969RA Innovation and RIM May Yet Catch Up to Each Other

What is Happening?  Research In Motion (RIM), makers of the once-ubiquitous Blackberry devices and message service, announced on Oct 26, that the expected software upgrade for its PlayBook tablet computer is not expected to ship until February – several months behind schedule. RIM also noted that the new version of its software still will not include the company’s globally-popular BlackBerry Messenger application. Earlier this month, they announced a new unified operating system labeled “BBX” which is intended to run on smart phones, tablets and embedded devices – but no timeframe for release was specified.

RIM share prices fell more than six percent on Wednesday to a nearly five year low as investors added this latest setback to a long stream of bad news and poor performances by the former lead dog in the smartphone race. And despite 70 million Blackberry subscribers worldwide as of Oct 2011 (according to RIM), the Blackberry is garnering an ever-shrinking share of the market and an even smaller share of app developer mindshare relative to the iPhone and Android smart phones.

But Saugatuck believes that news of RIM’s death may be exaggerated, and that market beliefs regarding RIM ignore the effects of one important and influential trend: The consumerization of IT, which drives ongoing and increasingly fickle buyer and user demand, especially in mobile IT (509MKT, Mobility: Defining the Future of Enterprise Computing, 30Sept2008).

Why is it Happening?  In August, Saugatuck blogged about RIM’s slipping grasp on the secure messaging service and devices in the enterprise IT market. Also in August, another blog entry discussed RIM’s inability to get carrier’s to support the Playbook (Lens360, RIM Shot II: PlayBook Goes Oh-for-Three With US Wireless Carriers). These discussions bring additional emphasis to the obvious growing challenges RIM faces as it struggles to maintain its footing. Saugatuck understands that RIM is certainly falling farther behind Apple and others in every race in which it finds itself, from smartphones to tablets to mobile apps and services. And we concede that RIM is mostly a victim of its own poor performance and narrow focus on messaging. For example:

• The company initially ignored the benefits of user-friendly touch-screen interfaces by focusing on the act of typing messages. The “can’t type on glass” comments by RIM executives were symbolic of the company’s inability to see beyond what was then making it a market dominator – the Master Brand of mobile messaging.  RIM was unable or unwilling to see a market for smartphones beyond mobile messaging for months and even years after the introduction of the iPhone. That also hobbled its ability to develop and build a developer ecosystem – now seen as a key to long-term viability in smartphones and services for businesses or consumers.
• With its core business disrupted, and its core vision clouded, by the iPhone and follow-on competitors, RIM failed to accurately gauge the potential and demand for tablet devices, then reacted badly by rolling out what the market saw as an incomplete, “rush-job” PlayBook. RIM’s inability to gauge market desires was underscored by the lack of inclusion of its own core messaging service capability in the PlayBook – something that the device still lacks. And now Playbook 2 has been delayed until at least 1Q2012.
• Convinced of the impregnability of its Blackberry enterprise secure messaging domain, RIM also failed to foresee the inevitability of Apple and Google developing and offering secure, enterprise-class messaging capabilities that mirror, and in cases exceed, the abilities of the Blackberry service. 
• And RIM has fallen victim multiple times to the architectural limitations of that service network, suffering a series of high-visibility network outages and failures that prevented its customers from using their devices and service. The company managed to compound those problems by offering customer limited credits toward the purchase of applications software from its admittedly limited apps marketplace.

In sum, there is no shortage of mistakes made by RIM management that explain its poor performance and current downslide in share price, market share, and developer ecosystem size.

Having said all that, Saugatuck still believes that the company can still rebound, for two important reasons:

1. Management seems acutely aware of its mistakes and is working toward redressing them, and repairing relations with the customers and developers affected by them. We are not yet convinced that management has learned its lesson, though. A pattern of repeated, significant, market, customer relationship, and development mistakes should not be discounted. To quote a former US football executive, “You are what your record says you are.” That means that RIM is a company with a poor market performance record – until and unless it improves that performance. For example; RIM recently stated that they are focused on courting Silicon Valley developers to drive more apps to the platform. But this must include financial incentives and a strong business cases indicating that there is money to be made amongst the 70 million existing users.  After all, there is far less competition for these app developers on Blackberry than on other platforms.
2. If management delivers improved performance, it will still need some outside help to regain some or all of its lost market and developer share, from the driving force behind much of RIM’s market slide, and which RIM was unable to understand early enough: The consumerization trend in IT.

RIM was built to develop and deliver secure, enterprise-class messaging to business users.  It was not positioned to see and react adequately to incursions from non-business device and service providers. Its struggles over the past few years are immediately explainable by this basic positioning. Consumerized IT ate RIM’s lunch and came back for dinner.

What can restore RIM to at least some of its lost glory is that same trend of consumerization. Consumers dominate smartphone trends.  Saugatuck and other sources have already noted how rapidly smartphone choices shift in the current marketplace. With the exception of Apple and the iPhone, there is not a single brand or device that dominates smartphones and their attendant developer ecosystems and business services the way that RIM did with Blackberry.

Four important factors need to contribute to this if RIM is to rebound, as follows:

• First, RIM will have to actually develop and deliver a combination of operating system, devices, and apps that work similarly to the Apple iOS, iPhone, and iPad. If they can’t make the stuff work the way consumers – not traditional enterprise business users – desire, all bets are off.  And the company MUST reshape its culture to embrace the pace and adaptation of innovation that typifies the mobile and Cloud IT markets (918MKT, When Innovation is the Norm, Adaptation – Not Speed – Must be the Standard, 15July2011).
• Second, the Android market has to maintain at least its current levels of chaos. OS fragmentation between Google and developers, device makers, and services providers will work to RIM’s advantage (and to Apple’s of course). 
• Third, Nokia and Microsoft need to fail in their efforts to deliver cool and productive phones and other devices based on the Windows Phone 7 OS. If they succeed, RIM will fight a three-front conflict against Apple, Google/Android, and Nokia/Microsoft with diminishing alliances and cash. 
• Finally, while RIM is doing well outside the US, its hold may slip quickly as Android continue to grow at a fast pace and Apple ships the international capable iPhone 4s. According to Canalys, “RIM had a challenging quarter in North America, with its market share slipping to 12%, down from 33% a year ago … but RIM’s global shipments grew 11% year on year, keeping it the number one vendor in Latin America with a 28% share.  It’s important to remember that in other markets, particularly emerging markets, it continues to see significant interest and uptake of its devices, for example in Indonesia and South Africa where it is the leading smart phone vendor.”

Market Impact Should all four of the above events come to pass, RIM still. . .Click Here to Read the Full RA