What's really wrong with BlackBerry (and what to do about it)

Just a couple of weeks after Research in Motion turned in a good earnings report, the death watch over the company has resumed, with Business Week magazine running a long article that mocks co-CEO Jim Balsillie (even picking on his duck-emblazoned tie) and saying that RIM needs to learn how to market as well as Apple (link).

Business Week quoted Balsillie at a press briefing:

"There's tremendous turbulence in the ecosystem, of course, in mobility. And that's sort of an obvious thing, but also there is tremendous architectural contention at play. And I'm going to really frame our mobile architectural distinction. We've taken two fundamentally different approaches in their causalness. It's a causal difference, not just nuance. It's not just a causal direction that I'm going to really articulate here -- and feel free to go as deep as you want -- it's really as fundamental as causalness."

OK, he deserves to be mocked for that. But Business Week goes on to conclude that his quote captures the whole dilemma of the company -- technical sophistication coupled with incoherent marketing.

Business Week has joined a large and distinguished group of experts taking jabs at RIM. Morgan Stanley recently downgraded RIM's stock, saying it's going to lose share faster than previously expected (link). Gartner reported that Android had passed BlackBerry to become the most popular smartphone OS in the US (link). And CNET said RIM is about to be kicked out of the enterprise market (link).

I've been getting very tired of the criticisms of RIM, because most of them seem superficial and some are petty. Yes, Android is doing well, but neither RIM nor Apple is giving away its operating system, so it was close to inevitable that Android would eventually get the unit lead. It's the default choice for most smartphone companies, so of course it moves a lot of units in aggregate. But there is room in the market for several mobile platforms to succeed. The companies Android is hurting most are Microsoft, Access, and others that were hoping to sell mobile operating systems.

Yes, RIM's not good at sexy marketing, but it has always been that way. People have been predicting its imminent doom for as long as I can remember (do you recall when Microsoft Exchange was supposed to destroy it?). My guess is that the folks at RIM are shaking their heads at all of the bad press and assuming it will once again blow over in a quarter or two.

I think that would be a serious mistake. In my opinion, RIM is indeed in danger, probably a lot more danger than its executives realize. But I don't agree on the reasons most people are giving for why RIM is in trouble, and I think most of the solutions that are being proposed would make the situation worse, not better.

The fault lies not in our ties, but in our selves. In my opinion, RIM's real problems center around two big issues: its market is saturating, and it seems to have lost the ability to create great products. This is a classic problem that eventually faces most successful computer platforms. The danger is not that RIM is about to collapse, but that it'll drift into in a situation where it can't afford the investments needed to succeed in the future. It's very easy for a company to accidentally cross that line, and very hard to get back across it.

There's a lesson in RIM's situation for every tech company, so it's worthwhile to spend some time understanding what's happening.


How a computing platform dies

To explain RIM's challenges, I have to give you a little tech industry history. When I worked at Apple, I spent a lot of time studying failed computer platforms. I thought that if we understood the failures, we might be able to prevent the same thing from happening to us.

I looked at everything from videogame companies to the early PC pioneers (companies like Commodore and Atari), and I found an interesting pattern in their financial results. The early symptoms of decline in a computing platform were very subtle, and easy for a business executive to rationalize away. By the time the symptoms became obvious, it was usually too late to do anything about them.

The symptoms to watch closely are small declines in two metrics: the rate of growth of sales, and gross profit per unit sold (gross margins). Here's why:

Every computing platform has a natural pool of customers. Some people need or want the platform, and some people don't. Your product spreads through its pool of customers via the traditional "diffusion" process -- early enthusiasts first, late adopters at the end.

It's relatively easy to get good revenue from the early adopters. They seek out innovations like yours, and are willing to pay top dollar for it. As the market for a computer system matures, the early adopters get used up, and the company starts selling to middle adopters who are more price-sensitive. In response to this, the company cuts prices, which results in a big jump in sales. Total revenue goes up, and usually overall profits as well. Everybody in the company feels good.

Time passes, and that middle portion of the market gets consumed. Eventually demand growth starts to drop, and you make another price cut. Sales go up again, sometimes a lot. With revenue rising, you and your investors talk proudly about the benefits of reaching the "mainstream" market.

At Apple, when we hit this point we called our low-cost products the Macintosh Classic and Macintosh LC. At Palm, it was the M100.

What you don't realize at this point is that you're not "reaching the mainstream," you're actually consuming the late adopters. Unfortunately, it's very difficult to tell when you're selling to the late adopters. They don't wear signs. Companies tend to assume that because the adoption curve is drawn as a smooth-sided bell, your demand will tail off at the end as gradually as it built up in the beginning. But that isn't how it works. At the start, you are slowly building up momentum from a base of nothing. That takes years. But by the time you saturate the market you have built up huge sales momentum. You have a strong brand, you have advertising, you have a big distribution channel. You'll gulp through the late adopters really rapidly. The result is that sales continue to grow until they drop suddenly, like a sprinter running off the edge of a cliff.

The chart below illustrates how the process works:



Until you get close to the end, your revenue keeps rising, enabling you to tell yourself that the business is still in good shape. But eventually you reach the dregs of the market, and sales will flatten out, or maybe even start to drop. You cut prices again, but this time they don't increase demand because there are no latent customers left. All the cuts do is reduce further the revenue you get from selling upgrades to your installed base. The combination of price cuts and declining sales produces a surprisingly rapid drop in revenue and profits. If you want to make a profit (which your investors demand), your only choice is to make massive cuts in expenses. Those cuts usually end up eliminating the risky new product ideas that are your only hope of re-igniting demand.

At Apple I called this the platform "death spiral" because once you get into it, the expense cuts and sales declines reinforce each other. It's almost impossible to reverse the process, unless you're Steve Jobs and you get very lucky.

The best way to survive is to stay away from the cliff edge in the first place. But that means you need to be hyper-attentive to small changes in sales growth and gross margins. Which brings us back to RIM's situation.


Dissecting RIM's financials

At the top level, RIM's financials look utterly fantastic:

RIM Revenue and Profit

Fiscal years. Dollars in millions.

Since fiscal 2003 (when it turned profitable), RIM has grown from $500m revenue to over $15 billion. That's 30X growth in eight years. The BlackBerry subscriber base has grown from 500,000 people to about 50 million. Throughout that period, the company's net income has hovered at between 15% and 22% of revenue.

This is one of the most impressive business success stories of the last decade, and most CEOs in any industry would kill to have that sort of results. Considering how much turmoil there is in the smartphone market, RIM's senior managers must feel extremely proud of their success, and more than a bit bewildered that people keep criticizing them.

And that's exactly my point. Looking at the high-level financials can lull you into a false sense of security if you're managing a computing platform. You have to really dig to find the warning signs. That's especially hard to do in RIM's case because the company has several different sources of revenue: device sales, service revenue, and enterprise server revenue. The overall results they report are mashup of all three revenue streams. To understand what's really happening, you have to tease them apart. Here are some key data points.

First, let's look at the total number of BlackBerry subscribers:

Total BlackBerry Subscribers

RIM's fiscal quarters. Units in millions.

Pretty impressive growth. But remember, we're looking for subtle signs of saturation. Let's look at the number of subscribers added per quarter...

Net New Subscribers Per Quarter

RIM's fiscal quarters. Units in millions.

This is where you get the first little twinge of discomfort. Until a year ago, the rate of growth of BlackBerry subscribers was itself increasing every quarter. In other words, RIM added more new subscribers each quarter than it had added in the previous quarter. But for the last four quarters, RIM's subscriber growth has plateaued at around 4.7 million net new subscribers a quarter. The company's still growing, but it looks like the rate of growth may be flattening. That might imply the beginning of saturation.

Next let's look at net new subscribers as a percent of total BlackBerry units sold.

New Subscribers Added Per Unit Sold

RIM's fiscal quarters.

This one's a little disquieting as well. Five years ago, RIM was getting .7 new subscribers for every BlackBerry sold. In other words, most of its sales were to new users. Today, RIM is getting .37 more subscribers per BlackBerry sold, and that figure is at an all-time low. To put it another way, RIM now has to sell more than two and a half devices to get one more subscriber. Either RIM is selling most of its units to its installed base, or it is having to bring in a lot of new customers to replace those who are leaving for other devices. My guess is it's a mix of both.

If you look closely at that chart, you'll notice a curious bump in the line at Q4 of 2009. The percentage of new subscribers went back up all of a sudden. What did RIM do to produce that growth? A look at device gross margins tells you.

Device Gross Margin Percentage

RIM's fiscal quarters.

[Note: RIM does not report separately the gross margins it gets in the devices business, so I had to estimate this number using the company's hardware revenue and the total cost of goods sold across all of its businesses. Most of RIM's total COGS are hardware expenses, but they also include some server costs associated with providing e-mail service. That means my calculation understates RIM's device margins by a bit. But as the company grows, server costs should go down as a percent of overall costs (because you get better economies of scale). So apparent hardware margins should be going up over time. That makes the fact that they're declining all the more ominous.]


RIM increased new subscriptions by substantially cutting the profit it makes per device. What happened is that the BlackBerry Bold, Storm, and Curve all came to market with increased features, replacing older devices that were much cheaper to build. That should have produced only a one-time hit to margins, though -- they should have gone back up as component costs on the new phones declined. Instead, margins have stayed down ever since. Why? Let's look at the what RIM gets paid for each BlackBerry it sells:

RIM's Revenue Per BlackBerry Device Sold

RIM's fiscal quarters. Hardware revenue per unit sold.

This chart shows the average price the carriers pay to RIM per phone, prior to the discount they put on the phone when you sign up for a contract. The line looks pretty flat, and in fact through the middle of fiscal 2009 RIM's price per unit was very stable. Then in Q3, with the introduction of the new devices, RIM gets a temporary spike in revenue per unit. The new phones are selling at a premium. But that goes away in the next two quarters, and then about a year ago, RIM started cutting prices. Today the company gets about $50 less per unit than it usually did in the past.


When you assemble the big picture, it looks like this: To keep growing, RIM has been forced to reduce margins and prices. Despite the cuts, the rate of growth in subscribers appears to have flattened out. And more and more of the sales mix is going to existing users, or user replacement, rather than new users. RIM starts to look like a company that's working harder and harder just to stay in one place.

The picture gets more ominous when you look at some recent surveys of smartphone user satisfaction. In JD Power's 2010 smartphone satisfaction survey, BlackBerry finished near the bottom, with below average ratings in every category except battery life (link). Just three years earlier, as the iPhone was coming to market, BlackBerry had the highest satisfaction ratings in the industry (link). I don't love JD Power's methodology (for reasons that are too long to explain here), but no way should RIM's rating be declining like that.

The low satisfaction is starting to threaten RIM's future sales. In June of this year, Nielsen released some tidbits from a survey of the future purchasing plans of smartphone users (link):

OS Preferences of People Planning to Replace Their Smartphones


The chart shows US smartphone users who were thinking about buying a new device in Q1 of 2010. More than half of the BlackBerry users considering a new smartphone were leaning toward a different OS.

If I were working at RIM, that chart would scare the crap out of me.

The company is by no means dead, but the symptoms of a stalling platform are definitely there. If you work at RIM and are reading this, here's what I want you to understand: Your company's at risk. Your great financials mask that risk, and give you lots of logical-sounding reasons to avoid making the changes that need to be made. RIM is like a 53-year-old man who has high blood pressure and cholesterol but tells himself that he's OK because he can still run a half-marathon. You are indeed fine, right up until you have the heart attack. Then it's too late.

Here's what you need to do:


How to avoid the cliff

To keep a platform viable, you need to focus on two tasks: Keep the customer base loyal, and add adjacent product categories.

Keeping the base loyal. This is transcendently important to a platform company. As your market matures, more and more of your sales will come from replacement devices sold to the installed base. You'll also depend more and more on a base of developers who add value to your products. If you can keep these people happy, you'll have a steady stream of replacement sales that you can build on. It won't be enough to produce the growth that your investors want, but it'll be a great foundation.

On the other hand, if these customers and developers drift away, there's virtually no way you can grow something else fast enough to offset their loss. The trick here is that the supporter base for a computing platform is like a herd of cattle. They move as a group. When the herd is contented, it tends to stay in one place. But if the herd gets restless, even a small disturbance can cause a stampede in which they all run away at once.

For example, this is the factor that HP failed to consider when it bought Palm. The Pre's small base of users and developers was a classic group of restless cattle. When HP bought the company, the first priority should have been to calm those people by promising a renewed commitment to the Pre and follow-on products. Even if HP didn't see smartphones as its long-term future, it should have focused on keeping the developers and users loyal until it had something else for them to buy and develop for. Instead, HP CEO Mark Hurd more or less killed the product line a day after the purchase (link):

HP won't "spend billions of dollars trying to go into the smartphone business; that doesn’t in any way make any sense....We didn’t buy Palm to be in the smartphone business. And I tell people that, but it doesn’t seem to resonate well. We bought it for the IP."

Ooookay, so if you're a Pre customer, do you buy again? Do you tell your friends to buy? If you're a WebOS developer, do you keep writing code while you wait for HP to decide what it'll do with that "IP" it bought?

The answer is, you run for the exit as fast as you can. HP bought a company for a billion dollars and then immediately trashed it.

Back to RIM. Your cattle are restless. If you don't believe me, go look at that Nielsen chart again. Your goal is to keep the cattle content, by feeding them a steady diet of delightful new products that deepen their commitment to the platform. RIM's record in this area is very mixed. There have been a lot of new BlackBerry products announced in the last few years, but most of them seem to be focused on copying things Apple has done rather than finding new ways to delight BlackBerry customers.

Some of the Apple imitation is probably necessary. Apple has turned a lot of features into checkoff items that are now expected from any smartphone -- a better browser, for example. If RIM didn't eventually add those features, the herd would at some point stampede away for sure.

But what I haven't seen from RIM is a vision for deepening the special features that made people bond with BlackBerry in the first place. The personal communication functionality of BlackBerry is about the same now as it was five years ago. Why in God's name was Apple the first North American smartphone company to really push video calling? As the communication beast, RIM should have led that years ago.

Instead, the latest BlackBerry devices feel a bit like an overbuilt ice cream sundae -- the original BlackBerry functionality is at the base more or less unchanged, and a bunch of gooey media toppings have been dumped on top of it. I see sprinkles, fudge, marshmallow, pineapple, whipped cream, a cherry, and a few gummy bears, but no significant improvement to the old, dried-out ice cream at the bottom of the bowl.

