Symbian unloads UIQ, and the mobile apps situation gets clearer -- and uglier

As you've probably heard, SonyEricsson bought the UIQ user interface from Symbian this week. The only surprise in the deal was that it didn't happen a long time ago -- Symbian had been trying to unload UIQ for at least four years (they tried to sell it to Palm at least two times that I was aware of).

I haven't seen any online information about the terms of the deal, but at some point I hope it'll come out in a public filing. I'll be shocked if it turns out that SonyEricsson paid a lot of money. Knowing what it costs to create an operating system layer, I think it's very likely the UIQ team has been losing money.

With the UIQ acquisition, three of the top mobile phone companies now have their own operating system layers -- Nokia with S60, SonyEricsson with UIQ, and Motorola with whatever it's building on top of Linux.

Years ago, we were expecting to see the development of one or at most two operating systems that would run across all mobile devices. The idea was that that phones would become like PCs -- hardware decoupled from software, with low costs for consumers because the hardware was standardized and the cost of the OS and apps was spread across a huge base of hardware.

Instead, the mobile market is moving in the opposite direction, at least for now. Most of the major phone companies are creating their own OS layers, and they're not compatible with one another. I think this raises big questions for the mobile market:

What will Samsung and LG do? The other two big mobile phone companies don't have coherent software strategies, as far as I can tell. They specialize in copying others -- Samsung copies Motorola and Nokia, while LG copies Samsung. As the implications of the UIQ deal sink in, I think both Samsung and LG will start to feel they need software layers of their own. They could try to buy one, they could cut a deal with Microsoft, or they could try to write their own software layers in house.

None of the three options is attractive. There aren't a lot of mobile software layers left on the market to buy, Microsoft is well known for acting like a predator on its licensees, and creating user interfaces isn't exactly a well-known core competency of Asian hardware companies. My guess is that both Samsung and LG will continue to play the field by working with multiple operating systems, while they hope that mobile Linux will magically mature and solve their problems. But I wouldn't be shocked if one of them decided to take a chance and partner deeply with Microsoft.

What happens to Palm and RIM? RIM is going strong at the moment, while Palm is under moderate financial stress. But both are relatively small phone companies that rely heavily on software innovation for their differentiation. All that software investment makes their cost per unit a lot higher than the big guys. Their have to keep their products dramatically differentiated in order to maintain the price delta that funds their businesses.

Can they keep that edge as the big phone companies start adding more and more software value to their products? It's by no means impossible, and I wouldn't bet against the smart guys at either company. But they're both like small movie studios that fund their next movies directly from the profits of the last one. One major dud and the process could fall apart.

What about Microsoft? Theoretically, Microsoft should be cackling right now. Microsoft (and its then-buddy Intel) destroyed PC companies that were dumb enough to sell proprietary systems against the army of PC clones in the 1970s and early 1980s. Microsoft has heavy ties with the Asian phone manufacturing world, and should be able to help them produce devices which pair sophisticated software with commodity pricing. I think of this as the "HTC=Compaq" scenario.

But there are three problems with the scenario...

1. No IBM. In the PC world, Microsoft benefited immensely when IBM set a hardware design standard and then let everyone else clone it. Without IBM's help, Microsoft might never have created the clone PC market, and we'd be dealing with a much less standardized (and more expensive) PC market to this day. The closest thing to an IBM in mobile phones is Nokia, and it ain't about to let anybody clone anything, and certainly not for free.

2. No apps. The other key to Microsoft's power in PCs was the huge base of software applications that developed for DOS and Windows. People wanted Windows in order to run the apps, and Microsoft was the gatekeeper. In case nobody's noticed, mobile app sales for smartphones are miserably low, due to app distribution problems and the operators' unwillingness to allow truly open phones to be sold in mass volumes. If there's no big applications base, Microsoft doesn't have the leverage to force its software onto the world's phones.

3. Microsoft doesn't really "get" mobile. Although Microsoft's mobile software has definitely improved, the company still shows the reflexes of a PC company. It relies on cool technology to motivate customers, overloads its products with too many features for the average user, and counts on Moore's Law to bail it out over time (if you doubt this, check out David Pogue's review of the Zune media player in the New York Times). The mobile market rewards minimalist design in both hardware and software. I think that's not in Microsoft's DNA.

Is this good news for Symbian? Sure, in the sense that they've unloaded an irritant that complicated their relationship with their sugar daddy Nokia. Symbian seems to be on a path to try to make itself the embedded OS of the next generation of mobile phones -- kind of a super Nucleus. That's the only path its owners were going to tolerate anyway, so the Symbian folks might as well smile and make the best of it.

But there's no law of nature that says S60 or UIQ has to always run on top of the Symbian OS. In fact, as Nokia and SonyEricsson define more of their own application interfaces, and as the development of native Symbian applications continues to lag, there's very little to stop Nokia or SonyEricsson from moving their interfaces to run on top of a different OS. Maybe onto Linux, which doesn't charge Symbian's several dollars a unit licensing fee. The expense of supporting an OS layer team is very substantial, and only grows as the code gets older and you have to maintain it. That cost on top of the Symbian license fee is going to be pretty large even for a big phone company. The more units that Nokia and SonyEricsson build Symbian into, the more the Symbian licensing fee is going to bother them.

So Symbian is on a treadmill in which it will be under constant pressure to match the pricing of Linux. Unless Symbian can develop a big native apps base of its own, it'll have very little market power to keep its licensees loyal.

The most likely outcome in the near term will be a divided mobile market in which each of the major phone companies has its own operating system layer, with its own base of applications. Microsoft will continue to plug away with its Asian buddies, but without the critical mass to take over the phone market. We're looking at a minimum of five major OS layers (S60, UIQ, Moto Linux, Microsoft, Qualcomm Brew), plus smaller contenders (Palm OS, RIM). Oh, and don't forget Java.

This situation will drive independent software developers insane, because they'll have to rewrite their applications for every phone platform. This will drive a lot of the most creative software developers away from the mobile market; they'll continue to focus on creating web apps because they face lower barriers to entry, there's a single fairly unified platform, and they'll have more control over their own destiny.

Mobile phone enthusiasts like to point out how many mobile phones there are in the world, a much larger market than PCs. They say that larger market means the future of apps innovation will inevitably happen on mobiles. But if the mobile market is divided into five or more incompatible camps, and it's not easy to make money in any of them, the mobile apps market will be stunted indefinitely.

At some point, I believe one or more of the mobile operators will become so anxious to access the wealth of innovative web apps that they'll set up a fairly open garden for web apps developers. I don't know what software that garden will be built on -- maybe it'll be Adobe Apollo, maybe something else. But when that happens, I think we'll finally see a critical mass of third party mobile apps that will then force the other companies to deploy the same environment. It'll be a giant layer cake -- the web apps layer on top of the phone vendor's layer on top of the phone's native operating system.

The whole thing sounds incredibly baroque and inefficient, and it is. But it says something about how messed up the mobile phone apps market is, that this is the optimistic scenario for the future.

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PS: Thanks to the folks at AllAboutSymbian for linking to my post on Sprint's Ambassador program in the latest Carnival of the Mobilists.