Andrey Golub

Received via e-mail from J. Gerry Purdy, VP & Chief Analyst of Frost & Sullivan.

The Platform Wars Continue: Nokia Buys Symbian

 

Throughout the development of the personal computer era, Microsoft became one of the most valuable companies in the world by licensing the Windows operating system to system manufacturers, who then pre-installed it on PCs. Applications were sold on top of the OS, which eventually generated more revenue than the underlying OS, but that took many years. The Web became an additional digital ecosystem in which the PC evolved into a portal to access the online services. The Windows ecosystem has been operating – and still operates – the same way for over 20 years.

The wireless ecosystem, however, has evolved quite differently and in just the past year, the entire ecosystem has gone through a major restructuring due to: 1) the announcement of the iPhone 3G and the App Store, and 2) the announcement of Android and the Open Handset Alliance (OHA) by Google. Here’s what’s happening.

For the past 10+ years, there have been two classes of phones: basic feature phones with the OS embedded in the total cost of the device. Feature phone OS companies like ENEA were paid a license fee. SmartPhones – like the Palm Treo (Windows Mobile & Palm OS), Symbian Series 60, and RIM BlackBerry all had complex operating systems that cost a lot more per unit and, hence, resulted in a much higher end-user price (even when considering capital purchase discounts provided by the wireless operator).

When Android was announced last fall, the big news was an entirely new business model for wireless handset manufacturers: they would not have to pay Google any license fee for the Android mobile OS. Instead, Google would make money from advertising resulting from searches made on the wireless devices. Thus, Android/Google made a fundamental change from the way operating systems were monetized: handset manufacturers no longer had to pay fees to the OS provider. Instead, fees would be paid by advertisers. Google believes that lower cost wireless handsets will result in more unit sales which will, in turn, generate more Google searches and that will generate more advertising revenue that will more than make up for the loss in mobile OS licensing revenue.

The iPhone is presents a similar change to the industry although they clearly are not licensing the OS to other companies. But I suspect that Apple doesn’t include any (or very little) charge for the iPhone OS in the iPhone but, rather, is generating money from wireless services.

Now, with the announcement this week, Nokia is buying Symbian and then putting the Symbian OS into the new Symbian Foundation. Sony Ericsson and Motorola are contributing the UIQ platform, and NTT DoCoMo is contributing its MOAP platform. The Symbian Foundation will then offer open source and royalty fee licensing to handset manufacturers.

And handset manufactures are being told they will also no longer have to pay any license fees for the Symbian OS. Instead, users will pay fees for wireless services and members of the Symbian Foundation will pay membership fees. Eventually, Nokia’s new services environment called Ovi could also generate advertising fees much like Android/Google.

I feel this puts tremendous pressure on Microsoft to revise their business model for Windows Mobile and, like most of the other major mobile OS providers, offer the Windows Mobile OS to handset manufacturers at no charge. But they would also have to develop a method to generate revenue either from services or advertising. Interesting, but the acquisition of Yahoo! would have provided a clear path to that kind of business model.

And the Linux camp (made up of ACCESS Systems ALP and the Linux Mobile LiMo Foundation) seems headed toward the same kind of business model: give the core OS away free and make it up with value added services.

Overall, what seems to be happening is that the mobile OS, traditionally sold for a fee, is becoming an embedded component in the overall ecosystem – and it’s the services (apps, wireless services and ads) are where the value and, hence, revenue will be created.

The final result of this change in business models will be a significant decrease in the average selling price and a similar significant increase in the percentage of phones sold that incorporate a robust mobile OS.

Robust mobile OS features such as rich media (music, multi-megapixel photos and video), multi-tasking (so you can download a song while talking at the same time), background services (such as push email, monitoring applications that would, for example, watch for a particular price threshold on a stock), and a myriad set of concurrent services (such as news, weather, sports and financial information) will become a standard part of most cell phones in the years to come.


In My Humble Opinion (IMHO): Non-Mobile Editorial Vignettes

Movie theaters are ‘dead’ – they will be viewed in the 22nd century and ‘odd’ that you’d get a babysitter and go out to a large, dark room to watch a movie rather than watch it on your 60” home theater system, where you can simply hit ‘pause’ when you need to take a break or rewind it to see a great scene again. Only special purpose theaters like IMAX may survive. We haven’t been to a movie theater in two years. Every time there’s a hit movie, I just add it to our Netflix Queue and it shows up eventually.

Written by:

J. Gerry Purdy, Ph.D.
VP & Chief Analyst
Mobile & Wireless
Frost & Sullivan

Keywords: , Android, Frost & Sullivan, Google, Inside Mobile and Wireless, Microsoft, Mobile & Wireless, NOKIA, Open Handset Alliance, Palm OS, RIM BlackBerry, Symbian, Windows Mobile, iPhone, mobile 2.0, mobile Platform, Gerry Purdy