Why Nokia Bought Symbian, Then Gave It Away

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Well, one commenter wrote that my sentence-long analysis of Nokia’s acquisition of Symbian was too simplistic. I agree. Innosight Senior Partner Steve Wunker, who worked at Psion in the 1990s, had the following thoughts:

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Ten years ago, a bevy of companies shocked the communications industry when they announced the formation of Symbian–a for-profit consortium that would transform the PDA software of Britain’s Psion PLC into a platform powering high-end smartphones.

Back then, these smartphones were gleams in engineers’ eyes (the first–Ericsson’s Project Pamela–was the size of a small book and never commercially produced). But, almost unanimously, industry analysts foresaw them taking over the premium tiers of the mobile market and requiring a common software platform for the third party developers who would create the applications that users would demand. At its peak in August 2000, equity markets valued Symbian at nearly $10 billion.

This week, Nokia bought out the remaining shareholders of Symbian for about $410 million, and immediately declared it would give away the software code to a non-profit Symbian Foundation.

Was this tumble because Symbian produced a bad product? Not at all. By most measures–system reliability, power consumption, etc.–Symbian’s mobile operating system is the best on the market.

Rather, the world changed in ways very few industry analysts expected. A decade ago, intelligent people reasoned that the processing power of the mobile would start catching up to PCs, and so people would start to demand PC-like functionality on their phones. Moreover, the mobility of the phone would lead to many unique applications being developed for this platform.

Looking at Microsoft, they saw a quasi-monopoly forcing PC manufacturers into low profitability, with little control over what people did with their products. They also observed Microsoft creating early versions of its own mobile operating system.

Nokia, Ericsson, Motorola, and others were determined that they, not an upstart software company, would guide the development of the mobile industry.

Yet the analogy was flawed.

It turned out that users cared more about the style of their handsets than the elegance of its software–witness the success of Motorola’s RAZR with notably un-elegant software in its guts. Mobile phone manufacturers came to realize that development cycle time was critical to matching handsets with fashion trends, and they could speed cycle times by relying on their own proprietary software platforms.

Concurrently, mobile carriers such as AT&T showed little enthusiasm for third party software to be used on their networks–it would mean forsaking too much control. Plus, users found that they actually didn’t want a lot of specialized applications on their handsets. Hence the key reasons why stakeholders–manufacturers, carriers or users–would demand a common operating system were predicated on faulty assumptions.

To be sure, Symbian still had a market, but it was at the very high end where most manufacturers found it cost-ineffective to develop propriety systems.

In the past year, Symbian’s outlook became murky. Google announced that it would release a free software platform, called Android, to power smartphones. Rather than make money through charging license fees like Symbian, it would make money through advertising and other new business models.

The software would be good-enough on performance criteria like stability and power consumption, and would eventually be an easier platform than Symbian for third party developers. In the past month, Apple announced a new version of its iPhone software designed to be even simpler for these developers to use.

Enter Nokia. As Symbian’s largest shareholder, it had based many of its devices on this platform. It was making its money on sales of Nokia hardware, not on Symbian’s license fees, but those hardware sales would be threatened if third party applications finally took off without Nokia handsets being able to run them.

So Nokia changed the rules.

By buying out Symbian’s other shareholders and giving away the sourcecode, it aims to make this platform the leading choice for developers. Moreover, it has enlisted new allies such as the giant carriers Vodafone and AT&T to support the Symbian Foundation, helping to ensure a lasting market for these devices.

The move seems to make sense, given that Symbian shares have proven to be cheap. Nokia is buying an insurance policy–it isn’t certain that the availability of third party applications will drive handset sales, but the possibility of this scenario is scary enough to make the investment worthwhile. Nokia has optimized its systems, from chipsets to user interface, to work with Symbian’s operating system, and it would be difficult to switch to a competing platform.

It is a tangled tale. Yet we can draw some powerfully simple lessons:

1. Thoughtful analogies are no substitute for real-world experience. Symbian took years to produce its first mobile phone software. Brilliant people dreamed up potential applications. Yet actual usage showed that high-end buyers were still looking for basic features. A simpler operating system, with fewer bells-and-whistles, could have come to market more quickly and provided essential guidance.

2. New business models can up-end industries. Symbian found that it is difficult to compete against free. Google envisaged a totally different way to profit from owning the operating system. Now, Nokia has changed the game again, leaving Google in a difficult spot with no installed base and few strong partners.

3. Beware attacking powerful incumbents. Manufacturers and carriers worried about Google’s ascendancy. Perhaps, predictions from long-ago would hold true, and a phone’s operating system would significantly sway market shares. There were powerful motives to avoid sacrificing control.

4. Hedge your bets. Nokia may have thrown away $410 million. Proprietary systems may still rule, and Android may have had little impact on how manufacturers and carriers make money. Yet the contrary scenario was too frightening. Recognizing that it is no more omniscient now than 10 years ago, Nokia wisely invested to forestall that scenario from happening.

It may be another decade before we see whether Nokia’s move has paid off. But we can judge today that its decision was prudent.





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