Inevitably, RIM can't implement those new media toppings as cleanly and elegantly as Apple did, because its platform wasn't designed for that. So what you get is a BlackBerry that endorses Apple's design direction but fails to fully deliver on it. Maybe that helps keep some BlackBerry users from leaving instantly, but it doesn't give them a positive reason to stay. Rather than playing to win, RIM is playing not to lose, and doing it poorly.

This is especially scary because RIM depends much more than Apple on mobile operators to help drive demand for its products (if you're in the US, ask yourself how many Verizon and AT&T ads you have seen for BlackBerry, versus how many ads you've seen from RIM itself). The operators follow customer interest, they don't create it. If they get the sense that BlackBerry users want to switch, they will be only too happy to facilitate that switch -- especially since they don't have to share service revenue with Android vendors the way they do with RIM.

What RIM should do. RIM need a product vision identifying a few new differentiators for BlackBerry that will resonate well with the busy knowledge workers who are at the core of its installed base. There should be no more than three of these features (because customers can't remember more than three), and they should not be copies of things that Apple is already implementing. RIM should focus on building them deeply into the product, so they are very well integrated with the rest of the device. My nominees are meeting planning, conferencing, and live document sharing.

Other smartphone companies will eventually copy these features, so RIM needs to create a pipeline of development in which it'll bring out another 2-3 new differentiators every 24 months.


Adding adjacent categories. Settling down the installed base is not enough. It's an enormous task, but all it'll do is stabilize the business. It won't produce the growth that investors expect. To get that, RIM needs to eventually add new types of product that expand its market.

Apple is a master at this process. When Steve Jobs came back, Apple had only the Macintosh. It refreshed that product line, securing the customer base. Then it added the iPod, iPhone, and iPad. Each of them targeted Apple's core market of creative, entertainment-loving people, and each of them leveraged Apple's existing software and hardware. This overlap made the new products relatively inexpensive to develop and market -- they could be sold to the same sorts of people, through the same channels, and they reused a lot of technology. Each new product line also tended to drag a few more customers back to the earlier products, so they reinforced each other.

These new products enabled Apple to grow its revenue rapidly without putting pressure on the Macintosh to carry the whole load. Apple could invest enough in the Mac to keep it a stable and very profitable business, while the new products produced the topline growth.

To understand how wickedly efficient Apple's business model is, take a glance at the R&D budgets of RIM and Apple.

Quarterly R&D Spending of Apple and RIM

R&D spending in most recent four quarters. Dollars in millions.

Although Apple has about three times the revenue, RIM's R&D spending is about two-thirds of Apple's. With just a third more money, Apple produces the Macintosh, iPod, iPhone, iPad, Apple TV, iTunes, App Store, custom microprocessors, and a suite of mobile services. RIM is producing a bunch of minute variations on a family of phones, an e-mail server, a new OS, and a suite of mobile services that also has to be individually interfaced to each operator. RIM puts much of its effort into infrastructure that has little or no impact on features that users can see and value.

Now RIM wants to add more product lines. Its first effort will be the PlayBook tablet in 2011. This will be a decisive test of RIM's ability to grow in the future, and so far the signs are worrisome. Unlike Apple's first announcement of the iPhone, the PlayBook announcement didn't show much functionality that looked fundamentally new compared to the competition (in fact, the interface looked to me a lot like a warmed-over version of Palm's WebOS). The pitch was almost all about enabling technology rather than user benefits. When you find yourself talking up the dual-core processor and symmetric multiprocessing in a consumer product, it's a sign of a serious lack of differentiation.

I'd be more hopeful about the prospects for the PlayBook if RIM had done a better job of evolving its BlackBerry products recently. Unfortunately, RIM's latest innovation flagship is the BlackBerry Torch, an overproduced heap of half-integrated features that ranks as one of the most disappointing mobile devices I've seen from a major manufacturer in years.

Yeah, I know there are some people who like the Torch. But there were also people who thought MS-DOS was easy to use.

Burned by the Torch. I recently bought a BlackBerry Torch for my wife, who needed a smartphone to manage work e-mail. We both wanted her to have something simple to use, with a keyboard that made her comfortable. She liked the Torch in the store, so we bought it for her.

The device was a usage nightmare. Even after years of working with touch screen technology, RIM hasn't managed to evolve its user interface to the point where the touch pad and the touch screen work together smoothly. Some functions are easier to perform on touch screen, and others are easier on touch pad, and so the whole interface feels muddled. But by far the more disappointing problem was that the huge number of new applications just added to the phone do not work together properly. I can't even list all of the problems we both had figuring out how to use them, but one vivid example should suffice. My wife entered a lot of contacts directly into the device's contacts app, but didn't bother to include the area code in the phone numbers. The BlackBerry didn't warn her about this.

Then she went to the messaging app and tried to send a text message to our daughter. When she tried to send the message, the app reported that it could not send to a contact without an area code. So she went back to the contacts app and added area codes.

Then she went back to the messaging app and again tried to send a text message. The messaging app reported once again that it could not send a message without an area code. It had apparently made a copy of the data from the contacts app when it was first used, and would not update the copy. So my wife then edited the contact information from within the contacts app (it lets you do that). But when she tried to save the updated contact, the phone responded that it could not accept external changes to the contacts, and deleted the change.

Next, she tried to send a message by typing our daughter's phone number, including area code, directly into the To: portion of a new message. When she tried to send that message, the messaging application did a lookup on its contacts database, changed the phone number back to the version without an area code, and then reported that it could not send the message because the phone number lacked an area code.

Using the BlackBerry Torch is like being trapped in a real-life version of "Waiting for Godot."

I've seen this sort of incoherent design before. It happens when you have several teams working on parts of the device, and you haven't done proper planning up front to make sure the apps will work together well. It is a symptom of an out-of-control development process. The fact that this happened on RIM's flagship product is deeply disturbing. If the same incompetent processes are applied to the PlayBook -- a much more complex product with a lot of new functionality -- it is almost certain to fail.

By the way, we returned the phone.

What RIM should do. To fix this problem, RIM needs to create rigorous up-front planning processes in its software team, with someone who has dictatorial power placed in charge of overall software integration for a device or OS release. Also, the product manager needs to be empowered (actually required) to delay shipment of a product if it's not right. I'm sure someone at RIM knew about the problems in the Torch. The fact that the company went ahead and shipped it is almost as disturbing as the problems themselves.


Rescuing RIM

To sum up, RIM is at risk because its natural market is saturating and many of its customers are considering a switch to other platforms. The company may be able to bumble along in this situation for years before the problem comes to a head, but once a migration away from BlackBerry starts it would be almost impossible to stop. So if the company wants to ensure its survival, it needs to act now. Two steps are needed:

--The BlackBerry line needs to be given a several fundamental, visionary innovations that will give its core customers a reason to stay; and

--The company needs to change its development process to guarantee proper design and integration in all of its products.

Given the time needed to create a new product, these changes will take at least 18 months to bear fruit, probably more like two years. During that time RIM will remain at risk of a platform collapse. What's worse, the company's engineers already have their hands full copying iPhone features, customizing phones for a huge range of operators, and simultaneously creating a new operating system and developing a new version of the current one. The sort of changes I'm suggesting would disrupt that work, forcing the cancellation of some projects and slips in the schedule for others. They would make the problem worse before they make it better. In the meantime, the company would lose serious revenue, and might even miss earnings projections for a quarter or two. The stock's value would be trashed, and there would be calls for firing management.

As the founders of the company, Jim Balsillie and Mike Lazaridis could probably pull this off without losing their jobs. And I know they have the courage to make big changes. But I doubt they can see the need, or especially the urgency. Their current processes and business practices got them to $15 billion in revenue; why should they change now? It's much more prudent to focus on making the numbers for next quarter.

That's probably just what RIM will do. And if it does, that's why the company will probably eventually fail.

==========

[Edit: Since this post is still getting a lot of traffic, I wanted to let you know that I've posted a look at RIM's Q3 FY 2011 financials, with  updated charts and a deeper look at international sales.  I think the situation is both better and worse than I originally believed (link).  And you can see my take on their June 2011 layoff announcement here.]

136 comments:

Tim said...

Also, what's really wrong is that people think Apple isn't a company whose focus is really, devices for the affluent- first in desktop, and now in mobile. Apple's recent stock upsurge is largely based on the iPhone's supposedly eventual domination of the smartphone market. That's not happening anymore since Android's more open platform enables its ecosystem to innovate faster, pulling even farther ahead of the iPhone. It's Windows versus Mac again. The twist this time, is that the more Google gives away its operating system, the better it is for the company's ad revenue. The manufacturers, in turn, compete among themselves to produce a wide variety of products, even on the high-end. Most of the so-called Apple base that appears to be larger in numbers now, won't be so loyal when it becomes even more apparent that high-end Android gadgets are better, and more fashionable. Apple's tight but close iOS integration has to all work together in sync or else a weakness in even a part of the interlocking pieces of the ring lead to collapse. Apple's competitors more open ecosystems surpass Apple products in narrower, narrower timeframes. Amazon's Kindle did an end run around iBooks, and Android tablets are going to swarm Apple's response to the netbook, the iPad. For all the Apple talk of the number of, apps in the App Store or the iPhones sold, it's largely a producer of niche devices for the affluent.

Dave said...

What's really wrong with BlackBerry begins with the technical underpinnings and extends to their pursuit of growth in the shadow of Apple.

RIM currently has huge technical debt -- insurmountable technical debt.

RIM chose Java and the Java Community Process (JCP) around '00 which together were good decisions at the time, but they are one of the few -- one of the only -- major vendors that are still chained to the JCP. Google completely sidestepped J2ME and its licensing requirements. If RIM continues down this path which they are bound to by licensing restrictions, they will never have some of the features available in modern operating systems.
As a result of this alone, BlackBerry is considerably more difficult for developers to develop for and considerably more difficult for users to use. Couple this with the late adoption of 'apps' and the AppStore model, and it's very difficult for developers to make money on the platform.

So, technically, they are in trouble. They need to dump their current OS technology and get out of whatever legal situation they are in that binds them to J2ME licensing and the JCP.
They should open a development office in SF or the Valley and start poaching the best mobile development resources they can buy. Waterloo, Canada and North Carolina are not the global epicenter of mobility.

RIM also yielded quite a bit of control to the carriers in order to gain market share early on, similar to what we're seeing Google do with Android. This has created complexity and very slow OS updates for end users. Developers are forced to develop not for the latest features, but for a two or three year old feature set. Nobody cares about OS 6 if the majority of users won't have it for another 18+ months. BlackBerry is 11 years old -- I suspect in time Android will face a very similar problem.

RIM's marketing is quite good, actually, given their ability to showcase products that barely exist or deliver on their promises. The real problem is that RIM should not be chasing Apple's market. They should stop alienating it's existing customer base -- corporate users. Corporate IT and users that I have spoken to do not respond favorably to RIM's almost exclusive marketing focus on the consumer market. Coming out with compelling corporate features, as you mentioned, on top of new OS technology would help them shore up the market they do have.

Without making the tough decisions today they won't be around in two years to reinvent themselves like we're seeing Microsoft try with Windows Phone 7 Series.

JVK said...

Tim, this was an article about RIM, not Apple.

John said...

Outstanding analysis, Mike. This is the gold that I keep coming back to your blog for.

I think you hit the nail on the head in your characterization of RIM's out-of-control development process. I've heard through the grapevine that RIM actually maintains two separate codebases for their O/S - one for GSM devices and another for CDMA. This is disastrous for developers, who will encounter different bugs on a Verizon BlackBerry than they do on an AT&T BlackBerry, ultimately losing confidence that they can write an app once and install it anywhere.

Ultimately, I think RIM has a great many employees who are bright and want to do new and creative things. But I think those people are being shouted down by the long timers there who saw their O/S rise and dominate and think it can do everything it needs to. Why would they modernize it when they can add to it? It's just so much less work.

That's why I'm optimistic about the Playbook, if not for what it is as a product than at least for what it represents - a realization on RIM's part that they need to abandon their old O/S and try new things. It's the one sign I've seen that RIM is aware of the problems you've articulated here and is willing to address them.

Anonymous said...

Excellent analysis. Might I suggest, though, that you lead with the software design. RIM's fundamental problem, if I may support and add to what you've said, is the failure to establish a development path leading to real hand-held device computing. Nailing down email should have been just one stop along the way, not an end point even if only temporary. The reliance on multiple menu levels shows that whoever is in charge of the development path is way out of touch. At this point, the OS (according to an app developer I spoke with at CES last year) is too inflexible to develop on quickly. Supposedly, even to fix the display issues around magnifying pages quickly and smoothly, requires major rip-out-and-replace. Without an ease of surfing the web or operating apps, it doesn't matter what new features are added. Web surfing is urgently number 1. So, when compared to iPhone and Android, Blackberry devices don't feel valuable. Having switched to Verizon (and a Blackberry) from an iPhone after last year's AT&T connectivity debacle (I got really tired of AT&T's lame service and even lamer excuses about that lame service) I still carry my iPhone on biz trips for hotels, coffee shops and other places with wifi to use apps, check email, etc. To me, that means that RIM is in a race to be relevant, which means making a device that feels like a mini computer. I don't see it happening.

Jason Dunn said...

Superb analysis Michael - it was spot on in every way, and RIM would do well to hire you on the spot for a consulting gig. :-)

Michael Mace said...

Thanks for the comments, folks! (And for reading all the way through that long post). You made some very good points.

Some thoughts...


Tim wrote:

>>Apple's recent stock upsurge is largely based on the iPhone's supposedly eventual domination of the smartphone market....It's Windows versus Mac again.

Thanks, Tim. You have framed very nicely what is may be the single most important issue in smartphones today: Will they go the way that the PC market did? I'm not sure. Having lived at the center of the Mac vs. Windows tornado for a decade, and then tried the OS licensing thing at Palm, I am increasingly convinced that the success of Windows was due to a one-time freak alignment of the planets, rather than some sort of natural law in action. The reasons are longer than I can explain in a comment, and in fact might make a good blog post. Hmmmmm.

Michael Mace said...

Dave wrote:

>>RIM currently has huge technical debt -- insurmountable technical debt.

That's a very good way to frame it.


>>RIM chose Java and the Java Community Process (JCP) around '00 which together were good decisions at the time, but they are one of the few -- one of the only -- major vendors that are still chained to the JCP.

If Oracle is successful with what it's doing to Java, will that help RIM? I'm asking not saying; I honestly don't know enough about the governance of Java to have a good insight on this one. If you have a thought on it, please post a comment.


>> it's very difficult for developers to make money on the platform.

Also true on Android, from what I hear. Right now it seems almost like Apple has scooped up all of the users who are willing to pay (a small amount) for apps.


