BlackBerry maker Research In Motion (RIMM) is in trouble.
Not because of yesterday’s earnings problems — missing revenue and unit shipment expectations because of a one-time inventory adjustment at one of its carrier partners. But, rather, because RIM is simply not positioned well for the future.
Specifically, RIM is at risk of becoming a mid- to low-end player in a smartphone market that is rapidly becoming more sophisticated, with Apple’s iPhone and Google’s Android leading the way.
And unless RIM can make big changes to its hardware, software, and platform products, it risks losing its high-end status, getting pushed down carriers’ priority lists, and facing shrinking margins. It risks becoming another Palm, which was once a smartphone leader, and is now struggling to make a comeback.
This deterioration will take time, and RIM may continue to grow in the meantime. The smartphone market is growing rapidly, and RIM has the benefit of a great brand, strong distribution network, and eager carrier partners. To that point, last quarter, RIM signed up a record 4.9 million new subscribers, showing that, for now, the BlackBerry is alive and well.
So it’s no surprise that RIM executives think everything is fine. As usual, co-CEO Jim Balsillie raved about RIM’s success on the company’s earnings call, hyping (but not offering any details about) a bunch of new products that RIM will roll out during the year. The company issued strong guidance, expecting to sign up another 5 million subscribers this quarter.
But if you’ve been watching what RIM has been hyping — and then rolling out — for the last few years, you would have a tough time getting as excited as Balsillie is.
The fact remains that some three years after Apple started selling its iPhone, which completely changed everything in the mobile game, RIM still does not have a credible competitor.
- The touchscreen BlackBerry Storm is a joke. RIM’s QWERTY, plastic-keyboard BlackBerries are still leading the company.
- RIM’s mobile software is garbage next to Apple’s, HTC’s Android implementations, and Palm’s webOS.
- RIM’s Web browser is a toy compared to the advanced browsers that ship on better platforms.
- And RIM’s BlackBerry App World — increasingly becoming part of the equation for Apple, Android, and others — is a ghost town. There are simply no must-have apps for the BlackBerry besides its “push” email system and the popular BlackBerry Messenger app. Those probably won’t be enough.
To maintain its high-end status, RIM must rapidly improve its hardware and especially its software. RIM must immediately improve its Web browser and operating system, in both power and design. The good news is that these changes seem to be in the works — RIM acquired a mobile browser company last year, and leaked screenshots of the new OS look better.
But we’re still sceptical that the App World is going to work out. App companies complain about RIM’s shoddy developer tools, fragmented platform, and lame commerce and marketing opportunities. This will be hard to fix, especially as Apple and Android improve their offerings and distribution.
The best-case scenario for RIM is that Apps are a short-term story, and long-term, the mobile Web will win out. (And that RIM can make a good browser.)
But it’s also possible that Apps will continue to become more important, and that might force RIM to adopt a more mainstream OS as the basis for its phones, such as Android.
The smartphone apps market is becoming a waltz of elephants, and only a few platforms will win out. So far, it looks like Apple and Android are leading the pack. So RIM’s eventual switch to Android — another distraction — might be the company’s only choice.
Either way, it will be hard for RIM to maintain its high-end, exclusive status, unless it can make major changes and start to lead the industry once again. Meanwhile, most signs point toward BlackBerry remaining popular, but as a mid- to low-end player in the smartphone market. (It’s also crucial for RIM to keep its position on top of the enterprise market.)
That doesn’t mean that RIM wouldn’t be able to sell a ton of smartphones like that, but it would probably have to deal with lower margins and a lower multiple. And unless it can go on to sell a billion phones in China, that’s not what RIM investors want to hear.
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