UPDATE: Google's Motorola Purchase Borrows From Apple Strategy

Google Inc.'s (GOOG) proposed $12.5 billion purchase of Motorola Mobility Holdings Inc. (MMI) underscores the allure of a business model pioneered by one of the company's rivals: Apple Inc. (AAPL).

On Monday, Google said it was buying the Libertyville, Ill., handset-and-tablet maker for its portfolio of roughly 24,000 patents. Those patents would give the search giant protection of its intellectual property in an increasingly litigious technology environment.

The move also gives the Mountain View, Calif., Internet company an opportunity to build handsets and tablets from the ground up with its popular Android operating system. That would mimic Apple's success in integrating hardware and software, a strategy that has also inspired other companies, including Hewlett-Packard Co. (HPQ) and Research In Motion Ltd. (RIMM, RIM.T).

The growing desire to build integrated hardware and software highlights the success Apple has had with its tightly controlled iPhone and iPad platforms. Apple created the smartphone market with its iPhone, which was widely praised for its ease of use and functionality. And Apple's iPad dominates the market for touchscreen tablet computers despite a host of challengers.

"Vertical integration is clearly the business model of the day," Gartner Inc. (IT) analyst Van Baker said.

A Google spokeswoman directed reporters to comments Chief Executive Larry Page made earlier in the day during a press conference explaining the deal. During the call, Page said Android would remain an open-source platform available to all of the company's hardware partners.

"We look forward to continuing our work with all of them on an equal basis," Page said.

H-P declined to comment. Apple and RIM did not immediately respond to requests for comment.

Google will also benefit from Motorola's already existing Android products. Motorola has been building Android phones for two years, releasing the popular "Droid" phone in 2009 to much fanfare in the U.S. Motorola has since expanded its lineup of Android phones to include low-priced models.

Motorola has also tweaked Google's Android software, creating its own software called "Motoblur," which is designed to help customers connect with social networks, like Facebook Inc., more effectively. It also launched its "Atrix" phone earlier this year, a specialized device that docks with a keyboard and monitor to double as a laptop computer.

Of course, marrying hardware and software is not easy. Apple has pursued the strategy since it was founded in 1976, giving it 35 years to refine the model. Challengers are already finding it difficult to replicate that success quickly.

For example, H-P slashed the price of its TouchPad tablet, which uses an operating system the company purchased last year, after reviewers complained about both the hardware and software.

RIM's first tablet, the PlayBook, has also fared poorly in the market. Critics have complained that its QNX operating system, which RIM also purchased last year, was not ready for prime time.

"At the end of the day, it'll be difficult to compete against the design team in Cupertino," said Gleacher & Co. analyst Brian Marshall, referring to the California city in which Apple is headquartered.

Still, Google has shown it is willing to try. Google has released new versions of Android at a rapid pace, adding new features that either match or surpass Apple's functionality. The latest iteration, called "Ice Cream Sandwich," marries Android's tablet and smartphone software, giving Google an opportunity to refine features that have become successful on each platform.

-By Ian Sherr, Dow Jones Newswires; 415-439-6455; ian.sherr@dowjones.com

--John Letzing contributed to this article.

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