Analyzing RIM's recent worries

I’d like to start off by waving a big white flat to all the Crackberries around and about. The title of the article may not make much sense initially, but that’s part of the problem I’m trying to bring out. Waterloo-based RIM has recently been in the news for reasons more negative than positive. I had something else lined up for this section, but this morning I came across the news that Dell has decided to move away from BB OS for its employees and handed out its own Android-based smartphone. Ok, so what’s the big deal? Well, the bigger news here is that industry experts feel Dell could convince its clientele to go on the same route too, given its enterprise clout and Android’s increasing acceptance as a potential solution for IT guys in companies. This could just be a start; more on this later.

Positives so far

On the face of it, RIM definitely epitomizes an incredible success story. For the number-loving crowd, I found a few tidbits by doing a random search on Google:

- 30x revenue growth from 2003 ($500M) to $15B (last earnings call) in 8 years, a neat 62.5% CAGR

- Subscriber base growth from 0.5M in 2003 to about 50M currently

- Net income maintained between 15-22%

These are fantastic numbers for any corporate any industry, leave alone the dog-eat-dog smartphone business. That apart, RIM can boast of a loyal base of customers who’s fanaticism matches only with the Fanboys – that’s a big thing to say. BB OS is considered as a gold standard when it comes to enterprise security and email. I have come across BB users who live and breathe it 24x7 and can’t spend a single minute without it. The recent ‘Blackberry Boys” ad campaign by Vodafone was a success for sure, but it went so viral that one could almost hear every Crackberry humming that jingle. Hell, even a certain fruit-based company in Cupertino doesn’t have a jingle like this. Such loyalties are very difficult to achieve and are a great asset for a company.

All this notwithstanding, let’s examine some of the wrongs with RIM that could be a cause of concern for Waterloo management. Let’s begin with a general disclaimer – every major smartphone vendor (h/w and s/w) globally is facing survival issues, more or less (we’re not talking about Apple since it tends to defy the market). Most of the players procure h/w from a small bunch of OEM vendors and this hardly provides any differentiation to any specific vendor. Hence, I’d like to focus my arguments more on the s/w side, i.e. the operating system. So who are the biggies here – Windows Mobile, Symbian, iOS, BB OS, Android and webOS. Last year this time around, the market sentiment was extremely negative for WinMo, Symbian and webOS. A few cracks appeared on BB front, but nothing panicky. WinMo has mostly resurrected itself by a complete overhaul of its ageing OS. Symbian (which is mostly Nokia) appears to have taken a route where they’re still trying to figure out what’s best for tomorrow’s smartphones – Symbian 3 is nowhere complete and looks more like an interim version to a bigger experience. MeeGo, what’s that? webOS was bought by HP in first half of this year, so this gives them some breathing time before they face the market.

However, things change when it comes to market tolerance with the iconic BB OS. RIM’s recent attempts to overhaul the long-in-the-tooth BB OS have been met with lukewarm responses from the community at large. And this is where the big rot is, though not necessarily the genesis of it.

Evidence of the rot

Most business calamities tend to start exhibiting themselves in minor trends early on. Perhaps the only people unhappy with RIM’s financial performance till date will the ones who don’t own its shares. However, once you scrape through the surface, the evidence starts appearing.

• Forrester recently reported that the iPhone is ‘secure enough’ with the right policies and technical control. No wonder more than 80% of the Fortune 500 companies are committed / planning to commit to the platform
• Android Android 2.2 (Froyo build) is built keeping enterprise security needs specifically in mind. Last year, only 3% enterprises supported Android; the number currently is at around 16%, and growing strong. Together, they will take a shot at the enterprise accounts – the Dell news is just the iceberg’s tip
• Blackberry had the highest satisfaction ratings in the 2007 JD Power smartphone satisfaction ratings; come 2010 and BB is better only than Windows Mobile (not Windows Phone 7)
• In a survey from Rubicon Consulting, more than 50% BB users have indicating switching to a new OS for their next purchase. To put things in perspective, corresponding numbers for Apple (20%) and Android (30%)
• Subscriber churn is probably the single-most incriminating evidence. Net additions over the last 4 quarters have plateaued at around 4.7M (Rubicon Consulting); all this even as iOS and Android add more new users on their boat

