In its largest acquisition to date, search engine giant Google announced that it will buy Motorola Mobility for $12.5 billion – a move that could prove lucrative for both businesses.

The deal, which has been approved by both companies' boards, is expected to be closed by the end of 2011 or in early 2012.

In a press release, Google stated that the acquisition of Motorola Mobility will increase competition in the smartphone market and enable it to "supercharge" its Android operating system.

Google pointed out that Android has been the sole smartphone operating system of Motorola since 2008. Though Android will remain an open platform, the acquisition will create greater innovation for the mobile OS and for Motorola devices, Google stated.

"Motorola’s total commitment to Android in mobile devices is one of many reasons that there is a natural fit between our two companies," wrote Google CEO Larry Page on the company's blog. "Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers everywhere."

The deal could prove timely for both Motorola and Google. Though several of Motorola's smartphones have been critically acclaimed, it has struggled in the market in recent months. According to the company's most recent financial earnings report, Motorola posted a net loss of $56 million during the second quarter of 2011, despite shipping 4.4 million smartphones.

"We have shared a productive partnership with Google to advance the Android platform, and now through this combination we will be able to do even more to innovate and deliver outstanding mobility solutions across our mobile devices and home businesses," said Motorola Mobility CEO Sanjay Jha.

Google, meanwhile, has the potential to benefit from Motorola's intellectual property. As a Reuters report pointed out, Google's success in the smartphone market has been marred only by its lack of intellectual property. Furthermore, the company was recently denied the opportunity to purchase thousands of patents from Nortel, the news provider noted.

The real benefit to Motorola, though, is Android's continued dominance of the smartphone market. According to recent figures from research firm IDC, Android will account for 38.9 percent of the booming smartphone OS market by the end of 2011. Furthermore, the open source OS is expected to capture 43.8 percent of the market by the end of 2015, putting it well ahead of its then-nearest competitor, Windows Phone, with 20.3 percent.