>>They should open a development office in SF or the Valley and start poaching the best mobile development resources they can buy. Waterloo, Canada and North Carolina are not the global epicenter of mobility.

Or maybe buy an existing development team like Palm...oops. Dang. That'll be an interesting "what-if" question in a few years. What would RIM have been like if they'd won the bidding for Palm? There would have been huge problems integrating that team with the rest of the company.

Besides, some of the reports I've seen say that RIM only wanted Palm for its IP (link).


>>The real problem is that RIM should not be chasing Apple's market. They should stop alienating it's existing customer base -- corporate users. Corporate IT and users that I have spoken to do not respond favorably to RIM's almost exclusive marketing focus on the consumer market.

I agree totally. I think back to a TV ad that T-Mobile did for the flip-phone Blackberry. It featured someone "butt-dialing" by sitting on his phone. (link) On the one hand it's a funny ad, but think what that does to the image of a phone that was once seen as a dignified, powerful corporate status symbol. And what does the tag line, "the first BlackBerry for the rest of us" say to RIM's loyal customer base?

Would Apple ever permit a TV ad of someone butt-dialing an iPhone?

It's as if RIM believes the business users will always stick with it no matter what. Bad, bad assumption, as the satisfaction surveys show.


>>Without making the tough decisions today they won't be around in two years to reinvent themselves like we're seeing Microsoft try with Windows Phone 7 Series.

Utterly correct. If Windows Mobile were an independent company, it would have gone broke 18 months after launch. Same thing for Android, by the way. In fact, come to think of it, RIM and HTC are the only major pure play smartphone companies. They have much less room for error than any of their major competitors. Yikes.

Michael Mace said...

John wrote:

>>I've heard through the grapevine that RIM actually maintains two separate codebases for their O/S - one for GSM devices and another for CDMA. This is disastrous for developers, who will encounter different bugs on a Verizon BlackBerry than they do on an AT&T BlackBerry

Oh my goodness. If it's true, that is also a development nightmare for RIM's engineers. Somebody please post a comment if you can confirm or deny that.


>>That's why I'm optimistic about the Playbook, if not for what it is as a product than at least for what it represents - a realization on RIM's part that they need to abandon their old O/S and try new things. It's the one sign I've seen that RIM is aware of the problems you've articulated here and is willing to address them.

I hope so. Now can they execute?


Anonymous wrote:

>>At this point, the OS (according to an app developer I spoke with at CES last year) is too inflexible to develop on quickly. Supposedly, even to fix the display issues around magnifying pages quickly and smoothly, requires major rip-out-and-replace.

I'm not surprised. Any OS as old as theirs is usually crusted up with a lot of inflexible legacy code and kludges.


>>RIM is in a race to be relevant, which means making a device that feels like a mini computer.

I'm not sure I agree with that. If the race is to make a general-purpose mini-computer, then iOS and Android have probably already won. In that case RIM would be better served by switching to Android and building its apps on that base.

But I'm not convinced that the phone market will commoditize horizontally the way the PC market did. I think there might be a viable path for RIM where it could be a little less flexible than an Android system, but superb at doing business tasks.

It would still need to modernize its OS, though.


Jason wrote:

>>RIM would do well to hire you on the spot for a consulting gig. :-)

Thanks, Jason! What they really ought to do is invest in my startup. We could help with their problem. ;-)

Dean Bubley said...

Hi Michael

A lot of really acute analysis here & I certainly agree with much of it.

However, I wonder what your take is about the idea that RIM is playing less in the "smartphone" market, and more in the "specific-application device" arena.

It started off doing pagers for people in finance, then moved onto email for business users.... and now, as well as that, it has another consumer segment you haven't addressed.

Outside the US, it is increasingly becoming the youth "social phone" of choice, with the QWERTY ideal for the 3000-SMS-a-month teenage brigade, pretty good Facebook integration, and the viral exclusivity of the BBM messaging platform.

Certainly in the UK, BB's are now the phone of choice of 15-30yo's, especially female. This is very different to what I perceive in North America.

One point here is that not all BlackBerry device users are "subscribers", an increasing number are just buying the device for use with a normal SIM card or contract, but not a BES or BIS account.

The price points also bring unsubisidised BB's into range of the prepaid market, which accounts for 75%-odd of the world's mobile population. That group has historically only really had Nokia as a suitable supplier of smarter devices, as iPhones are far too expensive at $500-900. Some Androids are now creeping into this range too.

Any thoughts?

Dean

Jeff said...

RIM needs to do now what PALM failed to do 3-4 years ago: join Android.

Had PALM palm done this, it could have migrated its then #2 share of smart-phone users over to a platform that had deep pockets and developer enthusiasm to rival the iPhone.

They could have then built in excellent "PALM-only" apps into their smartphone (the PALM calendar is still the best calendar I have ever used on a smartphone.) This probably would have kept many PALM loyalist like myself from moving to the iPhone (which, bty has one of the worse smartphone calendars I have ever used.) Palm, like RIM, did the basics very well...and for most of their users, this was enough.

I'm sure 2-3 years ago Google would have lept at this endorsement of it's Android OS and sweetened the deal for PALM to make such a switch.

This is exactly what RIM should do now! MAKE THE BEST ANDROID PHONES AND LAYER THE GREAT RIM MESSAGING FEATURES AND KEYBOARD ON TOP. I suspect most RIM users would switch to an RIM Android phone for one reason: the familiar RIM keyboard.

Most RIM users I know love two things: the keyboard and the superior messaging. RIM can easily achieve these two things and then stop trying to build a multi-media OS from scratch. Let Google build the OS to compete with Apple and then RIM can focus on making the best business messaging phone in the Android pool.

Last I checked, Android isn't charging anyone to use its OS.

--Jeff Grace
www.jeffgrace.com

Michael Mace said...

Dean wrote:

>> I wonder what your take is about the idea that RIM is playing less in the "smartphone" market, and more in the "specific-application device" arena.

Ahhhh, Dean, you are raising one of the world's three great unanswerable questions. The first two are "What is the meaning of life?" and "What really was Ray Ozzie's job at Microsoft?" But the third one is "What exactly is a smartphone?"

There are a lot of industry analysts who have made up answers to the question, but I doubt most customers care. They just buy the phone that does the stuff they want, without reference to whether it's officially smart or dumb.

So yeah, I think almost all of RIM's market is people who wanted a messaging phone. Lord knows, nobody's been buying it to use as a browser, and people who really care about apps would have moved to iPhone a long time ago.


>>Outside the US, it is increasingly becoming the youth "social phone" of choice, with the QWERTY ideal for the 3000-SMS-a-month teenage brigade, pretty good Facebook integration, and the viral exclusivity of the BBM messaging platform. Certainly in the UK, BB's are now the phone of choice of 15-30yo's, especially female. This is very different to what I perceive in North America.

Wow! I had no idea. That sure is different from North America, although RIM has been trying to reach the youth market here as well.

(By the way, it continues to be interesting to see heavy texters switching to QWERTY phones in Europe. I remember not so long ago being lectured by some of my European brethren that everyone in North America was going to learn T9 so they could text from their phones. For the record, you were not one of those people.)

Your point about prepaid is also extremely interesting.

Ugh, this makes things even more complicated for RIM. If its European users are fundamentally different from its North American users, it's going to be extremely difficult (and expensive) to create future products that please the whole customer base.

Thanks very much for the info.

Chandana said...

Bravo! Mike,

Head on. "Outstanding analysis, This is the gold that I keep coming back to your blog for." I agree.

This was the exact same reasons why did Palm failed and went unheard of now.

I saw this problem when in the last days of my Palm Treo 650 use. I had no successor to turned towards but Apple. For the sake of the platform, assuming Palm will turn tables. I brought a Treo 680 just to give them a breathing room to reinvent. They never did in time, WebOS was good, good enough to keep me hooked but they missed the train by large 2-3 years.

Also As some comments suggests I see no threat to Apple from Android as yet, which is mostly fragmented.
I tried the latest Samsung Galaxy S, it's at least a year behind gaining the perfection to the amount of very first iPhone, they only cut into MS mobile, RIM, Nokia and Chinese knock off slaes, not in to Apple's

Though technically and mentally challenging I presume the best bet for the mobile consumer would have been either RIM or MS was buying Palm which didn't happen. MS survives due to bigger PC earned chest to live up to WP7, even that now rivaled by Google Android so gains no momentum as yet.

Where now Apple drawing the focus elsewhere like TV-in-Apps back to Mac os like things drives variation like no other

I have personally not used a BB though I loved Treo 650 keyboard, which was the only reason I would have brought a BB if ever. Now even my 1.5 year old so accustomed to finger swipes, where now she even tend to swipe "ordinary" laptop screens the days for keyboard also seems done for the future.

Good article.

(Chandana, thanks for your comment. You posted it to a different article, but it was clearly referring to this one, so I moved it here. -Mike)

Elia said...
This comment has been removed by the author.
Elia said...

Mike, Dean is right and the same is true here in the US. All of RIM's market growth in the past four years is based on the consumer market and texting. They are in a tight spot and I doubt they see it.

I felt the company was arrogant when I worked on BlackBerry devices. The developer community was definitely treated very poorly, there to serve the whims of the master. It was a very disappointing experience and one I am unlikely to repeat.

Anonymous said...

Great analysis, Michael.

Dean Bubley said...

Mike

Just as a quick follow-on, thought you might find this interesting:

I've got this week's copy of the UK's mobile trade mag "Mobile Today".

It lists the top-ten phones sold in UK retailers, split by prepaid and postpaid.

In the prepay Top 10 list, there are 3 Samsung featurephones, 2 Nokia S30 basic phones & one S40 featurephone, and one each from Alcatel, SonyEricsson and LG.

.... plus the BlackBerry Curve, 8520, the only smartphone in the prepay top 10, currently at #8

For post-paid, there are BlackBerry phones at #2, #3 and #5 , plus Androids at #1, #4, #6, #7 and #9 and one Symbian (Nokia E5) and one Samsung featurephone.

These are weekly stats, so very driven by launch cycles, though.

Dean

10 said...

Outside the US, it is increasingly becoming the youth "social phone" of choice

>> well, I can confirm this at least in Thailand. Blackberry is solely for chatting and socializing.

Coofer Cat said...

Excellent article.

I have a friend who typically walks about with 3 phones. He has a (work) Blackberry, an iphone and a crappy Nokia. I asked him which was best, and he summed up what I always thought about Blackberries:

"For productivity, the Blackberry - hands down. For fun stuff, the iPhone, and for stuff you don't want the Mrs to know about - the crappy Nokia".

It's interesting to see "the kids" are using Blackberries as the way to get stuff done - obviously very different stuff than the corporates would want, but it's still "productivity".

If I had a wishlist for Blackberries, I'd ask for absolutely flawless 'office' productivity - open Word, PDF and Excel email attachments (read only, if needs be) and as you suggest, meetings scheduling that knew about timezones and people's availability. Your idea about conference calling is a good one too - we use conference services a lot at work, I'm sure RIM could leverage their infrastructure to provide a similar solution (possibly with VOIP to avoid call costs). Integrating it with the Blackberry specifically could make the service a whole lot more usable than the current solutions; heck, they could even make it so that the system called you at the right times for your meetings, or had a 'dashboard' app that told you who was connected to your conference.

As for the "will they do it?" question, from what I hear - probably not. They have shaky server-side infrastructure, it's been built in a hurry and doesn't scale or replicate well, and it takes a lot of hand-cranking. I'm sure their OS development isn't far different. That's not insurmountable as someone else suggested, but it does take concerted, decisive action for a long time to repair, and as you state, it means you need to forget about your number for a few quarters.

RIM probably needs to grab ahold of it's nuts, front up to it's major investors and bet the house on a few major achievements. Half-a-job isn't going to cut it.

Michael Mace said...

Very good comment, Coofer.

It's interesting that many people carry multiple phones for different purposes, huh? Kind of implies to me that the market's not consolidating down to a single super smartphone.

One question -- you say that RIM's server architecture is weak. Could you give a bit more detail on that? I thought the BlackBerry e-mail back end was their pride and joy, but I'm not a server expert, so I can't judge it for myself.

And I agree with your feature ideas.

Anonymous said...

Now this is what I call an analysis! Too much to ask for you to do one for Nokia? The one constant I get from the flurry of charts that http://www.asymco.com/ so helpfully sets out is that RIM and Nokia are bleeding.

Anonymous said...

"Most RIM users I know love two things: the keyboard and the superior messaging."

I can type faster on iOS and Android virtual keyboards with their predictive abilities than the teeny tiny chicklet keyboards on the BB. And with the sales of the aforementioned devices, a real keyboard isn't that big a differentiator any more.

As for superior messaging, when I can look up a phone number or address in my corporate directory, I'll be impressed.

BTW - that's something I can easily do with iOS, Android or Windows Phone 7.

Samir Shah said...

Congratulations on a very nice analysis.

Looking at history, RIM is like Wang in late eighties. RIM has to "reset" their OS (QNX rather than 6) like Microsoft.

A "reset" is necessary but not sufficient like what Microsoft is finding out. With "reset" you at least have chance, otherwise it is a certain death.

This is what I see the problem is at the macro level. There are many qualified to do the work at micro level.

Harga Blackberry said...

wonderful.... Ilek this blog :D

RSCME said...

Blackberry's can already edit Word, Excel and Powerpoint attachments. And there is a dirt cheap PDF reader that is better than my desktop app.

RIM's CEO has already alluded to the fact that QNX is in the works for both the Playbook and future smartphones.

I wouldn't count RIM out yet. I am a huge supporter of RIM because they give me the tools I need to do my own tech support for my users (as a BES Admin). My friends with iPhones that have problems don't even now where the battery is, let alone how to pull it to do a hard reboot of the phone. And what other smartphone provides you with tools to install a beta operating system just to see if you like it, and then reinstall the original OS if you don't.

Blackberry users, and the people who support them, are quite loyal to the product. IMHO, BB devices can do a lot more than people realize. Apple may have 1 million apps, but 999 thousand are completely useless.

Glenn Fleishman said...

Jeff, about RIM joining Android, it's not that simple.

Google has done a remarkable job of pushing the notion that Android entirely comprises an open-source platform available without licensing fees. But that is incorrect.

Android is in two parts: the platform, which is open source and freely available, as Andy Rubin pointed out in a tweet after Steve Jobs rants; and Google apps and data resources, Android branding, and Marketplace acceptance.

Skyhook Wireless sued Google over what they allege is business interference, citing Motorola and "Company X" which was Samsung. The lawsuit claims Google tried to withhold part 2 of Android, which isn't discussed much as a separate part that's not free and open, unless the handset makers included the full Google location management system, which Skyhook competes with.

