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RIM and the lamentation of the analyst

RIM shipped 10.6 million Blackberries and 200,000 PlayBooks in the last quarter. Management noted that their sell-through was significantly higher for Blackberry (13.7 million) but seems to be very weak for PlayBook as the prior quarter saw 500k units shipped. Additional PlayBook units this quarter probably mostly went into new channels in Asia and there were no additional sales into North America or Europe.

The figures for units are very poor. How poor depends on the frame of reference. Consider the shipment chart below:

In terms of the competition, 10.6 million units is less than half what Apple or Samsung sold in its prior quarter. It’s also less than what HTC sold. RIM’s volume rank will likely go to fifth place as a smartphone vendor.

In terms of its performance relative to its own history, the Blackberry volume dropped by 11% year-on-year and 18% sequentially. This is the second quarter that shipments shrank.

In terms of market share, we’ll have to wait for the competitor data over the next six weeks but the market has been growing at an average of 77% for four quarters so any continuation of this trend would imply RIM’s share dropping to single digits.

Finally, the biggest shock has been the decline in profitability. It seems that operating margin dropped from 21% to 13%. The company did incur some one-time charges for recent layoffs, but even without that charge, the margins would be around 16%. This is most alarming. The reason for such drops is that as volumes decrease fixed costs don’t decrease as rapidly or at all. The company still needs to keep sales, administration and engineering staff around and they become a larger part of the operating expenses (vs. the component costs which vary with volume of goods sold).

This effect is well understood by financial analysts and the stock price shows it with a huge drop.

But stepping back to look at the picture above, there is a clear turning point in the company. You can see the elbow in the curve for volumes whose effect is felt so deeply. What’s curious is why the pivot occurred when it did. We can point the finger to competition as the cause. But why was there no effect in the company’s fortunes when the competition actually emerged. It’s been years since the iPhone and even Android entered the market. Yet we see an impact on Nokia and RIM individually at apparently arbitrary points of time.

This is the lament of the analyst: you can clearly and accurately state what will happen but when remains a mystery. It’s the elasticity between obvious causes and their effects that makes this an inexact science or not a science at all. In retrospect, you can say that Nokia’s pivot was triggered by its public execution of Symbian, but that assumes that it was preventable–which we know is not the case. But what caused RIM’s change of growth, exactly? Why did it happen this past spring? Why didn’t the company volumes begin to decline as iPhone and Android boomed in 2009 or 2010? For quite some time RIM seemed immune to competitive pressure. We all were made fools as we called its imminent demise. Then, as Steve Jobs would say, boom!

Footnote:

Piecing together RIM’s performance is becoming more difficult each quarter. The data being presented is increasingly obfuscated by irrelevant detail while major information is omitted. This last management presentation was full of holes, namely:

  • We have no idea of device pricing. Valiant efforts have to be made to piece together that aspect of the business. Matt Richman does a good job but it still requires some guesswork regarding PlayBook pricing to back out Blackberry pricing.
  • Management detailed where Blackberries were selling-out but only detailed sell-in for the PlayBook. Obvious spin.
  • They are cherry picking the data they present and each quarter it’s a different story making pattern recognition impossible.

This leads to an erosion of trust. Observers are faced with the problem of increasingly guessing what is happening each quarter. For instance, regarding pricing I prefer to include service revenues in the analysis of device sales because device+service is what is being bought by the user and vendors which can offer services as part of the device get a justifiably higher value for the product–value that I think needs to be considered as advantageous. Nokia and Apple also account for services (though not apps) as part of device sales and it makes it more convenient to compare these businesses.

Given RIM’s smokescreen, this quarter I decided to stop trying to guess Blackberry pricing and used Operating Income/Units sold as the average selling price.

 

  • Anonymous

    I have a guess about the causes of such a drop in RIM sales. It may sound weird, but I think it’s an iPad effect. No, not because the iPad is competing with BB phones, but rather because the iPad has a devastating effect on the source of RIM’s strategic control.

    The booming adoption of the iPad in the enterprise segment forces IT departments to open up email access to this device and, consequently, smartphones. Employess are more and more often offered device options instead of BB only. This trend has emerged earlier, but judging by anecdotal evidence, it’s become explosive in the last few months.

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

      comScore survey data has been showing net user losses for RIM in North America since at least a year ago. Tactically, they’ve been able to make up for those losses by growth in other markets, namely UK and Latin America. They’ve been filling channels also in India and the Middle East.

