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If RIM did not exist today and someone were to suggest it, could it ever get funded?

Consider what RIM had to overcome to even be: It was an outsider entering the mobile phone business at a time when incumbent market power was far more concentrated. It evolved from data-only pagers awkwardly adapted to carry voice without pandering to the fashion consciousness of its contemporaries obsessed as they were with the RAZR. Its foothold market was the most difficult market to enter, the US; and within it, in most difficult sector–business users.

RIM’s solution has no architectural elegance and their non-standard approach to email using their own servers and protocols defied all IT policies regarding security and the entrenched use of Exchange. Even after Microsoft offered a cleaner solution (Exchange push) that avoided the RIM back end, businesses otherwise committed to Microsoft stuck with RIM for mobile email. In spite of various government opposition, RIM continues to grow internationally.

Even its acceptance may be an accident of history.

The absence of interoperable SMS in the US early last decade meant that there was no reliable way to send text from one mobile to another across CDMA and GSM networks. The Blackberry was hired to to the same job that SMS was hired to do anywhere else, but by the time SMS was working in the US, the use of Blackberry increased irrespectively.

It should be no wonder then that the company can be considered both disruptive and a dead end. Analysts have been split about it from day one. Gartner advised against adoption by any self-respecting IT shop.

Equities analysts are still split into bulls and bears more evenly than any other company in this space. See: RIMM: Street Split Sharply On The Stock; Avian Cuts Rating (Updated) – Tech Trader Daily – Barrons.com

The arguments are pretty straight forward:

  • Competitive pressure from ‘better’ architectures, uninspiring products, lower growth

vs.

  • Fierce loyalty of users, continuing international expansion, continuing growth

The market has largely voted with the bears as the price shows absurdly low valuation (4.3x EV/EBITDA) but the company continues to show growth quarter after quarter.

My own point of view has been for some time that RIM’s disruptive days are over because the engineer in me says that their code base is a dead end. But the disruptive analyst in me leads me to be hesitant in proclaiming their imminent demise. The fact remains that their product is good enough for a subset of the users who want nothing more than a messaging phone. I will add however that this subsets unlikely to grow especially relative to the number of users who will opt for more highly functional devices.

So the riddle of RIM remains: rumors of its death has been exaggerated but it’s not an unforeseeable growth story anymore. As a result the company is in limbo.

  • tim

    Blackberries dominance with corporate users is ending. Like many companies we are moving away from a single mobile solution (blackberry) to a device agnostic model. Our customers are simply demanding it. As someone who carries two devices with him at all times – I cringe everytime I have to use the blackberry. This is not a unique user experience – outside of diehard blackberry users – no one likes using them. Compared to android and iphone – the user experience just doesn't compare.

    There are still certain things that RIM is good at – security is one of them. But Apple and Android device makers are closing that gap quickly.

    RIM is just not agile enough.

    • Jason

      I agree that RIM's dominance appears to be ending, but personally I don't see Android filling in for the business sector. Android continues to be more of a "hacker's" phone for lack of a better term. Google has been positioning Android as a free alternative to Apple's "closed" curated system (although they are acting highly hypocritical to that axiom). Android is making progress in the hacker/youth department but I don't see major corporations jumping on the bandwagon like we're seeing with the iPhone. That's not to say that employees of these companies aren't choosing Android phones, I just don't see Android as a replacement for RIM.

      Apple on the other hand is moving into that territory, and with Windows Phone 7 not due out until the end of the year/early 2011, Apple will have a major head-start against Microsoft in this area. In addition to that, MSFT's WP7 appears to be targeting the mainstream market Apple already dominates and not specifically the business end – which if they were going to have any shot at all at success would have been better for them to stick to the enterprise.

      • Niilo

        Our IT dept just (since last time I commented on a RIM post!) started supporting iPhone and Android for email in parallel to Blackberry.

        For Symbian you are still on your own, or anything else, you are still on your own…

  • Shaun

    I was quite dumbfounded to discover Blackberries popular with 16-24 year olds here in the UK for NON-WORK use. Seemingly it's *the* dating phone.

    So, don't rule their strange tech out yet. It might even stretch to emerging markets where the full on smartphone is overkill.

    • http://www.asymco.com Horace Dediu

      Blackberries are also popular in the middle east because they offer essentially free messaging (with a data plan).

    • JonathanU

      Agreed. Being a 24 year old living in London, I have to say that the vast majority of my friends have BlackBerry's. Most people I know have a BB for work. Those that do have one with work have an iPhone as their personal phone. Those that don't have a BB for work, have a BB for their personal phone. The only reason for this is BBM. Obviously there are network effects with BBM. If say 50% of your social network are on BBM, there is a hugely powerful incentive to be part of it too. Therefore, those that have a BB for work, tend to co-opt those that don't have one into having one for their personal phone.