Whether the suit has merit or Skyhook prevails, it's become abundantly clear that Android's OS portion is just part of the puzzle. You can create the best Android phone in the world--and then not be allowed to market it as Android compliant, have access to the marketplace, or include Google search, maps, navigation, or other programs.

DM Cook said...

Excellent analysis.. I'm really impressed with how you "dug out" the true story here.

I feel similarly about RIM, that their product is, fundamentally, not competitive in today's market. Its audience is largely repeat customers, or clients who were told to continue using the product, and isn't based on merit or interest on the part of the users. The difference with Apple is--has always been-- on building a cohesive experience. That approach seems to be resonating with customers as they find that they use technology more when it provides them more benefit (and is simpler, and less headache-inducing).

My first experience with a blackberry (think it was a Pearl) was horrific. I accepted that there'd be a learning curve, but i found it immensely frustrating. My next experience was with my then-girlfriend's Storm-- which I still think of as the least-practical, and probably worst-designed technology product outside of those built by Pacific Rim megacorps. The Storm was literally inexcusable, both as a concept (it's like an iPhone! Except it doesn't work!), and as a practical device (tap the screen to, uh, do certain things...but sometimes, PUSH the screen instead when that doesn't work. So futuristic!)

In reality, RIM's problem comes down to exactly what you get at with the R&D costs. They're spending all this money on things no one cares about-- or that only a few nerdy sysadmins do-- and totally wasting the time, resources and interest of MILLIONS OF SUBSCRIBERS. If they actually focused on differentiation, they'd have realized long ago that their expertise is in communication-- and if they'd brought in a few really great UI designers, they could have a solid "communicator". Instead, they've ended up with a fiendishly confusing email device that's bolting on strange and unrelated new features-- music playback, video, "apps"-- so that they can appear competitive. And this is definitely not a winning strategy for keeping current customers-- certainly for attracting new ones.

For more than a year I've wondered, who would actually purchase a blackberry at this point? Really? When android phones offer all the customization, and iPhones offer the simplicity and reliability? As someone else stated, i type faster on my iPhone's predictive keyboard than ANY blackberry user-- even the diehards-- I've ever seen. So it can't be that. Now, i suppose if you really like BBM, and don't want to just use texts, there're one (small) advantage. But the fact of the matter is that there remains almost no differentiation in the product,, and MANY STRONG REASONS not to purchase it. RIM may make a lot of money, but that money is coming from the wrong place-- ie. a nonrenewable resource of customers. And RIM has done nothing but fail at attracting new customers through anything but deep, deep discounts. We all know what lies down that road...

Eric said...

I think the comment on "technical debt" is spot-on. While RIM has some marketing and sales issues, the legacy Java platform makes it almost impossible for a software developer.

Are there features on the BB Storm you need to take advantage of? Things like device orientation, on-screen keyboard display, etc. Well... the API for this requires a version of the BB JDE which is incompatible with earlier versions of the platform.

So what do you end up with? A complex script (I did mine in ANT) that builds a JAD distributable file for all the different flavors of the JDE. Of course, if you take advantage of any of the "protected" API's you'll need to sign your JAD to deploy it.

Sure, Apple deprecated things -- but they use the AppStore to take care of this. On BlackBerry you need to give users instructions on how to check the version of the OS they are using before the pick a JAD to deploy... or you have to build some kind of installer to detect that.

If Google isn't careful, they are going to end up in the same boat with Android,

Anonymous said...

Excellent article summarizing the problems with RIM. They are going to need an innovate and exciting product for the masses soon to survive. Without that, their user-base will be teenagers who can't afford an iPhone and dinosaur businessmen who are given a BlackBerry by their IT guy.

RSCME: You sound like the IT guy above. Handing out BlackBerries to everyone because you are convinced that they are "good enough" and you know how to manage them. iPhone users don't need to pull the battery out because they don't lock up daily. As an attorney, I am substantially more productive using an iPhone and all of its "useless" apps than I could ever be using a BlackBerry. My firm-issued BlackBerry sits, uncharged, in a desk drawer.

HugoP said...

Hi
I am confused. The last 2 quarters in the graphs are labeled 2011. Can you tell me where those numbers for 2011 came from?

quasiquote said...

Hi Mike,

Great article and as usual great analysis. My thoughts about RIM are:

1. Scalpels to Swiss Army Knives

The original RIM products were scalpels. Very focused on email and messaging in the corporate environment. Every attorney I knew had one. The smart phone market has matured and smart phones have become more like Swiss Army Knives. RIM has had trouble making the adjustment. Like many others they waste precious time and valuable resources making too many models. The U.S. site lists 7 models and I suspect there are more worldwide. Worse, given the kind of carrier mods they do, it's really the cross product of models x carriers. Apple gets so much leverage by doing one phone a year. Less is more. RIM needs inspired design, not more designs. When will the rest of the industry learn from Apple? MS got some it with Windows Phone 7

2. OS plumbing and middleware

The RIM OS issue is both a real issue and a red herring. It's a real issue because you need good plumbing at the lowest layers of the software stack to make everything else work right. Every huge hotel needs a good "plant" to keep customer happy (do you remember that TOG video?). QNX is probably better than what RIM has now, although it's be around for years.

The OS is a false issue because users never see the OS. Most developers never see the real OS. For example, most Apple Mac developers have never made a Mach system call. Heck, most Apple Mac developers have never made a BSD layer system call or even realize that BSD is layered on top of Mach. 99% of all Developers use the middleware and UI which for Apple is Cocoa Appkit (middleware) and Cocoa Touch (iPhone UI).

So QNX gives RIM new plumbing but not new middleware and UI, and the middleware and UI are where the action is.

As others have pointed out RIM is using Java for middleware. Oracle is in control of Java now and if I had to guess they are going to emphasize enterprise Java over mobile Java. Java is the COBOL of our time. My own opinion is that Java is old, waning technology. Java was started by FirstPerson/Sun in 1991 and it's based on C++ which dates back to 1983. See Google's Go Language for what's waxing. Rob Pike has a great 10 minute high level intro to Go.
http://www.youtube.com/watch?v=5kj5ApnhPAE

3. UI
To win with end users you need a great UI. Apple is clearly #1 here, with Android running a close #2, and Palm bringing up the rear. RIM has to get into the top 3 and that's going to be a challenge. Ditto for Nokia which is in almost exactly the same boat as RIM. Putting together a world class UI team is a non trivial task. Again their best chance would be with a small team, protected from the huge corporate entity that I am sure that RIM is. You need some special leadership at the very top to engender that kind of environment.

4. LTE
Oh and by the way you need to to do all of the above while the industry is making what is about to be one of the biggest cell phone technology transitions of all time, which is the switch to LTE. I briefly worked for an LTE chip company and all I can say is that cell phone technology is the most complex technology I've ever encountered in all my years in high tech. LTE is mired backwards compatibility issues. Spectrum fragmentation will probably force even more model variations at the radio level until SDR is able to become mainstream.

5. Video Dial Tone
Oh and by the way in case no one was paying attention, Apple is in the process of establishing FaceTime as the de-facto standard for video dial tone. This is something many companies have been trying to do for over 30 years. FaceTime will end up running over the data side of LTE, not the voice/video side. Apple and Google are both trying to reduce the carriers to commodity suppliers of mobile data bandwidth.

Sit back and enjoy the show. It's going to be a good one.

Aaron Davies said...

When you find yourself talking up the dual-core processor and symmetric multiprocessing in a consumer product, it's a sign of a serious lack of differentiation.

Tell me about it. Anyone remember the lecture on pipeline design in a MacWorld about a decade ago?

Benno said...

The best ad RIM has these days is the one showing the social aspect of their products. People love BBM; they like to know when their messages are received, and it's just a step above other instant messaging options.

One bold step might be to focus on the service aspect and build an app for iPhone and Android which allows people with different devices to use BBM for a small fee.

The long tail might not be people who will buy RIM devices, but will happily use RIM services on the devices of their own choosing.

Anonymous said...

Dave said: "They should open a development office in SF or the Valley and start poaching the best mobile development resources they can buy. Waterloo, Canada and North Carolina are not the global epicenter of mobility."

This is a good point. But then, how many software companies have their main HQ in a different city (country) than their primary software team?

The big successful software companies I know, offhand: Microsoft and Amazon are in the PNW. Oracle, Google, Yahoo, HP are in the Bay Area. A few are in Boston, and a very few others are in NYC. A few other countries have their hotspots.

I agree that hiring top programmers is going to be a million times easier in the Bay Area than in Waterloo, but if one of their biggest problems is that their software teams are internally fragmented, won't adding a new dev center 3000 miles away just make that a lot worse?

At the same time, I can't see RIM ever leaving Canada.

The SA Survivalist said...

Just wondering where you get the numbers for RIM's Q1 and Q2 subscribers for _2011_ ?

drdoe said...

First of all, excellent analysis. Very, very interesting. For whatever reason, the important point about the late adopter market being saturated much quicker never fully occurred to me until I read this.

I also second Anonymous' wish for a similar analysis of Nokia. Their predicament is similar in the sense that they're don't have the backing of other products to finance their mobile investments, and they're very much tied to aging platforms (and one unproven one). However, they're also in curious position of (in my opinion) having "empty" brand loyalty. I know people who say they swear by Nokia because that's what they know. But there's no real "killer features" or any exclusity to Nokia phones (what they have is the most efficient, high-volume production pipeline ever devised, but that's not interesting to consumers). RIM has their core features, Apple has its exclusive brand, and Android has wide adoption. The picture seems bleak - but don't disregard the high-unit, low-profit sales to developing markets. Perhaps Nokia can keep riding an early adopter but low profit wave for a long time? But where does that lead?

I have some personal experience with Nokia as a company (not as an employee), but all I know is that they're in a really strange and discomforting situation. I'd love to hear you're insight on it

Hamranhansenhansen said...

> Windows and Mac all over again

No, definitely not. Smartphones are clearly the iPod all over again. A $100-$300 portable, battery-powered device, purchased, used, and maintained by regular consumers from a variety of retail sources is a very different thing from the early 1990's PC, which was $2000-$3000 office furniture purchased by technical people from IBM business sales channels and inflicted upon office workers.

In the early 2000's, Apple beat Windows-style media players from Microsoft (PlaysForSure) and RIM beat Windows-style smartphones from Microsoft (Windows Mobile).

Today, 95% of the profits in the entire handset market go to integrated devices from Apple (52%), Nokia (27%), and RIM (15%).

It is also a strange time to be defending the Windows model when Apple is poised to pass HP to become the number 1 PC maker by units shipped during 2011. Apple just bought a Cupertino office complex that HP just vacated.

> My friends with iPhones that have problems

And they can walk into any Apple Store and get solutions for free, including replacement hardware, which they simply take home and sync with iTunes and they are good to go.

> what other smartphone provides you with tools
> to install a beta operating system just to see
> if you like it, and then reinstall the original OS
> if you don't.

Apple's iPhone, iPod touch, and iPad work this way, and plain old iTunes, which is on 95% of consumer computers, is the tool. You option-click the Restore button in iTunes and choose the disk image of the beta OS to install it. Then sync to put your data on there. To install the earlier OS, you simply click Restore later and then sync again.

Hisham Abboud said...

Great article.

Up until a week ago, I couldn't see RIM pulling out of its downward spiral. Yes, they bought QNX -- a move that I thought made too much sense. But I didn't think that it would be enough to avert disaster. I also thought that using Adobe Air as the platform for PlayBook was giving away too much control.

But a week ago, RIM acquired The Astonishing Tribe (TAT), a highly regarded user interface outfit.

To summarize: they realized that they have an outdated OS and very weak user interface, and they have boldly addressed both.

The question now is: can they execute?

Anonymous said...

OMG - please do as similar analysis of Nokia. They seem to be as rudderless and and I suspect are in the same state as RIM. Lots of phone sales but declining profits to speak of.

Anonymous said...

RSCME:

There is no question that RIM provides some seriously good management tools for IT departments. They are probably still ahead of Apple in that department. I do have to question, however, the need to run everything through RIM servers. It seems like for most smartphone connectivity (email, calendar, web) it makes more sense to connect directly to the network service of interest. But there probably are still some advantages to RIM's model...

Just FYI hard rebooting an iPhone is as easy as holding down the power button for a few seconds. There is no need to take the battery out (nor can you). Also, you can install beta OS versions on iPhones as well. Sign up for the iPhone developer program and you'll get the software. Installing it is the same as doing any iOS update. Most companies that deploy iPhones to their workforce belong to this program. However, most end users don't have any desire or need to run beta OS version - they typically contain bugs. Android phones can have different versions installed as well...

MVP said...

This is one of the most excellently written analysis of any mobile company. I'm gonna use this as a reference for some corporate strategy in future. Please permit me.

Andre Richards said...

@Tim: "Android's more open platform enables its ecosystem to innovate faster, pulling even farther ahead of the iPhone. It's Windows versus Mac again."

Enough already. That same, tired argument was used against the iPod and iTunes when Microsoft brought on the Plays-For-Sure initiative and again when the Zune emerged. Apple bears almost no similarity to the company of the same name of the 80s and quite frankly, their uncanny ability to walk into existing markets and pull out huge chunks of market share where others expected no traction bears a helluva lot more similarity to the old Microsoft than anything else in recent memory. But still, when you consider that the Mac in the 80s came into the market trying to radically upend the way things are done in a DOS-based PC world, you can't help but realize that Google (trying to upend things in the one-company-makes-it-all cell phone world) is really a lot more like the old Apple than Microsoft.

Besides, even if you can make the argument that it's the "Mac vs. PC" all over again, you have to wonder how effectively Google can wield Android when its open nature does not give them the kind of control over their own OS that Microsoft had with Windows which was, btw, a very important factor in Microsoft's domination of the early desktop PC era.

Janne said...

I keep on seeing comments about how Apple is doomed. Even here, even though this article was not about Apple. I find that strange.

First of all, iPhone is doing really well. Yes, Android will probably overtake it in market-share at some point. So? That does not mean iPhone had "failed". And iPhone is generating huge amounts of profit, and that's the ultimate goal of business.

What about Mac? It's a growing and profitable business, so what's wrong with it? Apple earns more money from Macs than HP (the market-leader) earns with their PC's, so why should Apple try to be more like HP?

MVP said...

...just an addition

In Nigeria, with over 70M mobile users, BB's seem to be in an unimaginable rate of adoption especially as a social tool rather than a business tool. Its more of a status device here and it's getting to the extent that people no longer ask for numbers anymore it's now "what's your pin?".
I tried the Bold1 last year and it seemed ok just for a short while. Now I'm with the iPhone 4 and my bold has turned to an alarm clock as it was just too limited in functionality beyond messaging. Many people too are making the switch away from BB's and it won't be long before the decline becomes significant.

