Yesterday, Research in Motion (RIM) announced its first quarter fiscal 2012 earnings. Since the announcement, the media has been abuzz about the fact that RIM has fallen significantly short of its sales targets. About $700 million short, with total revenues for the quarter weighing in at $4.9 billion. Their target was $5.6 billion.
“Fiscal 2012 has gotten off to a challenging start”, said co-CEO Jim Balsillie. The reason? According to Balsillie, it’s because of delays in shipping new products. They were particularly impacted in the US and Latin America.
In order to “streamline” their operations, RIM announced it would initiate layoffs starting in the second quarter. This announcement seems odd because even though revenues are much lower than expected, they’re still up by 16% compared to the same quarter last year ($4.2 billion), although with slightly less net income.
It’s pretty clear why they’re engaging in layoffs. It’s because they’ve lowered their outlook on the rest of the year, anticipating more shortfalls.
Small screens and physical keyboards forever?
I’ve been critical of RIM for years. While they’ve been a huge success and I’m happy for them, I’ve always thought their phones looked, felt, and behaved like antiquated typewriters. I just could never ‘get into them’. And ever since the iPhone 1 was released, every year I’ve been even more critical of RIM’s offerings because to me their products don’t seem to evolve from one year to the next.
It’s no secret to those of us in the industry that RIM’s business has been in jeopardy of being eclipsed by Apple and Google, both relative newcomers to the mobile phone industry. Toward the end of 2008, RIM was floating at 15.9% marketshare in terms of smartphone sales worldwide: Apple was at 12.9%, and Google (Android) wasn’t even really on the charts. Today, Android has 36% of global smartphone marketshare, Apple 16.8%, and RIM 12.9%.
Nokia lost some 15% worldwide smartphone marketshare just over the past year. With all this marketshare available, RIM still went down, indicating that Android was at least likely partly responsible for its falling marketshare.
It’s that pesky iPhone that started all this though, what with its leap frog multi-touch operating system and sound industrial design, coupled with strong battery life and the full Internet in your pocket.
As has been reported, as soon as Jobs announced the iPhone 1 in 2007, people at RIM were in literal disbelief that the iPhone could do what Jobs demonstrated with any degree of decent battery life. But it could in fact do all that was shown, and then some. Today, the iPhone is more polished than ever, with massive consumer demand. It’s sparked a whole new era of not only mobile telephony, but mobile computing.
Yet, RIM hasn’t responded with anything innovative.
And now Google has showed up with Android and has officially joined Apple in crashing RIM’s party.
The writing on the wall
Even though RIM’s revenues are up 16% year-over-year, all things being equal, their future is grim. Falling so short on sales this quarter and with the coming layoffs is an indication of what’s to come. I didn’t know exactly when the tipping point would hit, but I think it just has.
Many of us saw the writing on the wall after Android exploded in 2010. RIM simply wasn’t innovating fast enough. But there was still hope. Even though they were late, they could still do something innovative to compete against Google and Apple, and handset makers like HTC and Samsung. But what they’ve shown over the past few years is nothing of the sort.
Their new BlackBerry OS 7 isn’t revolutionary. Overall, it’s the same old BB OS. But then there’s QNX, their new multi-touch operating system running on the PlayBook. It’s this operating system that they intend to transition over to their smartphones, to eventually replace their ageing BB OS. But the PlayBook is off to a patchy start, so QNX has a long way to go before becoming a household name with consumers, with any degree of App support.
What moves should RIM make to stop the bleeding and get back on top? I’ll look at three different scenarios and why they’re all grim for RIM.
Scenario 1. RIM Replaces the BB OS on BlackBerry Phones with QNX
In this scenario, RIM would finally move on, past the ageing BB OS, and replace it with QNX. QNX would then be on all their devices. Major problem: it’ll cause them to have to completely redesign their phones, because they’ll need large screens to accommodate this new, very touch hungry OS. This will be expensive and full of engineering challenges.
But their phones will take on a new look, which could be good, but they won’t be “Crackberries” anymore. Now we have a major disconnect between their brand and existing customers.
But what if their new QNX-based phones were to be incredibly innovative and fast? That’s all cool, but now they’d be directly up against Android handsets from the likes of HTC and the iPhone with years of innovation packed in. And QNX, as a new platform, has nary any Apps, so they’d have to convince consumers to jump on with little content available in the face of iOS and Android with hundreds of thousands of Apps.
Plus, who wants QNX when webOS is more polished, has more Apps, and is available? Especially as HP-Palm corners the business market, traditionally RIM’s turf.
Lastly, because of the requirement for completely redesigned hardware and scaling QNX to a phone, RIM is years away from realising QNX on smartphones. And if they’re too late to the party now, imagine trying to penetrate these markets in another few years from now.
Scenario 2. Stay with the BB OS
Staying with the ageing BB OS for so many reasons is suicide… it’s what got them in the mess that they’re in. They rested on their laurels and didn’t innovate. As it is, the BB OS is at the end of its life, so this isn’t an option.
Scenario 3. Adopt Android
See the move to QNX: Scenario 1. The result will be the same. Their phones will have to radically change and it’ll cost a lot of money to undergo this transition, alienating existing BlackBerry users in the process and causing a major disconnect between their users and their brand.
All of RIM’s stagnancy and the fierce competition from Apple and Google seems to have finally reached a tipping point. And with Nokia and Windows Phone 7 lurking, along with new offerings from HP-Palm, there’s going to be even more competition for RIM.
Then there’s Apple’s iMessage, a technology that takes direct aim at RIM’s popular, market differentiating BlackBerry Messenger (BBM). BBM is an application that allows users to engage with each other in live chats on their mobile phones, so they aren’t just reliant on text messaging.
My point is that RIM is damed if they do and damed if they don’t. Damned if they reinvent themselves and damned if they don’t because they’re simply too late. RIM is now operating in an ad hoc manner with no clearly defined vision or strategy.
The PlayBook is an example of a product from a company that has followed so many others in the tech industry in terms of using the copy and paste strategy. Except things are always lost during the paste. With the PlayBook, for instance, RIM responded to Apple’s iPad by developing, in some 10 months, a “me too” product that looks and feels like a cheap imitation of the iPad. Whereas Apple had 30 years of R&D behind the product.
It’s just recently been revealed that 02 in the UK has chosen not to carry the PlayBook due to end user issues.
In the end, RIM has rested on their laurels and is now caught in a firestorm of more advanced products in a world that has moved past the “Blackberry” era. Let’s see how they respond.
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