      I don't think there is enough said on this powerful network effect. Obviously it depends on how useful one finds BBM. However, you need only look at how SMS's became such a powerful phenomenon (nobody really predicted they'd be as popular as they proved to be) to realise that the majority of people really do find value in communicating in short message form.

  • berult

    Lackluster and Canadian combine to provide a secured and grounded way to connect. In a fast moving world, an Apple kind of a world, a well grounded if archaic stronghold of simple, straight forward linkage infrastructure has to appeal to a lot of people.

    The natural branding of slow moving conservatism alone keeps RIM’s success in tow. So yes, all things being equal, if RIM didn’t exist, I as a forward looking Canadian would start up that missing link to a bygone time grasp.

    We tend to ignore time as a core element of relativity. In Africa, India and in the third world in general, time scales to the passage of seasons and the flow of rivers, the beating of drums and the watering of buffaloes. And time is a marketable commodity that links up to the banking system and ultimately to the stock market.

    RIM is simply stomping time warp as a development platform, with no frills attached. A simple strategy of niche. a mighty large one at that, counter modernistic pragmatism that pays off, obviously.

    By the way, securing one’s immediate environment as a human being defies age categorisation.

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  • Rob Scott

    Carriers love Blackberries/RIM. Look at the funding that gets thrown on Blackberries. Buy one get one free, massive carrier funding on prepaid, etc. No other device/OS gets funded to the level of Blackberries and there are reasons why: Revenue/ARPU and Acquisitions.

    An almost even split of market share across five or six OSes is what I see happening in the next 5 years.

    • Chris Harris

      An even split certainly suits the carriers, but no matter how hard they push alternatives to the iPhone (using deals and such like), Apple has alternative routes to market that the HTC and the Samsung's don't. The Apple stores are crammed with people everyday. In addition their are many people whose first iOS device is an iPod touch or iPad. There are no effective competitors to these devices yet, but they will almost certainly provide a 'lock in' effect to the platform due to a users investment in Apps.

      We were working on the an iPhone App for the BBC recently called BBC Listener, it has a subscription model for listening to documentary content. The rejected the App (somewhat apologetically) after our first submission because we hadn't implemented the ability to transfer that subscription across up to five devices.

      Apple are well aware of the stickiness of their platform and go to great lengths to ensure it stays that way.

      • Rob Scott

        You are 100% correct. I was only referring to smartphones. BUt as you said iOS is runs in three other devices and possible more in the future, therefore the iOS share will be a lot higher, than iOS on smartphones.

  • gctwnl

    I think RIM's enterprise success might come under attack from Microsoft. If they produce a good enough WinPhone7 with excellent integration with their enterprise tools it will have a good chance of replacing RIM in the enterprise. Adaptation might be slow in the beginning because there are some apps which in some industries are required before adoption (think Bloomberg etc.), but it is a big risk for RIM.
    Integrating iOS in th eenterprise is security-wise not always easy sailing, it seems. I know for instance one big shop that decided against iOS because they were unable to integrate iOS with their security setup (something to do with distribution of certificates, or certificates not working or something that would require a lot of manual install/support work). They really wanted to succeed and they have enough know how, but they weren't able to. So, they have standardized on Blackberry now. Apple's rumored deal with Microsoft to stay out of the enterprise might also keep them from putting enough effort in it to really make it work properly.

    • David Chu

      For the corporate market, I don't think Apple looks at companies with lots of legacy equipment as a target market. That doesn't mean that their products won't infiltrate, it's just that they won't invest the resources needed to compete fully against RIM and Windows.

    • http://www.asymco.com Horace Dediu

      I’m amazed by how many people think that Windows Phone is somehow intended for business users. Microsoft has done everything they could to avoid that fate.

      http://blogs.wsj.com/digits/2010/09/16/microsoft-has-no-plans-to-make-another-smartphone-exec-says/

      .. Ellawala said, emphasizing that the phone will have strong entertainment, social and gaming features. “We will make it fun and user friendly,” Ellawala said. “We will also be pretty strong on the gaming side. This is an important part of Microsoft’s business.”

      Windows Phone 7 won’t be able to do IPsec VPN (for secure tunneling). WP7 can only network using http (making VoIP and other fast networking activities impossible), it lacks any system-wide Cut & Paste and multi-tasking.
      Windows Phone 7 won’t work with technologies such as System Center Configuration Manager and Mobile Device Manager or Configuration Manager.

