Nokia Throws Open Mobile Software

Buying Symbian and making its mobile operating-system software open source should keep the likes of Apple and Microsoft on their toes

Few companies have the heft to take on Apple (AAPL), Google (GOOG), and Microsoft (MSFT)—much less all three at the same time. But Nokia (NOK), the world's largest handset maker, made it clear on June 24 that it does not intend to cede its ground in mobile-phone software to gate-crashing U.S. tech giants.

The Finnish company announced a plan to buy the 52.1% of shares it doesn't already own in London-based Symbian, the leading maker of operating system software for advanced mobile phones. In an industry-shifting move, Nokia will merge the company with parts of its own organization and then create an open-source foundation that will give away the resulting software for free to other handset makers.

Until now, Symbian has been owned by a consortium of rivals including Nokia, Sony Ericsson, Panasonic (MC), Siemens (SI), and Samsung. The company was set up a decade ago to develop an independent software platform for smartphones. And indeed, Symbian software is now used in more than half of all such devices, relegating rivals such as Microsoft's pint-size Windows Mobile to a thin slice of the market.

But in the past year, the complexion of the industry has shifted as a new crop of rivals, most using open-source Linux software, have barged in. Nokia and the newcomers are now locked in a high-stakes battle whose outcome could shape the future of mobile communication—and by extension, of the Internet, as a growing number of consumers around the world access the Web from handheld devices (, 2/12/08).

The new Symbian Foundation will be steered by a board of 10 members: five from phone manufacturers Nokia, LG Electronics, Motorola (MOT), Samsung, and Sony Ericsson, and five from network operators and chipmakers AT&T (T), NTT DoCoMo (DCM), Vodafone (VOD), STMicroelectronics (STM), and Texas Instruments (TXN). The goal? "To be the most widely used platform in the world," said Nigel Clifford, Symbian's chief executive, during a London press conference on June 24.

Moving into Mass Market

But there's more to it than that. In an era of emerging wireless applications, a platform is merely the jumping-off point. The real focus in the industry is shifting from what's inside the phone to the snazzy online stuff a handset can access over the air—from mobile music and photo sharing to GPS and location-based services. That's why Nokia is racing to deliver all manner of such offerings through a combination of in-house development and aggressive acquisitions. On June 23, for instance, it bought Berlin-based Plazes, which offers mobile social networking.

Before Nokia can convert millions of customers to wireless Web services, though, it has to give many more phones the capability found in its high-end N-Series models or the trendsetting Apple iPhone.

That's where Symbian comes in: Today it's used mostly for top-of-the-line devices, but Nokia and others want to see it move down into mass-market products (known in industry jargon as "feature phones").

Today, such phones tend to use inflexible, homegrown software that's nightmarishly hard for handset makers and mobile operators to modify, limiting the opportunity for economies of scale possible if phones from many makers shared common software. Closed systems also make life more difficult for operators and suppliers of mobile software and services.

Symbian has been scrambling to move its software onto less expensive midrange devices of the sort now powered mostly by proprietary operating systems. But it will have to compete against newcomers like Android, an initiative backed by Google, which seeks to create a Web-friendly software platform, based on open-source software, for midrange phones. Reports emerged on June 23 that Android may be delayed until early 2009 due to technical challenges, but nobody is dismissing its potential to shake up the industry.

"A Shrewd Response&quot

In the meantime, a Linux initiative called the LiMO Foundation, which has the backing of big mobile operators including Vodafone and Verizon Wireless (VZ), has been gaining traction in the marketplace (, 5/14/08). Some 50 operators and handset and chip makers have signed up, and 16 handsets using the LiMO operating system are already on the market. Additional partners and up to 10 more handsets are expected to be announced in July, says Morgan Gillis, the LiMO Foundation's executive director.

Then there are the computer industry players. Apple has raised the bar for all other handsets with its revolutionary user interface and ease of use, while Microsoft, which has a slowly growing presence in smartphones for business use, has made no secret of its own ambitions to move into mass-market consumer phones. BlackBerry maker Research in Motion (RIMM) also is trying to move beyond business-oriented devices into the consumer market.

Nokia's June 24 move "is a shrewd response" to these growing threats, says Geoff Blaber, an analyst with British mobile consultancy CCS Insight. By opening up Symbian to the industry and making it free, the software will become more robust and widely used. The deal also could knock the stuffing out of rivals such as Microsoft who continue to charge royalties for the use of their software. According to Nomura Securities analyst Richard Windsor, Symbian's shift to an open-source licensing model could cause "severe pricing pressure on those who develop mobile software for profit."

Spreading Bets

The deal also makes financial sense for Nokia, analysts say. Nokia had been paying significant licensing fees to Symbian—more than $250 million last year alone, CCS Insight estimates. Better instead to spend $410 million to buy out Symbian, rather than keep paying what was effectively a subsidy to the company's other shareholders. All told, says brokerage Dresdner Kleinwort (KWFTF) in a research note, the deal should help Nokia compete better against Apple, RIM, and Linux- and Windows-based smartphones.

To be sure, some important questions remain. Among the largest, points out CCS Insight's Blaber: Can the new Symbian Foundation really be open and independent when Nokia has such a vested interest in its software? That's one reason so many big players in the mobile and tech industries continue to spread their bets.

Case in point: Representatives of both Motorola and Japanese telco NTT DoCoMo supported Nokia in London on June 24 and will serve on the board of the new Symbian Foundation. Yet both companies also are involved in the LiMO Foundation and are also taking part in the Android initiative.

In the end, it's unlikely any one operating system will prevail in handsets, as happened with Windows on personal computers. And for all its efforts to remain in the lead, Symbian could stumble if the rival initiatives do a better job of recruiting handset makers, independent software developers, service providers—and end users.

"This is a difficult industry," says Colly Myers, a former CEO of Symbian. "Part of it is technology; part of it is fashion; and part of it is consumer." As with anything tied to trends, he notes, "today's hero is tomorrow's fallen idol."