[Why did Nokia really acquire Symbian for? Research Director Andreas Constantinou digs beyond the surface to analyse why the Symbian deal is about far more than just Ovi and Android].
The Finns are behind the smartest, longest-reaching strategies the mobile industry has ever seen. Nokia’s pending acquisition of Symbian is no exception. We ‘ve covered the
Symbian acquisition in detail before, but here we ‘re piecing together more pieces of the puzzle.
Industry observers will often point to the Ovi strategy as the reason for the Symbian acquisition, i.e. that Nokia wants to control the service delivery layer on top of Symbian handsets (incl. ones from competing OEMs), on top of which Ovi will sit. But’s there’s lots more to it than Ovi.
Others observe that the acquisition and Symbian’s new open source (EPL) roadmap and zero royalty pledge are Nokia’s response to Android. I would argue, that Android is not the reason WHY Nokia is moving to acquire Symbian, but WHEN it chose to do so; Royalty levels and governance of source code access is something the Symbian board can change anytime it wishes to, and it has in the past. The timing of the acquisition announcement (six months after Android was unveiled) may be why many details on the governance rules of the Symbian Foundation were not finalised at the time of the press release – including IP ownership, who has the right to commit to the codebase, the plans on S60 phones for Japan and the membership fees for OEMs.
But there’s many more benefits that Nokia reaps from the Symbian acquisition:
– Nokia reduces the cost of developing the Symbian OS. We know that the Symbian Foundation will be responsible for “coordinating development projects and managing the master code line”. Estimating that the Symbian Foundation may need 200 staff for managing membership and babysitting the codebase, this implies $20M OPEX, which shared being the 5 OEM members means $4M annually for Nokia. Assuming Nokia will also inherit another 500 Symbian employees (i.e. the rest of Symbian minus non-overlapping functions) from the acquisition, this makes another $50M million OPEX. In total, Nokia’s OPEX costs should be around the $60M mark, or about 50 percent of the royalty fees ($2.5per unit) it was paying to Symbian to for 60+ million S60 phones a year. So Nokia’s OPEX for developing Symbian drops to about half with the acquisition. This is largely dependent on how many Symbian engineers Nokia will retain, and 500 is a large number, knowing that other OSes need 100-200 engineers to develop a core OS (Rubin’s Android team had 100 staff back in 2007, according to a VC – note: the post has been retracted, but you can still find it within Google Reader).
– to further its S60 strategy. Nokia’s S60 has always been about extending the Finns’ control of mobile service delivery beyond its own 40 percent of the market – albeit a strategy that hasn’t bore fruit, given that LG and Samsung have released very few S60 models at low volumes compared to Nokia. The Symbian acquisition displaces UIQ and MOAP, since the majority of the Symbian Foundation code will be formed from S60 and Symbian with “selected UIQ and MOAP(S) technologies integrated” (see whitepaper). The result: Nokia’s own S60 will be used as the UI layer by SEMC, Motorola, who were previously using UIQ and MOAP(S).
– to further outpace other OEMs in producing smartphones. As explained, SEMC and Motorola will have to switch from UIQ (which was only selling circa 1M phones a year) to S60. This means it’s going to be 2-3 years before they can compete with Nokia’s speed of launching new handset models in the market. No doubt, both SEMC and Motorola will be looking at alternatives. Nokia essentially outpaces the rest of the OEMs in producing more smartphones to market, with more models, more quickly and more cheaply than anyone else.
– to more effectively control the Symbian roadmap. Symbian’s past governance structure meant that the software roadmap is controlled by the board of directors, with Nokia having just under 50% share of ownership. Boards tend to be very process-heavy and time-consuming vehicles for software governance, so I ‘m assuming that Nokia did have a strong say, but in a coarse and long-winded manner. Instead with the Symbian Foundation, Nokia will be contributing the Symbian+S60 codebase, to be licensed under an EPL open source license. Our experience with sponsored open source projects is that control is granted to the commercial entity who dedicates the most engineers to code maintenance. Even if participants can fork the code, they are not incentivised to do so, given that a centre of gravity of contributions forms around the biggest contributing entity; for example, Nokia went on record to say that they shouldn’t have forked WebKit from Apple’s codebase. Assuming that Nokia will be putting most engineers to work on the Symbian Foundation code (way over 1,000, if you add the internal S60 staff), there will be little incentive for any OEM to fork (even if the Foundation governance model permits this, which is unknown at this time).
– to cement Nokia’s economies of scale in producing differentiated handsets. In open source projects, the commoditised software base is licensed under an OSI license, while differentiation remains closed source (Maemo, Eclipse and WebKit are good examples). Applied to the Symbian Foundation this implies that SEMC, Motorola, LG and Samsung will still have to differentiate on top of S60, but Nokia will no longer have to manage this differentiating layer on their behalf (it would have limited incentive to do so). Therefore Nokia will have much better economies of scale at producing differentiated handsets compared to the other tier-1 OEMs who will need to develop and manage a UI differentiation layer on their own.
– to marginalise Microsoft away from consumer phones and ODMs. The zero price point for running royalties also makes Windows Mobile way more expensive (based on $6 per unit price according to Nomura), for both consumer phones, and especially for ODMs who have tiny margins. With Nokia recently licensing Exchange server connectivity across all of its S60 phones, this makes Nokia a credible competitor for the enterprise segment, too.
Clearly, the Symbian acquisition has been a very smart move by Nokia indeed.
– Andreas
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