[Trying to figure out the rationale behind Nokia’s acquisition of Trolltech ? Research director Andreas Constantinou dissects the facts, figures and strategic thinking behind this seminal development in the mobile industry.]
From a 10,000ft view, Nokia’s acquisition of Trolltech is about preparing the ground for Ovi; allowing Nokia to create a consistent service access platform (much like Google’s Android) that will make it fast/easier/more intuitive to access Ovi services from any connected device. Trolltech is a fundamental building block in Nokia’s transformation to an Internet services company.
Read on for facts and figures.
Deal Background – On January 28, Nokia announced it will acquire the majority of shares at Trolltech, a maker of cross-platform tools and software for application development. The major shareholders have agreed to the acquisition, and so Nokia is expected to eventually acquire 100% of the shares. – Nokia is paying 16NOK a share which is around 6NOK premium to the 10NOK where the share price has been hovering after Trolltech’s IPO peak. – At 16NOK/share the acquisition values Trolltech at over EUR 100 million. – Compare that with Trolltech’s FY2006 revenues of NOK 174M (roughly EUR 21.6M). This a 5:1 multiple over the company revenues, which is quite conservative for telecoms company valuations. – Trolltech revenues have been growing at 40% year-on-year, but the company has been loss-making in the last two years and only managed to bring EBITDA into positive in 3Q07. Moreover, Trolltech s share price had fallen to 10NOK for most of 2007, following an offering at 16NOK at the time of the IPO in July 2006. (see Trolltech 3Q07 results).
Trolltech backgrounder Founded in 1994, Trolltech is a vendor of software platforms and development tools for Linux, Windows, OSX and mobile Linux. – The company has 250 employees and is headquartered in Oslo, Norway with offices in Beijing, Silicon Valley, Australia and Germany. – Historically, the company has been VC-funded by Index Ventures, Borland and NorthZone and raised a further $22 million through its July 2006 IPO on the Oslo Stock Exchange. – The company has more than 5,000 customers including Skype, Google, Cisco, Adobe and Industrial Light & Magic. – The main product, Qt (pronounced cute ) is an application execution environment and user interface framework for Windows, Mac and Linux desktop environments. – Trolltech Qtopia (previously Qt/Embedded) is a version of Qt downsized for mobile and embedded devices. Qtopia has shipped in more than 10 million devices to date and more than 40 models, primarily Motorola handsets for China and also handsets from Cellon, ZTE and Wistron. – Qt (incl Qt/E) has also shipped in more than 130 embedded device models, such as PVRs, automotive devices, medical devices and set top boxes. – Qt and Qtopia have been licensed under a dual licensing model; a GPL-licensed branch for non-commercial use and a proprietary licensed branch for commercial use. – Qt has been the main money-maker for Trolltech (primarily from ISVs), while being backed by a reported 100,000-strong application developer community. – On the contrary, Qtopia sales have not met expectations. Indeed, Trolltech s strategy with Qtopia hasn t been performing as had been hoped; the Greenphone was discontinued a year following its introduction and Qtopia had lost all of its community developers, as Trolltech had not been paying due attention to its GPL branch for over two years. Qtopia had also been sidelined by the industry, given that GTK (a graphics framework and competitor to Qtopia) had been selected by most industry Linux players (including forums LiPS, LiMo, GMAE, and OEMs NEC, Panasonic and Nokia).