      To deploy applications, Microsoft has suggested that businesses place their precious apps on the phone’s public Marketplace but keep out nosy consumers by restricting downloads only to users with Windows Live IDs.

      None of the previous apps developed for Windows Mobile will work. Microsoft’s decision to completely break with Windows Mobile’s programming past in Windows Phone 7 will also make it harder for enterprise IT departments to choose Windows Phone 7 as their mobile-computing standard.

      Windows Phones won’t support enterprise search in Microsoft’s own SharePoint server, and users won’t be able to open documents protected using Microsoft’s Information Rights Management technology, used in Office to control who can see, edit, and forward documents.

      Applications that rely on Silverlight or Adobe’s Flash in Internet Explorer won’t work either, as IE for Windows Phone 7 won’t support plug-ins for Flash or Silverlight.

      • gctwnl

        You are right, of course. Maybe I should have written that RIM should fear Microsoft going after corporate America (and fixing all the holes you point out) instead of going after teenagers (as they are doing now trying to be ‘cool’). They might be trying to copy Apple here, which wasn’t enterprise-ready in its first incarnations too.

        Still, I think Microsoft’s best chance is to pick a fight with RIM and Android (Daniel Eran Dilger used to say that Android would probably replace WinMo, not iOS) over the enterprise space (where Android is far from a serious contender because of its lack of security).

      • Shaun

        I was just looking through that checklist of things WP7 won't support and matching it up with Symbian^3 which pretty much supports ALL of those, even the Sharepoint stuff and Silverlight.

  • Rob Scott

    Okay, this is what I think of the numbers:

    I think you are overly conservative about the move from dumb/feature phone to smartphone. I think the period before the iPhone and after is more instructive of what is likely to happen when the iPhone is available to Verizon. Yes, I think the availability of the iPhone to Verizon is going to be transformation, in a way that Android will never be.

    With this in mind I think your iPhone/iOS numbers are rather pessimistic and you are over optimistic on Android and RIM. Why for example do you think Android will make those gains from 3.3% in Q210 to 13.9% in Q311? They are in all the carriers. There are over 20 models available. Most are free on contract. So, what are they going to do differently for them to make those gains in market share? Same question for RIM.

    I also think you are overly pessimistic regarding WebOS.

    That is my 2cents for now.

  • John

    The connventional wisdom is that RIM's is artificially supported by IT departments. Once the dam breaks and companies start letting most employees choose their own phone the RIM's share will drop to some unknown, lower level. Revenue has been up though I recall reading that the number of subscribers is not growing. Also, the very definition of a smart phone is changing at a blistering pace and there a lot of doubt as to whether they can keep up.

    • http://www.asymco.com Horace Dediu

      The market certainly seems to be smelling blood. RIM is down significantly while tech is up significantly.

    • yowsers

      The fall might be precipitous when it reaches the tipping point. We may be near that point (but not enough for me to stake anything significant on a short position yet!)

      Many people where I work use BBs — no surprise there — and several of them this last week noticed a coworker using an iPhone to scroll thru work emails during a meeting. They asked if that was thru the company IT dept. Well, "no" in that the coworker had to buy his own phone, but "yes" in that they set it up for him.

      That's all they needed to hear. 3 of them said they were through with the BBs and would switch. This is Sept 2010, and the iPhone in corporate settings is not new. The co-workers are smart and hard-working, but not on the cutting edge of tech-savvy (but no slouches, either).

      The tech savvy ones switched a year or two ago. I am beginning to see in the corporate settings the next wave of those one level down on the tech-savvy scale begin to notice and make decisions regarding their work phone. When this happens, RIMM's vulnerability may show up more spectacularly in the subscriber base and the stock price. It takes awhile, but we may be near that tipping point.

  • SK

    I can confirm the popularity of BB (primarily through BBM) of folks in the 18-24 set. I recently talked to my 19 yr old nephew and he says that kids in his LA area high school are almost exclusively on the BB entirely because of BBM. As I understand it you can get cheap phones and deals from the likes of t-mobile and not pay a dime on SMS making it very compelling

    Same also from his 21 yr old sister in an icy league school although not even close to as much coverage and network effect

    • http://www.asymco.com Horace Dediu

      Maybe this audience will eventually find out that there are loads of free messaging apps for the iPhone.

      • JonathanU

        I think it comes down to typing on a touch screen as much as one does when BBMing becomes a bit of an issue. I have both an iPhone and a BB and personally hardly ever type on my iPhone because it just isn't as easy, or feel as satisfying. Clearly this is just my preference though (although a lot of other people I know with both BB and an iPhone feel the same way).

        I still think there is life left in the QWERTY keyboard. Even if it does hamper the other sorts of phone experiences that you get with an iPhone (web surfing etc.).