Anonymous said...

RIM's problem is essentially the same as Nokia's. They came up in an era of total carrier control and have to kowtow to carriers for distribution their devices. Carriers dictate the features of their handsets and operating system more or less. RIM is, essentially, run by carriers indirectly.

Apple is the only company with brand clout to push innovation past carriers. (but even they make a few concessions)

Dale Rogers said...

Hi Mike, great article.

When it comes to youth market and QWERTY keyboard texting brigade. I believe the youth are buying into the BB prestige. BB was the phone of CEO's, Executives and the business elite. Young people are buying them for the status they imbrue. For the same reason they buy Burberry, Hermes and Christian Dior. This, in particular, adds weight to the increasing female market mentioned above.

The BB butt calling advertisement is then more ridiculous because it, as mentioned, devalues the brand.

Tieing this to your comment:

Mike said...
But I'm not convinced that the phone market will commoditize horizontally the way the PC market did. I think there might be a viable path for RIM where it could be a little less flexible than an Android system, but superb at doing business tasks.

We see that it is more important to maintain the elite CEO and executive market to support the continued growth of the youth market.

On another point, that adds to the CEO/Exec favour of BB, it has and remains been the BB's security that drove market favour. IT managers insisted on BB's for their executives in order to maintain high level security policies. Do you remember the Obama iPhone kerfuffle. White House IT execs had conniptions when Obama insisted on an iPhone.

In Australia most government agencies still will not permit iPhones and only endorse BB because of a, I believe unwarranted, view that BB is more secure.

If we then bring in some current affairs to the mix we see that the current WikiLeaks fiasco, if it has any effect on public policy at all, will only serve to increase the demand for higher security information management. This is BB's niche, this is why they are a trusted executives phone of choice. This is what they need to continue to sell. Not butt-call-proof phones.

So when/if BB catches on to your top three, meetings/conferences/documents, they need to sell over the top the premium security offered by BB for those features.

Regards,

Dale

Ged Carroll said...

Really interesting post. I suspect that RIM has some realisation of the points that you've made given their purchase of QNX which is an outstanding OS and TAT the other week who have some great UI smarts. However buying talent and good ideas isn't enough if you can't channel and manage them (the current state of Yahoo! being an excellent proof-point).

Carlos said...

Congrats for a thorough analisys of RIM but as some others commenters mentioned before, you were missing a new app/market where RIM could take leadership: the social network device. Mainly texting with a bit of photo and mp3 sharing at prepaid rates would be the killer app/device now.
My three kids 14 to 18 are asking Santa this year for their BBs. I am asking RIM for a cheap downsized device, no 3G needed combined with 15€ to 20€ voice and data prepaid operatos package.

This is what RIM should do, and as this users become older and wealthier they could move up the RIM product ladder.

orthorim said...

Great article. As a software engineer, the lack of progress in Blackberry told me that BB simply doesn't have the software power to catch up with the iPhone, or surpass it.

There's many things BB should or could do, and an intense focus on business related features would be the obvious starting point. There is so much they could do with their notifications infrastructure, it boggles the mind.

I just don't think they could pull it off from a technical standpoint. What they'd need to do is hire a team of 5 - 10 star programmers and do a completely new OS for BBs and the PlayBook. It's something that almost never happens in big companies because the bosses don't understand software. The chief mistake that they make is that they think their old software stack is an asset - whereas, in reality, it's a liability.
Steve Jobs, of course, is the exception - it's funny he's given that secret away in numerous interviews, and in fact even brags about how everything Apple does is software in pretty much every stock holder call. Maybe the chiefs at BB, Nokia simply don't believe him?!

Google of course is another company that actually understands software - hence Android has become the most serious competitor. Microsoft I am not sure about - they clearly have great engineers, but at the same time their entire business is built on hodge-podge architectures and they've gotten away with it forever.

Andreea Cristescu said...

Excellent article. I think you're right about everything when you give the reasons why RIM will fail.
However, I think you are wrong about when RIM (or any other company) should start noticing the symptoms. If they wait until sales slow down and profits decline, it's already a few years too late. The symptoms have only this year started appearing, and RIM bought QNX early this year, so they noticed they might be in danger. But noticing the danger this year is already too late, because now it will take them a few more years to really get competitive. They should've realized the danger as soon as iPhone 1.0 was out 3 years ago. If they would've done this then, they would already have very competitive products with iPhone and Android in 2010. Disruptive technologies don't affect incumbents AT ALL until years later after they appeared on the market. But incumbents need to decide to change as soon as the disruptive technology appears, not when it starts affecting them. It's already too late then.

Steve said...

RSCME - I have had the iPhone for 3 years now and not once have I had the need to yank the battery to perform a hard reset. Holding the Home and Sleep buttons for a few seconds does the trick. I also have installed beta versions of iOS 2, 3, and 4 on my iPhones and easily reverted back to non-beta versions when I needed to.
What I am finding interesting about BB is how its becoming the new Nokia in developing countries. All my family in Malawi now are rocking BBs for Facebook, Twitter and SMS.

fred said...

the charts in this post are incredible, as is your analysis

fantastic work

Anonymous said...

Well, you can see the issues with the RIM servers by the number of multiday outages they have. That's not going to get any better with more customers, it's going to get worse. Every bit of bb data goes through a single server farm in Canada. Does that sound like a robust system to you?

BB was built on a big advantage, they saw that MS Exchange couldn't do push email. So they built some software that constantly polled a Exchange server and when a email came in they copied it to the BB server and pushed it out to their phones. They then added some provisioning and remote wipe capabilities and called it BES. Charge a fortune for it and for each user. Keep increasing the price every year too. Fast forward to now, Exchange and pretty much every other email service supports push email via a open protocol. Don't have to pay RIM a cent to have push email. Apple takes a year to add remote wipe, encryption and wireless provisioning/management. Don't have to pay extra either. You want BBM type messaging to iPhones, Android and BB? Download an app like Hello, kik, or one of the many others.

What has RIM done in the same timeframe? Not a lot. That 40% satisfaction rate is showing how 60% of people have realized they can get BB features and a lot more without having to pay RIM anything.

As for RIM coming up with killer features, they have to out innovate the 20k developers in the hyper competitive App Store. And Apple of course ;) Also bring their whole OS into the 21st century too. Think about it, if you're a developer with a killer idea to combine conferencing/calendaring and messaging are you going to pitch it to RIM or make an App out of it? If it's good enough you could be a another AppStore millionaire.

Touch screen keyboards have been proven to be faster and more accurate than physical keyboards. Here's an iPhone 4 beating the current guiness record holder http://www.redmondpie.com/world-record-for-fastest-texting-on-samsung-galaxy-s-gets-smashed-by-iphone-4-user-video/

And android vs iPhone is not going to be like pc vs mac. First off the android is only ahead in the USA, because it's on more carriers. In others parts of the world where iPhone is multiple carrier Android is a distant second. The other is a little thing called the iPod. The "closed" iPod dominates the music player segment. A vertical system works better for consumer goods. The pc was a bit of a fluke propped up by monopoly abuse by Microsoft anyway. Google is doing something similar using license infringement of Oracle's java ME and patent infringement of Apple's IP. Both of which will end shortly in the courts.

So RIM is failing in infrastructure, key features and future growth. It just hasn't reached the cliff yet.

calyth said...

I'm a bit amused by your comments with the Torch.

I personally doubt if other smartphones would prompt for area codes. I have easy access to an iPhone 4, and own a samsung galaxy.

You speak of attention to detail, and coherence, but a Galaxy sold to Hong Kong can't seem to recognize the local 8 digits properly, at least not in english ui. It kept insisting on inserting spaces as if it's a north american number.

I'm also amused with how the galaxy comes with 2 batteries, but no separate charger. Turns out it's needed for the fact that the device can't idle with low traffic email accounts for a day.

I do agree that RIM needs to streamline, and to market. But are you so sure they're not trying to do that already?

Anonymous said...

[quote]Having lived at the center of the Mac vs. Windows tornado for a decade, and then tried the OS licensing thing at Palm, I am increasingly convinced that the success of Windows was due to a one-time freak alignment of the planets, rather than some sort of natural law in action. The reasons are longer than I can explain in a comment, and in fact might make a good blog post. Hmmmmm.[/quote]
I'd be interested to read your thoughts on this. I've been saying much the same thing for some time though it referrenced an alignment with IBM and not the planets. ;)

John Minnihan said...

>> it's very difficult for developers to make money on the platform.

> Also true on Android, from what I hear. Right now
> it seems almost like Apple has scooped up all of
> the users who are willing to pay (a small amount)
> for apps.

Not true, at least as evidenced by one [admittedly extreme edge] case: Rovio's Angry Birds on Android is [projected to be] gen'ing $1M in ad revenue per month - see http://techcrunch.com/2010/12/03/angry-birds-android-1-million-advertising/

Jeff Walter said...

To your point about shoddy BlackBerry UI cohesiveness and lack of a forward-looking interaction framework:

It looks like RIM's recent acquisition of TAT (again, purchase, not just consulting) seems to suggest they are serious about trying to create better experiences across their products.

Brandan said...

@RSCME

"My friends with iPhones that have problems don't even now where the battery is, let alone how to pull it to do a hard reboot of the phone. And what other smartphone provides you with tools to install a beta operating system just to see if you like it, and then reinstall the original OS if you don't."

These are features that appeal to sysadmins and geeks. We (geeks) will tolerate pain if there's sufficient technical payoff, but "normal people" want a perfect user experience with no effort.

Apple doesn't (generally) sell to the enterprise market, and RIM certainly didn't seem to sell to consumers until relatively recently. Installing a beta OS is not a feature that's going to sell RIM devices to iPhone owners.

"Blackberry users, and the people who support them, are quite loyal to the product."

This is disproved by the blue-and-yellow chart mid-way through Mike's article.

Anonymous said...

Actually, from an engineering standpoint, RIM is much like Apple at the time jobs returned--they have a stagnating single core product (phones with push email) whose technical advantages are quickly being eclipsed. They have a recently purchased high tech OS (QNX) that could help them dump their legacy code and become competitive again quickly. The have a relatively loyal base of supporters that are beginning to rethink their loyalty.

All that, seen against Apple's history, suggests that they could stage a comeback. The two big differences are first, how much are they prepared to go all-in on QNX (and, as the article states, how well will they manage it?). Second, the mobile market circa 2010 is very different than the PC market circa 1998. It is much more dynamic, and six months is a huge amount of time.

Geof

Bob Firestone said...

RIM's presence in the prepaid phone arena is very interesting.
Staying with ATT a blackberry is not in the running. A Curve for $200 with prepaid plan through Virgin mobile is a very different story. $70/month for unlimited everything is an interesting offer.

Anonymous said...

I'm so shocked that someone would use the barest mention of Apple to launch a nonsensical attack. Really. Shocked.

Apple's price point for their lower end devices is the same as everyone else but with better quality, service and support. Way better service and support. iPhone and equivalent Android phone prices are the same and in some cases iPhone prices are better. The iPad is cheaper than what many consider the only viable competitor the Samsung Tab yet you get much more with the iPad.

Android is only open as far as it benefits Google and manufacturers not as it benefits users. Plus much of Android is not open. Anyone who pays any attention at all to this subject know Android is closed in many ways. Also explain exactly how being "open" makes for faster innovation? Google does not take contributions to Android source so it's all on Google. If Android was open Gingerbread would not have been such a secret until they released it. Plus the "open innovation"sure didn't help the still poor UI we find in Gingerbread now did it? Some of the most famous open projects like Firefox are some of the biggest technology laggards so the idea that open fosters rapid innovation is a joke.

Apple users are loyal because of design, quality, service, and support. Not because of UI. Don't hold your breath waiting for Android to be "fashionable". It's cheap to manufacturers and it's on more carriers. Thats all.

Amazon's primary business is selling books. It is a sideline for Apple. Do the math. This is like people saying Google is selling more ads on Android than Apple on iPhone. I would hope so. Googles business model is tracking your usage and putting ads in your face.

As to number of apps the shallow thinkers fail to realize that number and quality of apps on the app store is important because no matter what you are interested in there are set of basic as well as focused apps for whatever you want. Not true on the terrible Android market.

"It's Windows versus Mac again."

No, thats just lazy thinking.

RIM has nothing to offer Android. it's like Palm using Windows Mobile. Made no sense at all.

"Blackberry's can already edit Word, Excel and Powerpoint attachments. And there is a dirt cheap PDF reader that is better than my desktop app."

Nobody uses either one of these items.

"I am a huge supporter of RIM because they give me the tools I need to do my own tech support for my users (as a BES Admin)."

Your job is irrelevant. RIM's Blackberry infrastructure is not needed on real smartphones.

"My friends with iPhones that have problems don't even now where the battery is, let alone how to pull it to do a hard reboot of the phone."

Seriously? First of all you don't have to do a hard reboot of iPhones every 5 minutes like you do with Blackberry devices. I have had every iPhone made and have done a hard reboot maybe once or twice? Which you do with the single button and on/off switch. Plus the battery on iPhones has always been sealed...

"And what other smartphone provides you with tools to install a beta operating system"

RIM doesn't actually want people to do that. But you can do that on an iPhone and Android.

RIM has one of the same problems as Palm in that they became complacent and arrogant and only did very minor hardware and software upgrades for years. They also developed a highly contradictory and inscrutable interface by adding UI on top of UI. They finally realized, too late, that they need an entirely new OS which we will see on the Playbook their vaporware tablet. But there is no installed base of that OS/apps and if they think the RIM name is going to make people buy one they are sadly mistaken. Android and iOS will rule the market.

Knute said...

I don't think marketing and great products can save RIM. That's because the "phone" has been absorbed into the computer ecosystem and Google, Apple and MS are set up for this with platforms and development tools that provide users a fluid UI/UE from desktop, laptop, MP3 player and phone. Apple has the most mature solution, Google has first-strike advantage over MS in the non-proprietary hardware realm, and MS has finally got it right and will back its phone platform up with mountains of Windows/Office cash.

RIM can't win alone. Perhaps if they partnered with HP and WebOS that would provide them enough technical and marketing juice to offer a viable fourth player. Right now it's hard to get excited about RIM's future.

Walt French said...

Wonderfully fine insights.

I wonder how much of what you see is from RIM having painted themselves into a corner by optimizing too heavily for their 2003 feature set. Some very productive BlackBerrys have but 64MB RAM —Apple could only squeeze into 128 for its first phone, 256 for current-gen stuff, and the new Androids don't bother screwing around with less than 1024.