The rationale behind the Nokia acquisition – Nokia s strategy is to use Qt to establish a uniform service development, deployment and access platform across various embedded devices (set-top boxes, IPTVs, home appliances, tablets) using a single codebase with form factor specific UI on top (Qt has been ported on Desktop Linux, Windows, MacOS, embedded Linux (Qtopia Core) and Windows CE (under development). Qt supports C++ and recently Java (via Qt Jambi) – Combined with Ovi, Qt/Qtopia is essentially the foundation layer for developing, deploying and accessing Ovi services. – The acquisition further allows Nokia to strengthen its tools offerings. Trolltech offers a range of development tools, including RAD tools, QtDesigner, qMake a command line tool chain, a plugin for Visual Studio and internationalization utilities. Note that Nokia had also acquired the Symbian tools from Metrowerks tools in September 2004. – The acquisition also allows Nokia to tap into the very respectable 100,000 reported developer base of Qt most of which are KDE desktop developers). – It also gives Nokia a stronger access to a modern application execution environment for connected devices, where Nokia has to compete with Google s Android (with the Dalvik J2SE-like virtual). – Whereas there is a high-degree of functionality redundancy between S60 and Qtopia, there are interesting synergies between S40 and Qtopia (note that for each S60 device, there are roughly eight S40 devices shipping). – S40 has over the years managed to support modularity, most importantly operator and regional variants. Adding parts of Qtopia above S40 would create a much more customisable stack in terms of the UI and middleware components. (Qtopia Core is also known to be lighter than GTK in terms of footprint/performance).
Industry impact – Motorola has committed to the Qtopia SDK as their development platform for external developers. Following the acquisition, Motorola will therefore have to move away from relying on Trolltech. – In practice Motorola will need at least 18 months to migrate away from Qtopia (assuming that handset business still bares the Motorola brand name by then!). Motorola will also have to eventually write off related investments, including the 300 developer seats it purchased for Qt/Embedded. – Trolltech joined the LiMo foundation in 7 January 2008, which is clearly synchronous to the acquisition announcement (the Nokia Trolltech discussions should have been intensified 3-6 months before the acquisition). As such it is likely that Nokia does care about a stake in the LiMo foundation and is initially using Trolltech as a vehicle to participate to the major forum competing with Google-led Open Handset Alliance. – The acquisition bares little direct impact to Symbian and Nokia s S60 strategy, but a turn away from potentially using Symbian for Nokia s S40 platform (something Symbian has been long-hoping for). – There is an indirect, negative impact to Symbian, since now Nokia is perceived by the industry to be less and less reliant on Symbian OS. Nokia itself reinforces that perception: This acquisition will also further increase the competitiveness of S60 and Series 40. , according to Kai Ã–istÃ¤mÃ¶ , Executive Vice President, Devices, Nokia – Qt is at the heart of one of the biggest pieces of open source software: the KDE Linux Desktop (parent project of the now famous Webkit browser engine). Nokia needs to learn from the successful Maemo project on how it should treat open source developers. Ari Jaaksi should now be a very prominent figure within Nokia.
Qt/Qtopia as the foundation for Nokia’s Ovi Zooming out, it is clear that Nokia wants to use Qt/Qtopia as the foundation for Ovi, in three ways: – use Qt/Qtopia to support rich Ovi services across a large footprint of embedded/mobile devices. As Ovi is the evolution of S60, it also needs a foundation layer for developing rich Ovi clients (this rhymes with rich internet clients from Adobe and Google). – use Trolltech developer tools and environments to enable richer delivery and implementation of Ovi services and future Ovi-based services. – tap into the repored 100,000+ developers of Qt
Quick background on mobile software trends: the war of the OSes (read Symbian vs Windows Mobile) has faded, while the war of the application exec environments is the flavour du jour (see Flash Lite vs Java; Java SE vs Java ME; web programming vs C++). Nokia, as a long-term thinker is preparing for the next war: that of the service access environments for connected devices.
Much like Google’s Android, I expect that Nokia wants to turn Qt/Qtopia into a service access environment, to feature: – an environment for connected applications and often-on connectivity which treats each application as a Web 2.0 citizen. – which taps into the long tail of developers, not just the short head, like S60 does. – and which is backed by established developer communities
In the meantime, Nokia should be seeing that S60 and S40 middleware is commoditising, following the fate of Symbian OS. Perhaps it could get the other OEM stakeholders at Symbian to fund an acquisition of the S60 stack, while Nokia concentrates on the UI and service access layer which is Qt/Qtopia.
For a historical (mid 2006) perspective on Trolltech s strategy, see the research paper we wrote on Mobile Operating Systems: The New Generation, which was sponsored by Trolltech.
For a strategic perspective on manufacturer strategies and the rise of the service environments, see our mobile megatrends presentation (particularly trends 4 and 10).