Nokia's Trolltech Grab Hurts Rivals - very interesting
The software acquisition bolsters Nokia's perch in the mobile device arena, could further dismantle Motorola, and puts pressure on Google
At first glance, Nokia's (NOK) Jan. 28 purchase of a small Norwegian open-source software company seems a confusing strategic shift. After all, the world's largest maker of mobile phones has long resisted the idea of using the grassroots Linux operating system in handsets, favoring instead homegrown software in its mass-market models and the Symbian operating system in its top-of-the-line smartphones.
But analysts hailed the €104 million ($153 million) acquisition of Oslo-based Trolltech as a kind of strategic hat trick. In one stroke, Nokia has managed to defend itself against incursions into the mobile-phone business by Apple (APPL) and Google (GOOG), while potentially further accelerating the meltdown of rival Motorola (MOT). "Nokia is responding extremely quickly to what Google and others are doing," notes Ben Wood, director at British mobile consultancy CCS Insight.
Trolltech has gained success in a small but growing corner of the mobile-phone business, offering widely used software tools for creating programs that can run across a variety of devices, from handsets to PCs to consumer electronics. Though the company's roots are in open source—and many of its customers use Linux—it also supports software such as the mobile-phone version of Microsoft (MSFT) Windows.
Why is Nokia interested in that? Though the Finnish giant still makes most of its money from phones, it is branching out into other mobile gizmos and online services (BusinessWeek.com, 8/29/07) that can be accessed from handsets, PCs, or even TVs. Analysts say Nokia will likely use Trolltech's technology to help develop applications that span these different devices.
Nokia is responding to tectonic market shifts. These days, when consumers buy digital content—such as music or a movie—they want to be able to pay for it once and move it easily between different devices they own. What's more, analysts say, consumer expectations for software on phones have changed dramatically since Apple's iPhone went on the market last year.
Trolltech's Qt technology addresses both issues, by allowing programs, services, and content to run easily on various devices while at the same time ensuring a consistent look and feel. That should help bring Nokia's user experience more in line with Apple's precedent-setting software interface. And it should also help the company more easily incorporate Web 2.0 services such as social networking into the mobile world. "This is the first in a series of moves we are going to see from Nokia to fix the software gap," says Richard Windsor, a mobile analyst at Nomura Securities in London.
At the same time, buying Trolltech helps fend off Google. Nokia is keen to propagate high-end phone features from its priciest models into midrange phones, but runs into big software challenges making the move. That's precisely the opportunity Google is targeting with its Android initiative (BusinessWeek.com, 1/22/08), which aims to provide a standard, inexpensive software environment for mass-market phones—something the industry has long lacked. If Nokia can get there first, it stays ahead of the search giant.
For Motorola, the Trolltech deal is a major headache because the struggling No. 3 handset maker uses Trolltech's Qtopia software in all of its Linux-based phones. By gobbling up the Norwegian company, Nokia gains even more control over the software supply chain and Motorola may lose a key supplier, notes Neil Mawston, director of wireless device strategies at tech consultancy Strategy Analytics. Motorola also uses software from Symbian, which is owned by a consortium of mobile-phone makers and majority-controlled by Nokia.
Motorola may not be willing to become further dependent on rival Nokia and could stop using Qtopia, predicts Nomura's Windsor. But that will leave a large hole in its Linux offering that can't be filled with products from other players. Windsor says Nokia's purchase of Trolltech could set back Motorola's efforts to develop working Linux software by 12 to 18 months, potentially leading to a lower market share for Motorola in midrange phones and a further delay of any recovery.
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