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Innovation & Technology September 10, 2009, 5:00PM EST

Will Social-Network Smartphones Boost Motorola?

The handset maker is betting its new Cliq phone aimed at Twitter, Facebook, and MySpace users will reverse its dwindling fortunes

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Osterloh's idea for a new line of phones is now a central part of Motorola's plans Andy Freeberg

By Roger O. Crockett

Two years ago, Motorola's Rick Osterloh made a pitch to his bosses that almost got quashed before he left the room. In a 12th-floor conference room at Motorola's Schaumburg (Ill.) headquarters, the 37-year-old software executive proposed creating a line of phones that would use the Google (GOOG)-backed Android operating system and feature software designed for the budding world of social networking. As former Chief Executive Officer Edward J. Zander and current co-CEO Greg Brown listened, several top executives attacked the idea, arguing that Motorola (MOT) already had too much complexity in its product lines. "There was controversy," says Osterloh.

Zander ultimately approved a modest investment. Now, Osterloh's idea is being used not just for one product line but as the leading example of the central strategy for Motorola's mobile-phone business. On Sept. 10 the company is unveiling the first model in its Android-powered line, a phone called Cliq. The phone uses Motorola-developed software, known as Blur, to create a social networking command center, combining every major service—MySpace (NWS), Twitter, Facebook, and more—on one screen. Postings can be typed and zipped to each site simultaneously with one swipe of the phone's touchscreen. Social networking features are embedded in everything from the phone's address book to its e-mail program. "The barrier between people's work and personal life is disappearing," Osterloh says. "We really tried to hit that sweet spot between consumer apps and work [programs]."

The notion that Motorola will try to distinguish itself with software is risky. The company has built standout hardware, from the first compact flip phone in the late 1990s, the StarTAC, to the dazzlingly slim Razr in 2004. But Motorola phones like the Rokr music phone and even the Razr were infamous for their clunky software. "Motorola has spent lots of time and money trying to develop the world's greatest software," says John Jackson, an analyst at the research firm CCS Insight. "But they haven't executed." With Blur, Motorola is betting it can reinvent itself as a master of both hardware and software.

Sanjay Jha, co-CEO and chief of the mobile-phone unit, is the man responsible for making sure this time is different. He has created a half dozen work teams to focus on specialized software areas, including social networking and location-based services. One group is concentrating on corporate e-mail, which suggests a clash with BlackBerry maker Research In Motion (RIMM) is on the horizon. Within a month, Motorola is expected to debut its second Android phone, for Verizon Wireless. Over the next year, Jha says Motorola will release phones in the U.S. and overseas that will reflect the breadth of its software development. No more "one-hit wonders," he vows. "If we do all of this we will have a machine that is sustainable."

Motorola needs a change in fortune. Once the world's dominant phone manufacturer, it has tumbled to the middle of the pack. It is No. 4 in market share behind Nokia (NOK), Samsung, and LG, dropping to a mere 5.4% share from 22.4% in 2006, according to researcher Strategy Analytics. In the fast-growing and lucrative smartphone category, Motorola has been surpassed by Apple (AAPL) and RIM (RIMM).

It required a dose of California innovation to give Motorola hope for a turnaround. Osterloh joined the company as part of its acquisition of Silicon Valley's Good Technology in early 2007.

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