RIM's aggressive optimization for small memory spaces means coding techniques and features that are VERY difficult to carry forward: lower-level languages, bare-bones display technologies, coding directly to specific chips' interfaces, etc. I presume this is why RIM hasn't even managed OS6 on all its current offerings.

And at the same time it'd be impossible to plunk QNX onto its phones, it'll likewise be heroic to port the phone features, dependent as they are on specific hardware and coding techniques, onto the new OS. So while QNX appears to be a perfectly fine base for mobiles, RIM is hamstrung in being able to put phone features into it quickly. I imagine the grinding of gears that a simple "QNX will be our ONLY OS" would cause: "What? Double each handset's hardware costs just so kids that only want to TXT one another have multitasking shoved at them? And wait two years until it's ready?"

Anonymous said...

Tim, too bad you're crystal ball causing you to have a huge bout of wishful thinking...

The complete opposite will happen in fact. It will be the fastest "race to the bottom" you'll ever see. No one will be making any money except Google, because everyone will basically be offering the same exact pieces of junk that in the end are all basically low-margin iPhone imitations. Besides, Android is going to be one huge target for malware attacks at this rate, that will likely spread like wildfire among all the Android devices. The sad part is that most people buying these "iPhone imitations" don't even know they're running Android. In the end it's OK though, things will get much better when these people need to install constantly-running malware scanners that will chew through battery and bring their phone's performance to a CRAWL.

melgross said...

RSCME seems to think that he needs to bring the iPhone into this as did Tim. Unfortunately, neither seems to know much about it. Tim's speculations seem based on his wishes more than reality, and RSCME's are based on no knowledge at all. the iPhone doesn't have a removable battery (and the same is happening for other phones as well), but it doesn't need one for a reset to be done.

Getting back to RIM, which is why we are here, I found the article to be very well thought out. RIM is already being bashed about its two OS strategy. It seems as though they will drop their current OS in favor of the Playbook sometime in the future, for all devices. But this would have the effect of confusing developers. Should they drop their current work and future plans for the BB while waiting for the new OS to move over? They really need to be clearer on this point, as it was confused further at AllThingsDigital.

Does RIM really have 18 months to get this working? I don't know. I read about how popular the BB is among youth in Europe, but unless the UK is different, I'm not so sure. I've been there four times in the past 18 months or so, and rarely saw a BB. I would see either iPhones or iPod Touches. A fair number of other phones as well, but very few BB's. Friends of my daughter's here in the States have abandoned them over the last two years for iPhones and Android models.

I don't see how RIM can turn this around, because, as you said, once they start jumping ship, it becomes a mob. RIM seems to be working harder to remain in place. BOGO "sales" seem to be a big way of making the numbers, and that's not good.

Anonymous said...

It's funny how many commenters are showing up to defend RIM (or beat on Apple), without addressing *any* of the issues in the post. I wonder if they even read it.

Yeah, we know you really love your BB. Doesn't change the fact that RIM is getting fewer new customers per sale than ever before, or that its R&D is so inefficient.

Anonymous said...

Very nice analysis. But, as mentioned in http://www.ankleskater.com/pagemaker.php?id=ASBG20101212181400, this would have been more complete if QNX was included in the discussion.

Anonymous said...

About BlackBerry loyalty - I used to be a loyal BB user too. No more. Once you realize how behind their products are (including the Torch), it is hard not to move on.

Michael Mace said...

Hi, everybody.

Wow, what an interesting collection of comments. Thanks to Daring Fireball (and several others) for the link.

I'm sorry if you had trouble posting a comment -- I had moderation turned on for posts older than a month, and this post is two months old. I've approved all the comments, and re-enabled commenting for this post, so now you should be able to comment directly.

It'll take me a day or so to respond to all of the comments, but in the meantime there's one thing I want to clarify. A couple of people asked how I have 2011 data in the charts. I wish I had that sort of psychic powers, but I was quoting RIM's fiscal quarters, and their fiscal year is a couple of quarters ahead of the calendar. Sorry for the confusion.

Anonymous said...

Which gives them 1000 more useful apps than BB.

airmanchairman said...

Good article, comes at a pivotal time in the transformation of the smartphone market. A time when the "knock-off-Nigels" of the Android coalition, circling each other warily (much like the Tories and the Lib-Dems in the UK), prepare to make a breakneck dash in the "race to the bottom" price war that is virtually inevitable.

As you suggest, RIM should stick to its guns and retain as much as it can of its loyal base and identity, while searching for "the next big thing in smartphone functionality" as a competitive spur to galvanise their future revenues.

This is almost precisely what Steve Jobs said when interviewed as CEO of NeXT prior to its acquisition by Apple. He said in answer to a rhetorical question about what he would do to turn Apple's fortunes around, that he would milk the Apple Mac platform for as much as they could while discovering and developing the "next big thing". And boy, it must be said, has he delivered or has he delivered...

In short, RIM should just be themselves and keep on evolving from the base they have established over the last decade.

jmmx said...

I like your line: "Your great financials mask that risk, and give you lots of logical-sounding reasons to avoid making the changes that need to be made."

One should never underestimate a person's ability to delude himself into believing that which he wants to believe. This goes for oneself as much as anyone else.

There is no cure. Only continued vigilance prevent it from taking over.

Michael Mace said...

Thanks for all of the comments. Very interesting stuff, and I'm sorry I can't respond to everything. A couple of thoughts...


quasiquote wrote:

>>The U.S. site lists 7 models and I suspect there are more worldwide. Worse, given the kind of carrier mods they do, it's really the cross product of models x carriers.


Yes, exactly. I also really liked the rest of your comments.


drdoe wrote:

>>I have some personal experience with Nokia as a company (not as an employee), but all I know is that they're in a really strange and discomforting situation. I'd love to hear your insight on it


Thanks. I'll do something on them when I can, but it'll take a while, as their business is incredibly complex.


Hisham Abboud wrote:

>>The question now is: can they execute?


I agree.


MVP wrote:

>>In Nigeria, with over 70M mobile users, BB's seem to be in an unimaginable rate of adoption especially as a social tool rather than a business tool. Its more of a status device here and it's getting to the extent that people no longer ask for numbers anymore it's now "what's your pin?"


Wow. I haven't had any visibility to RIM's image outside the US, and I agree that it was a blind spot in my article.

Thanks for the info.


Dale Rogers wrote:

>>So when/if BB catches on to your top three, meetings/conferences/documents, they need to sell over the top the premium security offered by BB for those features.


Very good point.


Andreea Cristescu wrote:

>> However, I think you are wrong about when RIM (or any other company) should start noticing the symptoms. If they wait until sales slow down and profits decline, it's already a few years too late.


Actually, the symptom I think they should watch for is a decline in gross margin per device. That happened to RIM in the end of calendar 2008, a little over two years ago. I would have hit the panic button at that time.


Steve wrote:

>>What I am finding interesting about BB is how its becoming the new Nokia in developing countries. All my family in Malawi now are rocking BBs for Facebook, Twitter and SMS.


That is absolutely fascinating. I wish I knew more about how RIM pulled that off.

Michael Mace said...

Anonymous wrote:

>>Touch screen keyboards have been proven to be faster and more accurate than physical keyboards. Here's an iPhone 4 beating the current guiness record holder


Yeah yeah yeah. No offense, but I am not impressed. At Palm we used to do the same sorts of demos with Graffiti experts. But what matters is the perception of the average person, and most of the people who've gotten used to a thumb keyboard are uncomfortable switching to something else. Period.


calyth wrote:

>>You speak of attention to detail, and coherence, but a Galaxy sold to Hong Kong can't seem to recognize the local 8 digits properly, at least not in english ui. It kept insisting on inserting spaces as if it's a north american number.


Calyth, you will never see me use the words "Samsung" "software" and "attention to detail" in the same sentence.


John Minnihan wrote:

> Also true on Android, from what I hear. Right now
> it seems almost like Apple has scooped up all of
> the users who are willing to pay (a small amount)
> for apps.
Not true, at least as evidenced by one [admittedly extreme edge] case: Rovio's Angry Birds on Android is [projected to be] gen'ing $1M in ad revenue per month


John, Angry Birds is a free app. It doesn't prove that Android users are willing to pay for apps. Quite the opposite.

But I am really impressed that someone can make good money from an ad-supported mobile app.


Anonymous wrote:

>>from an engineering standpoint, RIM is much like Apple at the time jobs returned...All that, seen against Apple's history, suggests that they could stage a comeback. The two big differences are first, how much are they prepared to go all-in on QNX (and, as the article states, how well will they manage it?). Second, the mobile market circa 2010 is very different than the PC market circa 1998. It is much more dynamic, and six months is a huge amount of time.


The other big difference is, where is RIM's Steve Jobs?

Stephen West said...

Very interesting analysis. It's certainly true that here in the UK, BBs are phones of choice for the youngsters, but my feeling is that this is more due to the fact that they can't afford iPhones, and they are taking advantage of RIM's price-cutting (in pursuit of the late adopters) to get a phone now: once they start earning, they'll upgrade to an iPhone.

BBM is an interesting thing, and perhaps RIM's killer app in this demographic. But again, the driver is cost: texts are charged for, BBM messages are free. How much longer are the carriers going to put up with their revenue being undermined in this way?

Dan said...

I agree that the Blackberry is 'the' phone for teenage girls in the UK. What's interesting is that almost all of them also carry an iPod.

Anonymous said...

A little self disclosure may help. Michael, do you have any financial interest with RIM, Apple, or one of the Android makers?

Anonymous said...

Great article Michael.

However, you omitted one critical problem for RIM...Their phones are now too small for many people over 40 years old. Many of my corporate colleagues, who have been using Blackberries for years, refuse to upgrade from the original Bold 9000 to the new Bold 9700 because the new keyboard and screen are tiny. Whereas the original Bold 9000 was the perfect form factor, with the best keyboard ever produced.

If Blackberry is serious about retaining its loyal enterpise customer base, it would reintroduce a larger size phone like the Bold 9000 instead of expecting mature business people to use a miniature phone (ie 9700)designed for the youth market.

Until this form factor issue is addresed, no amount of tinkering with the software will enable Blackberry to recapture and retain the corporate user base. Their smaller phones are becoming too difficult to use from an ergonomic perspective.

Moosebump said...

A very insightful analysis of the challenge RIMM faces. Unlike so many other articles and blog posts on this topic, you have taken a big picture, long term view and put some historical context around it.

It's interesting to consider how even the CEO/founders of companies in this position might be in denial. Balsillie talks about the "land grab" going on as an explanation for using price to gain share. I think he believes that getting share now positions RIMM for the future. But as you point out, loyalty is far from assured.

But I think they may be more aware of the risk than you give them credit for. It looks as though they are on the verge of a complete rebuild starting with the Playbook and then the entire lineup of handsets over the next year or more. This is clearly a radical step that indicates they see the shortcomings of their current offering. This transition will be very high risk and will require a huge amount of skill to pull off. The fact that they were early pioneers of mobile messaging and efficient two way data communication means nothing now. Those are table stakes.

I wouldn't want to own RIMM shares now because the platform is at risk, they know it so they are rebuilding it. But for that to work as well as it did the first time around for RIMM, they need lightening to strike twice.

Anonymous said...

I agree with all those giving praise to this analysis. I've crossed paths with Michael in the past when his role included competitive analysis at Palm which has certainly given him great perspective.

In my view RIM should create a BlackBerry variation of Android. Then migrate all of the existing BB development efforts into a specialized BB API on top of Android OS. This will force all devs using this BB API into tapping into the core elements which make RIM what it is. Things like BBM or super top secret corporate apps (which work on the Playbook and allow folks to ditch laptops) where strength of security is paramount. They should introduce biometric readers for example that verify the mobile user. These are the type of apps that this specialized API will encourage. There is nothing wrong with owning the government and enterprise especially when folks double up these devices for home use.

I could truly go on and on about this. But I've been saying this for a year to now avail. When I saw the recent announcements from RIM incl buying QNX and their latest changes to App World I said to myself "these guys are going for it - they are going to step into the cage match with Apple, Android, Nokia, and MP7 and slug it out." That would normally be a good thing but unfort RIM has a fatal issue. The BB OS 6 and QNX makes BB app development stillborn. Over time the biggest apps in App World will be the big brands looking to tap an installed base and other than that it will be RIM making apps themselves or hiring devs to build apps to hide behind the sad fact. RIM is going to go through a gut wrenching OS migration while ramping up developer interest. If they have to go through this pain they should have done it with Android underneath which will have effectively solved their consumer app dilemma.

This a truly tragic story to such a great innovator in this current evolutionary wave of computing.....

Anonymous said...

RIM's advantage is their messaging system and solid phone hardware.

At this point in time, I see only two ways out, both of which include dumping the BlackBerry OS.

* The QNX platform is a standout success, which is not a guarantee.

* Take Android, and put the BB enterprise features on top of it.


In fact, for about a 6 months now I have been saying the second thing is their best chance. Pull 90% of developers off BB OS and get working on integrating the existing infrastructure on Android.

Who cares if you do not own the OS if you own the infrastructure that enables you to deliver e-mail anywere on the world as reliably and low-cost as only BB can right now. No other system can deliver e-mail w/out straight-data roaming (BB's have special plans for email delivery accross the world -- this is a MAJOR advantage for the enterprise).

Michael Mace said...

Anonymous wrote:

>>Michael, do you have any financial interest with RIM, Apple, or one of the Android makers?

Nope, none. Thanks for asking.

I have in the past done consulting projects for some of the mobile companies, but I don't use confidential information in any of my posts. And I don't have any consulting projects going on at the moment, as most of my time is focused on the startup I'm working on. That's why I can't post as often as I'd like.

Larry Z said...

An area largely undiscussed in these excellent comments (a measure of the value of the post) where Apple provides a useful example is their rather Hegelian response to bifurcating markets; they're always looking to reunify, not further fracture.

RIM's likely response to unexpected popularity of their product for social media (thesis) is a model optimized for that market (antithesis) when what is needed is a product vision that advances both their original market (corporate) and their new market (synthesis.)

Consistent with Michael's analysis would be focusing new models on new adjacent markets. (Creating new theses, of course!)

RIM needs a Steve Jobs, not because Steve is particularly inventive, but because he is a ruthless editor with almost impossible standards and an unmatched ability to adopt the customer persona. And he does a great job of articulating the resulting vision both internally and outside the company.

Anonymous said...

"Actually, from an engineering standpoint, RIM is much like Apple at the time jobs returned"

Great observation! The #1 task of RIM management, then, should be to try to hire Steve to work at RIM. :-)

"All that, seen against Apple's history, suggests that they could stage a comeback."

