UPDATE: Nokia to Acquire Symbian Ltd. – Can you hear me now?

What Happened?

On June 24th, Nokia Corporation (NYSE: NOK) announced its intent to acquire the remaining shares of Symbian Limited, a company of which they currently own a 47.9% stake, for an estimated $410 million. In conjunction with the planned acquisition, Nokia, Sony Ericsson, Motorola, and NTT DOCOMO, among others, will be launching the Symbian Foundation, an open and non-profit organization that will develop a royalty-free, Open Source Symbian OS-based software platform. The acquisition is expected to close pending regulatory approval in the 4th Quarter 2008. The Symbian Foundation’s launch is expected in the first half of 2009 with a complete integrated open source mobile software platform anticipated to be available in the first half of 2010.

VDC’s View

VDC wondered throughout yesterday just what was going on in Redmond. The stakes have certainly been raised in the mobile operating system market based on Nokia’s announcement to acquire and then create an open source Symbian Foundation entity.

The open source threat from the LiMO Foundation, the Open Handset Alliance (OHA), and their business models has been dangling over the heads of commercial suppliers of mobile software platforms like Symbian and Microsoft. Real success has not been measured by any volume of phone shipments to date - but they’re coming.

Membership in these foundations (including the expected Symbian Foundation) and alliances have significant overlap as software suppliers, handset manufacturers, carriers, and others hedge their bets against who will become the dominant environment, if there ever becomes one. Now comes Nokia’s - not a member of either LiMO or OHA – announcement of open source, community collaboration, innovation, the creation of an ecosystem of strategic partners, and the call to developers worldwide to come onboard.

The timing is right for Nokia’s move before LiMO and the OHA make an impact and gain momentum in the market. Nokia’s return on investment of some $400 million can quickly be justified in most likely less than two years by not having to pay royalties per unit shipped to Symbian Ltd. The business model for the Symbian Foundation is reflective of LiMO and OHA – royalty free! According to Nokia, Symbian employees will become Nokia employees – but some 1,600 employees?

Nokia’s planned acquisition of Symbian stands to further amplify the pressure on commercial mobile software vendors to compete on price and provide an ecosystem of value-added technology above and beyond mobile operating systems and tools.

How will Microsoft respond? This is not clear, but they most likely have strategies in place to deal with LiMO and the OHA. And now comes the soon expected Symbian Foundation. Microsoft has a number of options – none from VDC’s perspective, which would collectively be called open source, including:

• Releasing the source code for the Windows Mobile kernel (similar to Windows CE) for OEMs and developers to inspect, create derivative works should they choose, and feed back changes, improvements, and innovation to Microsoft for inclusion in future releases.
• Continue to enlist the mind share from strategic partnerships and alliances throughout the ecosystem of mobile players and developers.
• Rather than simply respond by reducing royalty costs – which may ultimately be an option for Microsoft – look to:

• Create a value proposition to carriers around the use of Windows Mobile that data services can drive the ARPU to where the $10 to $14 royalty fee for a Windows Mobile device becomes minimized.
• Continue to emphasize with handset manufacturers the value proposition around reducing development costs and time-to-market through the use of the Windows Mobile platform.