Google buys Motorola: Genius or colossally stupid?

You’ve got to love Google’s audacity.

Its $12.5 billion acquisition of Motorola Mobility — which makes phones that run on Google’s Android platform — puts the company in direct competition with iPhone giant Apple. 

The move has a strategic rationale: Android is on a tear.

It accounted for 43.4 percent of smartphone sales in the second quarter of the year, according to Gartner Research. Just one year ago that number stood at 17 percent.

“Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anticompetitive threats from Microsoft, Apple and other companies,” Google CEO Larry Page wrote today on the Google blog.

But does bold mean smart?

Henry Blodget at Business Insider — a former Wall Street analyst — makes a compelling case that this deal could go horrible wrong.

The deal creates major channel conflict: Google is now competing with its partners. And hardware manufacturing is an entirely different kind of business than Google’s core business. And hardware manufacturing is a crappy, low-margin commodity business. And Motorola is massive–Google has just increased the size of its company by 60 percent. And the deal appears to be purely a defensive move, not an offensive one. And so on.

Blodget’s excellent piece lays out all those negatives. See also Business Insider’s live blog of today’s call announcing the deal

Then, of course, there are the regulatory issues.

Here’s how Dealbook analyzes that aspect of the story:

The deal is certain to attract significant antitrust scrutiny. The Federal Trade Commission is already investigating Google’s dominance in several areas of its business. The company has agreed to pay a $2.5 billion reverse termination fee, if it walks away, and Motorola will pay a $375 million break-up fee if it takes another offer, according to a person close to the transaction, who was not authorized to speak.

In a conference call on Monday morning, Google said it was confident that it will be able to win regulatory approval, since the deal will ultimately improve competition in the smart phone market.

“We think this is a competitive transaction,” David Drummond, the company’s chief legal officer said. “This is not a horizontal transaction, Google has not materially been in the handset business.”

And, to round it all out, here’s a link to how CNBC played the story this morning.

Fun stuff, all around.

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