Well, not really. I think most people now (even the Apple faithful) can see that in hindsight, without the monumental leadership of one individual, Apple was dead.

Put another way: Apple had tried to come up with a successor to ("classic") Mac OS, what, four times? (Taligent, Copland, Gershwin, Rhapsody? And that's not even counting their old server OS, A/UX.)

Even the darling of the tech industry today managed to screw up a next-gen OS 3 times in a row. Is RIM so much better than Apple-10-years-ago that they can get it right on the first try?

Anonymous said...

My job requires a tremendous amount of traveling and what I see almost daily in the cabins of US airliners are business users with 2 phones. Their Blackberry work device and an iPhone or Android for home/pleasure use.

I think this bodes extremely badly for RIM. When people are prepared to carry 2 phones to avoid using your product you have some serious re-thinking to do.

Steve White said...

A few points that Mike made that others haven't really seized upon:

1) you really do need a dictator who will bash heads to ensure that the product is right before it goes out the door. At Apple that person is Mr. Jobs himself. Who is that person at RIM?

The corollary is this: get a product out the door when a) it is ready and b) WHEN THE MARKET IS READY. Palm blew it because, very simply, it was too late. RIM is doing the same thing. Mr. Jobs clearly understands, as a salesman, that at the end of the day you have to have something cool to sell, not to show off. RIM needs to light a fire to get products right and get them into the market now.

2) it is far better for RIM to build upon what it does really well, and then leverage that to new markets. A Blackberry is a text tool. It doesn't and won't compete with an iPhone for graphics, video, etc, but it does text like no one else. So ensure that a Blackberry always does text better (messaging, email, etc) and market that. There's a substantial market for text, and it isn't all fifteen year old girls.

3) can RIM learn from it's mistakes? One reason Apple's App store works is that Apple spent years getting the iTunes store to work with music. They made a lot of mistakes but they learned from that. They learned from successive iterations of the iPod (remember the 3rd gen?) how to sell consumer devices. They learned from Pink, Taligent, Blue Box, Yellow Box, Carbon, Cocoa, etc how to, and how not to, build the underlying plumbing.

Learning from mistakes is just as important as detecting the leading edge of the downward trend. If they aren't learning, not only will they not recognize when the Blackberry falls off the curve, they won't know what to do about it.

3) simplicity matters more than most people understand. For however complex an iPhone is, it's pretty darned simple to the user. Touch, swipe, touch. That's it. You don't have to teach the user very much to use an iPhone, which is why so many users love it. The experience Mike's wife had with the Torch is an example of what happens when you DON'T get simplicity right. The dictator has to understand and enforce this.

4) the whole is greater than the sum of the parts. I don't care if RIM buys QNX and TAT. They have to know what to DO with them.

HP didn't know what to do with Palm (apparently). Apple, in contrast, bought several companies that delivered big hits, including the original iPod, Final Cut, and so on.

There isn't anything wrong with buying a smaller company that gives you what you need to have, but then you have to integrate what they do into your final product. Hello, Mr. Dictator, we have a job for you.

Great article, and one that (obviously) got me thinking. Best,

urlel said...

Should I know of such a thing as a "best post 2010" I'd happily Kb AND tap-cast two votes now.

Anonymous said...

Excellent analysis Michael and I agree with you 100%!

R.I.P R.I.M :-(

Anonymous said...

Blackberry = T-Mobile Sidekick for adults.

CVBruce said...

I found this all to be quite interesting.

The comment about multi core processors and real time operating systems made me think about what would Steve Jobs say. I think he would say something like the fastest browser in its class. The most responsive XXX we've ever made.

Steve has never lost his focus on the consumer. It's not about the technical details, it's about the user experience.

In the end it isn't about hardware or software, but about the devices usefulness. Otherwise all you have is a fad, a pet rock de jour.

adam said...

add verizon iphone to the list of woes for rim in 2011.

Paul said...

This is something of a "me too" comment to those who have noted the popularity of BBs w/ youth outside of the US.

Today, prior to reading this post, a co-worker and I were discussing a similar trend that we've perceived here in the US. We work at a K-12 in Manhattan, and have noticed a recent increase in popularity of BBs as the go-to phones amongst our high school students, boys and girls. This surprised us somewhat, but it seems that BBM is the killer app for these kids. BBs still haven't overtaken iPhones in this particular market, but they're pulling up fast. I suspect that this might be because no one gives their kids their old BBs when they upgrade, but many parents do give their kids their old iPhones (which, incidentally, are the most commonly seen phones among the middle school kids)--so the comment about BBs being status symbols in Africa also seems to hold among affluent New York teenagers. Both my somewhat less affluent teenaged nieces recently got new BBs to complement their iPod Touches.

So maybe the confluence of these factors, its strength as a messenger plus its perception as a status symbol, is where RIM can find new life for BB. The devil, of course, is in the details.

Anonymous said...

Excellent article. I would be interested in the same analysis of the Windows 7 mobile space, given that it is just entering the market, it would make an excellent contrast.

Ajit Jaokar said...

Interesting article as usual .. qs is: Is there any reference to 'because customers can't remember more than three(features)' kind rgds Ajit

Anonymous said...

Great analysis, thanks for sharing! Excellent read.

Chad Tennant said...

Great analysis and complements my blog post "Below the RIM". I'm part of the late adopter fold of RIM subscribers and won't be resubscribing now that I've learned more about the competition and my smartphone needs.

As an advisor and investor, I can't recommend this stock since I think its best days are behind it. According to Canadian Business magazine, "Research in Motion founders Mike Lazaridis and Jim Balsillie also suffered financial losses this year. Balsillie recorded the survey’s largest drop in personal wealth, the magazine said, falling from 16th to 30th place with a fortune of $1.81 billion. Lazaridis placed 24th with a net worth of $2.02 billion". These guys are still rich, and likely always will be, but dropping in the list is telling.

I don't think management can turn it around because they have been distracted by other endeavors such as buying hockey teams and university surname labeling.

Always a troubling sign of things to come!

Anonymous said...

I don't understand why you spend half the article discussing "market saturation" when, if that were a real problem, we wouldn't see the disparity between BB's market growth and that of iPhone and Android.

Care to clarify/comment?

Anonymous said...

This smells a lot like Palm's painful slide into obscurity a few years ago.

Michael Benin said...

No way. Blackberry Playbook integration with Blackberry phones is going to do well in the business world. Being a developer for the playbook I have already received many inquiries for Insurance salesman to contractors who want custom apps on their playbook to promote sales. Sorry this business integration with tablet and phone is going to put blackberry back in the race. BTW playbook supports Flash, apple better shape up its ipad...

Michael Mace said...

More great comments. Thanks, everyone.


Larry Z wrote:

>>their rather Hegelian response to bifurcating markets; they're always looking to reunify, not further fracture.


Wow, applying the dialectic to the tech industry. Kinky!


Anonymous wrote:

>>"Actually, from an engineering standpoint, RIM is much like Apple at the time jobs returned"


Speaking as someone who was at Apple at the time it nearly died, I'm not sure RIM is that screwed up. Apple's problem (in my opinion) involved an internal culture of passive resistance combined with execs who didn't have the will/technical chops to call people on their behavior. I don't know if RIM has that same sort of cultural problem. I hope it doesn't.

For those of you who are interested in Apple history, there's a remarkable mea culpa interview with John Sculley that was conducted a couple of months ago by Cult of Mac. My friend Prof. Joel West at SJSU pointed it out to me. You can read Joel's commentary here.


Anonymous wrote:

>>My job requires a tremendous amount of traveling and what I see almost daily in the cabins of US airliners are business users with 2 phones...I think this bodes extremely badly for RIM. When people are prepared to carry 2 phones to avoid using your product you have some serious re-thinking to do.


I agree with you that it's potentially a big vulnerability for RIM. But maybe it also says something about the segmentation in the minds of many customers. They're not necessarily carrying a "smartphone," they are carrying different phones for different tasks.

I'd love to know how many of those BlackBerries were paid for by the user's employer.

Michael Mace said...

Steve White wrote:

>>you really do need a dictator who will bash heads to ensure that the product is right before it goes out the door. At Apple that person is Mr. Jobs himself. Who is that person at RIM?


Yes, although I think it doesn't have to be a single person. It can be a group of competent product managers who are properly led and empowered. But they do need the authority to stop a project if it's wrong, and the training to know when to use that authority.


>>2) it is far better for RIM to build upon what it does really well, and then leverage that to new markets. A Blackberry is a text tool. It doesn't and won't compete with an iPhone for graphics, video, etc, but it does text like no one else. So ensure that a Blackberry always does text better (messaging, email, etc) and market that. There's a substantial market for text, and it isn't all fifteen year old girls.

I agree.


>>3) can RIM learn from it's mistakes? One reason Apple's App store works is that Apple spent years getting the iTunes store to work with music. They made a lot of mistakes but they learned from that.

An interesting point. Occasionally Apple has several of its execs onstage at the same time during a company event. Check out the amount of gray hair. Although Apple has a reputation as a young, hip company, its senior leadership is genuinely senior, and many of them have been together for a long time. It's a really interesting contrast to many Silicon Valley firms, which value both youth and employee churn.

Really interesting comments, Steve.


Ajit Jaokar wrote:

>> Is there any reference to 'because customers can't remember more than three(features)'


Good question, Ajit. I don't know of any scientific research to back that one up. It's just a general impression I've formed after years of marketing. If anything, people may not even be able to retain even three attributes about your company. Think of a few prominent brands as an example (and let's use non-computer brands to make the exercise clearer):

What do you think of when I say "Toyota"? For me it's leading market share and gas pedal problems.

How about "Southwest Airlines"? For most folks in the US , it's probably low prices, unreserved seating, and goofy flight attendants.

The more closely you interact with a brand, of course, the more info you can retain about it. But that's part of the problem for our online discussion here -- those of us who are tech enthusiasts can retain a pretty detailed impression of a company. But for the average customer, it's two or three ideas at most. Try to shove in too many ideas into a customer's head and they cancel each other out. It's hard for us who are close to the companies to see how this works.

Michael Mace said...

Anonymous wrote:

>>I don't understand why you spend half the article discussing "market saturation" when, if that were a real problem, we wouldn't see the disparity between BB's market growth and that of iPhone and Android. Care to clarify/comment?


Thanks for asking. It all depends on what you think the structure of the market is. If there's only a single unified market for smartphones, and eventually every phone user will buy a smartphone, then there's no way the market can be saturating yet.

However, I believe very strongly that the base of people who will pay extra for mobile data is a lot smaller than the total base of phone users, and furthermore that the people willing to pay are divided into different segments with different needs. I've explained why in a post here. So RIM's particular segment can be saturating while the segments for other devices like iPhone are not.

I think RIM's declining device gross margins are a sign of this saturation.


Michael Benin wrote:

>> Being a developer for the playbook I have already received many inquiries for Insurance salesman to contractors who want custom apps on their playbook to promote sales. Sorry this business integration with tablet and phone is going to put blackberry back in the race.


No reason to be sorry. That is great to hear, and I hope you are right. After you ship, please come back and let me know how your app does.

Anonymous said...

Great article and almost uniformly excellent comments. However I was interested to note that there really wasn't a discussion of business models. Google of course is software only (Droid foray excepted) with a heavy emphasis on promoting its advertising in exchange for giving away Android. It's hardware partners appear to be desperate enough to be going along with that model, thankful that they have something to counter Apple's whole widget. RIM like Apple, makes both the software and hardware but unlike Apple, doesn't have the critical glue that is iTunes. I'm amazed that there is no appreciation for how valuable iTunes really is. Not only does it seamlessly enable idevice syncing, but it is also a media store and an App store, with hundreds of millions of customer credit card numbers, all enabled by one-click. No one has anything as useful or powerful. Also, Apple has added iAds to their idevice platform. It's early but it seems to be making some inroads. What all this adds up to is Apple may not be selling the most phones, but it is raking in huge buckets of cash and profits. Quite amazing for a company that only started making phones a few years ago.

DD

Michael Mace said...

Thanks, DD.

I've always thought of RIM's e-mail service (both the enterprise server and its back-end work with operators) as its iTunes equivalent -- it's software infrastructure that gives a systematic advantage to its hardware products. Based on what we're hearing from Europe, BlackBerry Messenger is also playing a big role there.

But from an outside perspective, it feels to me like RIM hasn't taken advantage of its infrastructure the way that Apple has. As you point out, it's impressive how Apple has grown iTunes in various directions. I don't feel like we've seen the same sort of systematic evolution from RIM.

Greg G. said...

Yawn: It must hurt being this wrong.

http://www.businessweek.com/news/2010-12-17/rim-climbs-after-predicting-profit-that-tops-estimates.html

gctwnl said...

@Greg G: it is not clear yet that Michael is wrong. And given the very low new additions his point has actually been strengthened. Remember, his point was: the fantastic growth masks what is really going on, namely that they are growing fast by getting their 'late adopters' on board quickly. That is not viable growth.

They might still make it, but the signs are not overwhelmingly good. In a growing market they don't get enough new additions, most is replacements. And that is the problem.

Michael Mace said...

Greg, as far as I'm concerned this blog isn't about being right or wrong. I've been a lot of each in my career, and they're both overrated. What I'm after is understanding and learning. The RIM post really wasn't about RIM at its heart, it was about how a platform business declines, how to spot it, and what to do about it.

For the record, I'll be delighted if RIM survives and prospers, because I admire what they've done and I think the mobile industry will be better off with a diversity of leaders.

The only company I ever really wanted to see die was Microsoft, and I've outgrown even that.

Besides, if you were paying attention to my post, one of my main points was that good quarterly numbers can mask the symptoms of a platform at risk. Once the quarterly numbers turn really bad, it's usually too late to take the medicine. Come back in 18 months and let's see how RIM is doing then.

Anonymous said...

Didn't Palm put Windows Mobile on their phones? Didn't work out for them. So, why is there a charge calling for RIM to build on Android. IMO they are a software company that also builds their own hardware. What hardware would they be putting Android on? If they had the hardware to do Android, couldn't they build the type of device everyone is clamoring for? I think the mistake they make is trying to port all the security stuff into a handset. Just take what they are making for the Playbook and make a new line of handset. Let business (who is not quick changing usually) wait on the

EricE said...

"I wouldn't count RIM out yet. I am a huge supporter of RIM because they give me the tools I need to do my own tech support for my users (as a BES Admin)."

Exchange/ActiveSync offers many of the same tools...

"My friends with iPhones that have problems don't even now where the battery is, let alone how to pull it to do a hard reboot of the phone."