Fundamental problem #1: Lack of vision to see where smartphone hardware is moving

Disclaimer #2, I am not referring to complete absence of vision, only lack of it. Traditionally, I’ve always found RIM management extremely bull-headed to the extent of being termed as ‘cocky’. Mike Lazaridis and Jim Balsillie, joint CEOs, could easily top a death knell counter for Apple, predicting in 2007 that the iPhone will fail spectacularly, especially with the enterprise crowd. Look how that turned out. Time and again, RIM has decided to look in a different direction when it comes to sniffing out on strategic trends in the smartphone industry. It’s over-dependence on a single form-factor (QWERTY keypads) gave it a cult status with the enterprise crowd initially, but hurled truckloads of brickbats when they introduced their first all touch handset, the Storm (in the process, eating its own crow over the earlier comment on the potential of touch phones in enterprise). The device was outdated the moment it launched, and history repeated when they announced their first BB OS 6-laden device, the Torch. It sure is the best BB ever, as RIM likes to call it, but still in this day and age, it looks more of an incremental step, rather than a radical innovation – something that RIM needs badly. This brings me to a timely segway into another concerning issue – software

Fundamental problem #2: It’s all about software!!!

It amazes me when I still see smartphone vendors singing praise about the awesome hardware on their devices; while totally ignoring the software side of things. Case in point, Nokia. However, let’s leave Espoo out since this argument is more about RIM, ain’t it? When BB OS was introduced in early 2000’s, it ushered in a revolution that ended up being part of every corporate boardroom discussion. It completely changed the way enterprise customers dealt with phone data communication, i.e. e-mail. As time passed, RIM kept on churning models after models that kept on making the e-mail experience as delightful as we’ve come to appreciate today. This was a great differentiator for Waterloo in a market that was difficult. Then came 2007, the tipping point in everything smartphone. Every smartphone vendor worth its salt started thinking about software as a unique differentiator. Some failed, some succeeded. However, RIM decided to continue focusing its efforts on something they knew they’re best at, their core strength of enterprise markets. While it all made sense at THAT point of time, significant trends were already underway in the way corporate end users prefer to access information. Today, Android and iOS, all of which are touch platforms, have gained massive acceptance with the enterprise IT managers. And it doesn’t take a degree in rocket science to understand the logic behind this – unique user experience.

RIM understands this problem and decided to do something about this with v6.0. While it aces in most cases over the previous version, it just doesn’t seem to do enough when compared with the pace of development in the market. Most analysts have dismissed it as an in-between version before a better user experience. Sounds familiar to Nokia’s approach, and that’s a bad thing. What RIM really needed to do with the new s/w was a complete re-design, sketching it up from the brass-tacks, not put a stop-gap solution. Unfortunately, the current version feels just like that. It’s difficult to feel excited about OS 6.0, unless you’ve been using BB since ages and feel hamstrung by the earlier version web browsers. What adds insult to injury is the fact that the entire world was waiting with bated breath for RIM to deliver something awe-inspiring. They haven’t. It’s no secret anymore that a compelling user experience means a design which streamlines multiple workflows and makes them behave consistently in a way you’d intuitively expect a touch OS to behave. There are few incoherent pieces and most feel to fall in place – one can’t say that for v6.0.

The sooner smartphone OS vendors realize the risk of putting a touch-friendly layer on top of a rudimentarily keyboard-based interface, the better it is. Ask Microsoft – they’ve been kicked right in the teeth for this on 2 occasions. First with the WinMo platform, where they had hopelessly pointless 6.x versions as a transition to Windows Phone 7. The second, which continues to plague Redmond till date, is a functional OS solution for slates. They’re yet to find a dental specialist who can figure out the slate mess.

All this has a significant impact on driving users away from a platform. But hey, it’s no more about the users only these days.