Unlike my work provided blackberry, I've never had my iPhone lock up to the point where I would have needed to pull the battery (ouch!). And you can still hold the home and power button to reset it - there is a hardware watchdog independent of the OS that monitors for that key combination and performs a hard reset automatically. Much more elegant that removing the battery, and it allows the phone to be much thinner without the need for space for a battery compartment, casing around the battery and the structural issues of putting in a battery door. Other manufacturers are now "discovering" that non-removeable batteries are a good thing too since I see more and more portable devices with them. It's about time...

"And what other smartphone provides you with tools to install a beta operating system just to see if you like it, and then reinstall the original OS if you don't."

Option click on the Restore button in iTunes and you can load alternate OS's. Besides, how is this a mainstream feature? Heck, on most other phones on the rare occasion where a new OS was offered people didn't upgrade - it wasn't until the iPhone and the ease in which Apple made the update process that you saw the majority of a phone model population upgrade!

"Blackberry users, and the people who support them, are quite loyal to the product. IMHO, BB devices can do a lot more than people realize."

I don't think the majority of the users are that loyal. Geeks (i.e. those who support them) tend to be partisan and fanatical, but end users tend to be more results oriented.

Non-technical people (there are more of them than us BTW) tend to not be enamored with technology for the sake of technology. These things we are discussing are merely tools, and if a better tool comes along they will more than likely switch.

"Apple may have 1 million apps, but 999 thousand are completely useless."

Ha! I love it when people mock the number of apps in the app store or try to cleverly point out the majority are fart apps.

Because they are very, very wrong. Just because the majority of apps may not apply to you doesn't mean they aren't of value.

Even if 2/3's of all of the apps in the iOS App store have value to just 10 people, assuming there are 300,000 apps in the app store that's two million people that the iPhone is relevant to that the other platforms probably aren't.

And I think that's a very conservative estimate, BTW. When you start talking about the long tail, the multipliers add up very quickly! This is what RIM and yes, even Android, are going to be battling. Android may move more raw numbers, but will it generate more revenue than the iOS? It hasn't yet. And even if it did, it's split among many more "mouths" than the iOS.

RIM moving to Android is the WORSE thing they could do. If they have any hope at relevancy, their move with QNX on the playbook is their best bet - too bad they don't have a UI, an API and SDK or an app store. Adobe Air? That's your strategy? I think I like Java better :p

EricE said...

@Geof
"They have a recently purchased high tech OS (QNX) that could help them dump their legacy code and become competitive again quickly.
[...]
All that, seen against Apple's history, suggests that they could stage a comeback. "

If your suggesting RIM can parlay QNX into an iOS like ecosystem quickly you might want to rethink that. Apple got allot more than just an OS when it acquired NeXT - it got one of the best object oriented development environments with a mature GUI.

That percolated for almost 8 years before they started playing with the first internal iPad prototypes which then percolated internally for several years before they decided to launch the iPhone first (per Steve Jobs recent comments).

So RIM got a great RTOS kernal. Where's the dev environment or the mobile GUI that is Coco Touch in iOS land?

You think they are shipping the Playbook with Adobe Air because they want to?

The problem with being behind the curve is Apple isn't resting. The only devices that outpaced the iPods were when Apple released the next iPod, and Apple has started that with the iPhone and I have no doubt they will do so with the iPad. RIM and everyone else needs to be working today for what Apple will be doing *next* June, not even this June.

I see RIM acquiring QNX as a positive move, but they really screwed up letting Palm go to HP (who have, as was pointed out in the original article, already basically proven they will squander the investment). With Palm's OS, mature API's and fledgling developer base they could have had a real chance to give Apple a run for their money.

With so many missing pieces from their QNX acquisition, I don't see how they can fill they holes, catch up and pass Apple. Heck, I don't see how they can just catch up - esp. when they don't have ad sales, monopoly OS/Office sales, or hot products people really want to sustain them while they try to plug their holes and catch up, let alone leapfrog.

Samir Shah said...

I will stick to what I said previously here. RIM needs

1) A "reset" to QNX ASAP.

AND

2) Irrationally aggressive launch of the "reset"ted device (If you can think about it rationally you are not aggressive enough, Buy One Get Two?, free first fifty apps?, free extra battery? you get the idea).

RIM has time till July 1st, 2011 to etch her product in consumer's mind, maybe till January 1st 2012 if the mobile market is kind enough.

Michael Mace said...

FYI, I posted an updated look at RIM based on their Q3 earnings release. You can read it here.

Anonymous said...

Bad architecture undoubtedly from a top down short sited management: just like their prime customers. They deserve each other. So they must 1) rebuild their entire software suite 2) create a killer app such as HyperCard for a mobile device or combine it with lotus notes type corporate software 3) create suite just for meetings 3a) easy conference calls 3b) how about auto voice recognition and meeting notes software 3c) task identification and status completion built in -- via Voice command! 3d ) desktop integration 4) integrated webex and projector screen tech 5) virtual keyboard 6) sigh good product killed by bad management

abez said...

Motorola won when Telephony was the killer app, Rim won when Email was the killer app, Apple won on Music, threw in voice and accelerated on app. Voice and email are no longer the differentiators they are table stakes.

The device world will either be a multi functionality world and/or a single device that does multiple things better than anyone else.

Apple owns user experience today. Operating in a multifunction world may provide an opportunity. Android doesn't have that nailed yet.

Pick your market and hope it is the big one.

Adam Spector said...

Absolutely fantastic post. Thank you.

I used to be a huge Blackberry fan and was in fact extremely excited (and somewhat proud) when I first got one. It was almost like I had "arrived" since my company thought me important enough to have one.

I changed companies recently and could choose any phone/carrier. RIM was not even a choice I considered. Sad. I hope they turn it around.

Matthias said...

The biggest factor in RIM's success was its superior understanding of how to provide limited wireless data communication (aka e-mail) in a bandwidth restricted environment. Coming from the paging business it got the stuff right that those moving into the market from the conventional computing side blew. The Blackberry excels in a bandwidth limited environment. Hence, it's adoption declines where cellular data providers increasingly supply ample of bandwidth at reasonable prices, but it's still able to gain market share where the commodity is available in principle but in short supply and expensive.

Anonymous said...

Hi Mike,

Excellent analysis, and very insightful. Any bets on as their share price erodes, whether ORCL will buy RIMM and MSFT will buy NOK?

Hiram

Michael Mace said...

Hiram, I would be very surprised if either of those acquisitions happened. Nokia has a lot of businesses that Microsoft would not want (including a huge network equipment business unit), and Oracle doesn't make end-user products. Enterprise companies generally fail badly when they try to run consumer businesses, so I think Oracle would be foolish to buy RIM.

Kingfish said...

You nailed RIM's problems. I've had a blackberry for several years now. I don't like to switch brands when it come to cellphones but I'm seriously thinking about going to Iphone. Loved my curve, loved my Bold 9700. This Torch is a nightmare.

625 Mhz chip means it hangs up, ALOT. yeah I know, drop down to 2G, check the apps management to see what s running. Its still slow. Then there are REALLY annoying features like your cheek hitting that damn speaker button on the touch screen while talking or the screen going horizontal while talking and suddenly activating the speaker. My favorite is when you try to hang up a phone call and the phone itself gets hung up just thinking about it.

You can also tell when someone has overthought something. Used to be I could punch in a number and select from menu send text. Now they added three extra steps to that. First click on text. Then click on compose text. Then punch in number, then finally type text. Just one example of too many extra steps added to too many basic functions.

I've had it four months, am pretty fed up with it, and can't wait til December to get something else and chances are it won't be a Blackberry even though I really don't want to switch.

James said...

Apple has a secret weapon. That weapon is NeXTStep / OpenStep. Mac OS X is still based on the NeXTSTep base and all the Cocoa API"s all still start with "ns" for NeXTStep. NS uses ObjectiveC which is really just plain old vanilla C with Smalltalk like Object Oriented Programming. NS devkit was Project Builder and Interface Builder which became XCode and has evolved but under the hood it's all very much the same. Yes, there are new API's, etc. Mac OS X runs on a Mach kernel with BSD Unix command utilities. The GUI used to be Display Postscript but is now Display PDF.

NS was ported to many platforms. I bet Apple had it running on Intel since day one of it shipping on PowerPC! The iPhone runs NS albeit a stripped down version with a custom touch GUI. iOS development is very much the same as Mac OS X development.

Microsoft now has MinWin due the excellent work of Mark Russinovich and I would be surprised if it's not being used as a base in Windows Phone 7 or Windows Thin or Windows 8 for that matter.

HP now has Palm's WebOS that we have yet to see matured into a tablet, etc.

Google bought Android and enhanced it. I think Android doesn't exercise enough control over the Telcos. The Telcos still decide when and if they will distribute Android upgrades.

Nokia? I have no idea what Nokia's been up to...

RIM bought QNX (a wise move) but they don't have a devkit nor a complete GUI to control. There is much work to be done. They bought TAT a GUI design firm which is a start. However, they are way way behind the curve. Not nearly as bad as Nokia, but bad the same.

Apple doesn't need to re-invent their OS, they bought NeXTStep and simply improved upon it. Apple completely controls their entire iPhone platform, the Telcos have no say in when the updates and upgrades go out. They also have fantastic support in place and all the local Apple stores.

No one is going to dethrone Apple until they have so saturated the market that they end up like RIM. Course, that may be why they are sitting on such a huge cash reserve! Nobody has cash on hand like Apple does!

Habib Ullah Khan said...

That sir was one of the best analysis on troubles facing a company across any sector I have ever read. A privilege to have read this. Harvard Business Review take notice.

Digithoughts said...

This post is both extremely thorough and highly insightful. Also applicable on Nokia. On the same note, I yesterday wrote some thoughts on the death of Symbian. Much more "from the hip" but after reading this post I guess that this is the factual theory behind it all.

Kayla Block said...

I own an iPhone and it often occurs to me that the device is made for a different target market than me. It's a consumer device and it's often frustrating as a business device.

RIM made their name in business devices and instead of one me-too play after another, they have an opportunity to differentiate themselves by marketing to business needs. But they aren't doing it.

I haven't done any analysis, let alone the depth of analysis that you've done, but I was surprised to even find an article on RIM, since they seem to be nearly irrelevant at this point.

I played with their new tablet and even the sales person noted that it wasn't very good. The touch panel interface requires repeated finger stabbings to try to find the hot spots and even then it's hit or miss.

Seems that RIM could use some sweeping changes to their QA process, product management, and marketing.

There is a place for any company that wants to go after the business user. But it seems like RIM just wants to be a me-too company instead of an innovator.

Peter Claassen said...

Great article Mike!! Thanks for pulling it all together.

Kingfish said...

Got the new BB Torch update version 5 recently. Torch runs worse than before, Freezes up more and if I reboot, it takes an hour or so to stop freezing every five minutes or so. Am about to put the SIM card back in my 9700 and run that until December when I can upgrade.

Michael Mace said...

Kayla, I am sorry it took so long to get your comment posted. It was stuck in the spam filter, and I didn't notice.

Dave (SA) said...

Following on from the chap that commented about Nigeria

I am an iPhone user living in South Africa and he is dead right about BB in Africa.

I have travelled to Nigeria often and I can endorse his comments.

Vodacom South Africa (Vodafone's SA affiliate) is Vodafone Group's largest seller of BB.

The older corporate world use BB. And every kid from 13 to 25 wants one to. Their secret in SA is data. Data & text is relatively expensive but BB BIS is only about $9 (R60) per month.
iPhone and Android do well but the data bills on both are scary.
If data prices come down then BB's advantage will be less

minzhu said...

I used to work in RIM for 3 years, As I knew they are busy to change for years, 3 years ago I wrote email to my manager saying that RIM is old before it really grow up, he don't believe it , RIM's small company culture is the root cause, CEO may want it efficient, but some managers may even afraid of efficient person in their group, some manager know some of their members just pretend to know how to do their job, but they are old friend. manager protect his old friend in his group, CEO can't do anything because manager is his old friend! RIM’s management may be a typical instance in MBA course.

losing chance to change "small company friend culture" to be system oriented culture, now it is "small company friend culture" with fat body.

Jeff said...

Michael,
Just found your column when someone posted a link to this analysis at appleinsider.com - this is a very interesting piece, particularly the general notes at the beginning about earnings and profit margins.

I'd love to see you update these figures for RIM, now that a year's passed. If you extend the graphs you included, how do they look now? Is the ship sinking further? The lines continuing to go down? Inquiring minds want to know!

Anonymous said...

Hundreds of comments but not one mentioning RIM's supposedly market differentiator - Push email.

They lost that. What have they got left? Nothing.

That what made them and thats what'll break 'em.

Designing a new mobile OS is far far from trivial and given RIM's appalling history of the last few years in engineering I would argue it has absolutely no chance.

Apple (with the UI) and Google (with a Linux kernel) had the experience to build upon to deliver excellence of sorts.

Having used perhaps 80-100 cell phones in my professional work I'd argue by far the worst for the UI was the Bold (closely followed by the 1999 Motorola P7089). It was appalling. Slow, kludgy, freezing, reboots, missed calls... this was a few years ago but to me it signalled the beginning of the end for RIM.

Ironically the greatest productivity I ever gained from a phone was from the Treo 650 with Agendus Pro software.

A 3G/WLAN/SDHC Garnet equipped Treo 650 minus the antenna today would even sell. And I reckon it could sell well. The passing of Palm was a great regret for me.

Michael said...

The problem that I see is that their numbers are better than the bad press they are getting - they should look at a different PR strategy.

Something that will them in play while they turn the ship around. Remember "perception" is "reality" and right now no one loves this once great story.

It can be done with a new story!

Anonymous said...

Flash forward to 2012 and I say: HAHAHAHAHAHHAHAHAHAHAHHAHAHAHA!!!!

wow.

Bien said...

Michael,

I want to work for you!

digitalmem said...

Hello, it's the future calling. How does it feel to be so blindingly wrong?

Leigh said...

could we get another update on this... now that you have been proven to be 100% correct?

Michael Mace said...

Thanks, Leigh.

The problem is that I can't think of anything new to say. The problems remain the same, intensified by actions RIM itself has taken to try to shore up its public support. Every time the company talks about the upcoming OS, it stalls sales of the current products. And when that OS then slips, the company takes a double hit because it has hurt sales of its current stuff and lost credibility with people focused on the future.

The best way out of this sort of vicious circle is not to let your company get into it in the first place.

Once you're in the situation, the best you can do is shut up, grit your teeth, and hold down costs while you wait for the next-generation products to be finished. Oh, and make darn sure those new products are killers.