Fundamental problem #3: Where are the developers???

Any platform needs apps, which in turn are written by app developers, who in turn make money by writing for popular platforms, which in turn gains popularity through more apps. It’s a vicious circle, you guessed it right. Nobody’s complaining about the number of apps in BB App World, which currently hovers around 10k. But this pales out when put into perspective – iOS (+300k), Android (+100k). Fact of the matter most developers find other platforms much more lucrative when compared to the BB OS. What’s shocking is many of the current App World apps have no backwards compatibility. Having said that, 3^rd party apps are still to be a dealmaker or dealbreaker feature for many, if not most, smartphone buyers. Hence, App World might be the least of RIM’s worries, for now. However, even if one consoles himself that games MIGHT NOT be a priority user case for core BB users, it still is a great proof of concept of how capable the OS is. Traditional BB customer segmentation is changing in a big way. If nothing else, the recent “Blackberry Boys” ad campaign is a good indication of where all this is going. ‘nuff said.

The road ahead

Well, it’s still not all doom and gloom for RIM. There are strong indicators that the thaw has started and RIM sees through it. They picked up QNX Software Systems in April this year with a chief objective of taking control of QNX’s open operating system platform which promises memory-efficient future platforms. They also mentioned automobiles in the press release, but it might be a red herring for the time being. Clearly, they wanted to take the QNX IP and streamline it into RIM’s core platform strategy, similar to HP’s plans with webOS. Initial results look promising in form of the Blackberry PlayBook slate product. If I were to go down the path of making bold predictions, I’d say RIM could also harbor intentions of making the BB OS (in whatever version number) an integrated embedded solution which offers slick integration with ‘connected devices’. Here’s some sort of official vindication:

CEO Mike Lazaridis press release on the QNX deal – “In addition to our interests in expanding the opportunities for QNX in the automotive sector and other markets, we believe the planned acquisition of QNX will also bring other value to RIM in terms of supporting certain unannounced product plans for intelligent peripherals, adding valuable intellectual property to RIM's portfolio and providing long-term synergies for the companies based on the significant and complementary OS expertise that exists within the RIM and QNX teams today.”

So what does RIM need to do to become more relevant in the game:

• 1. Get the correct mindset, but don’t leave ‘the community’: the ‘enterprise champion’ is no more championing RIM’s cause, he is flocking for iOS, Android. While corporate customers will continue to fill the BB coffers, real growth over the next 5 years will come from the increasingly burgeoning prosumer and consumer category. The sooner RIM gets this bent of mind, the better. However, RIM is not RIM without its corporate clientele. So obviously they can’t ignore it at all. There’s a fine balancing act required here

• 2. Do the new (OS): Forget v6.0, start afresh, because your competition is. Microsoft has nearly pulled it off with Windows Phone 7 while webOS potential remains strong. Symbian still looks like it could give RIM a company, but does RIM really want that? A complete grounds-up thinking on the s/w is the need of the hour. It will be painful, but essential.

• 3. Newer, bold(er) form factors, products: a start has been made with the PlayBook. Needs to come up with a better touch product than the Storm v1 and 2 (and from what I hear, the v3 isn’t very promising). A 480x360 resolution and a sub-1GHz processor for your flagship device (Torch) is nothing to write home about.

• 4. That one killer app: well RIM, you have one, e-mail. Unfortunately, that was last decade. Apple brings unique user interface and 3^rd party app eco-system, Android brings openness and modularity, what have you?

• 5. Developer fund: this could easily be a blue print for vendor aspiring smartphone dominance. Come up with a lucrative deal for the developers to come and write apps for you. Also think mobile ad programs – acquire a platform company, just like Apple (Quattro) and Google (AdMob)

RIM today stands at a juncture where it is (or will be, very soon) hard pressed to make some big changes in the way it goes about its business. No one should make the mistake of counting them out of the race, as yet. Eventually, things will boil down to whether these changes are ushered because they have to, or they want to. It’s a dangerous position to be in and will eventually separate the men from the “Blackberry Boys”.

Image courtesy: Engadget