      So I would agree that there’s been a loss of control over the enterprise in their traditionally strong markets but that was swept under the carpet long ago. It’s still a mystery to me why the curve turned when it did.

      • Anonymous

        The source of control began to disappear a while ago, and this is why analysts rightfully pointed to future problems. What’s happening now is the explosive growth. Some enterprises opened up for the iPhone, but the iPad caused a chain reaction as far as I can see.

        As regards their so called international sales, I think they were another smokescreen to begin with. All the BBs I see are those used by employees of multinational companies. Initially only top employees got them on roaming contracts, then local operators started supporting BBs and penetration started growing. But now smartphones are allowed so RIM is losing their foothold internationally as well.

        Also, you may recall recent requirements by governments worldwide to get access to user data (some like India were talked about a lot, others like Russia happened quietly), and when RIM gave up it eliminated the last reasons to support it as the only available mobile email option.

        All these things coincided this year actually.

      • Anonymous

        The Russians received RIM’s own keys. What India is still demanding (and thus far has not received) are the customers’ own keys – which RIM does not possess. So an enterprise customers’ email still remains secure from prying government eyes, though they can presumably see that the email was sent and some of the header data.

        RIM didn’t give up as much as you seem to be implying.

      • Narayanan

        A few possible factors

        - The launch of the Verizon iPhone in US.
        - The aggressive of push of Samsung in Asia/Middle East coupled with the emergence of “What’s App” family of cross platform messengers. FYI “What’s App” has been on top of the Paid category in many MENA and Asian markets.

      • Narayanan

        A few possible factors

        - The launch of the Verizon iPhone in US.
        - The aggressive of push of Samsung in Asia/Middle East coupled with the emergence of “What’s App” family of cross platform messengers. FYI “What’s App” has been on top of the Paid category in many MENA and Asian markets.

      • Narayanan

        A few possible factors

        - The launch of the Verizon iPhone in US.
        - The aggressive of push of Samsung in Asia/Middle East coupled with the emergence of “What’s App” family of cross platform messengers. FYI “What’s App” has been on top of the Paid category in many MENA and Asian markets.

      • Anonymous

        There was quite a period when BB phones were promoted to US consumers as BuyOneGetOne. As those contracts expire, those users are probably all fleeing to whatever Android phone is being most promoted. Enterprise has been strongly bailing from BB for a while now too but this doesn’t appear until their contracts rollover also.

      • Anonymous

        Horace, as you reported, the sell-through is significantly higher so It’s possible that the sharp turning of the curve is actually partly or even mostly an inventory management issue.

        The curve may in fact only have flattened.

      • Christian Seifert

        I saw Nokia’s and RIM’s graph pictured above and was instantly reminded of http://www.theoildrum.com/node/8317. This article calls this the “Seneca effect”. It discusses the question why some processes don’t follow Gaussian curves but show sudden drops.

        The given models show that these “cliffs” occur when there are not only non-regenerating resources (in this case, the number of potential customers?) that decline steadily but when there’s also “pollution”.

        Maybe this can actually be applied to RIM: on the one hand, they tried to maximize the number of customers but by this introduced “pollution”, e.g. every customer with a BB is a customer that’s more unlikely to purchase a BB as the next device; every marketing stunt gives a short-term boost but causes long-term distrust; every financial feat can only be pulled off once in a while and so on…

        Hope you can make something of it ;-)

      • Christian Seifert

        I saw Nokia’s and RIM’s graph pictured above and was instantly reminded of http://www.theoildrum.com/node/8317. This article calls this the “Seneca effect”. It discusses the question why some processes don’t follow Gaussian curves but show sudden drops.

        The given models show that these “cliffs” occur when there are not only non-regenerating resources (in this case, the number of potential customers?) that decline steadily but when there’s also “pollution”.

        Maybe this can actually be applied to RIM: on the one hand, they tried to maximize the number of customers but by this introduced “pollution”, e.g. every customer with a BB is a customer that’s more unlikely to purchase a BB as the next device; every marketing stunt gives a short-term boost but causes long-term distrust; every financial feat can only be pulled off once in a while and so on…

        Hope you can make something of it ;-)

      • Chris

        I would suggest looking further into the corporate “fleet” sales as a big swinger over the last six to nine months.

        Many companies used to standardize on BlackBerry as a corporate-issued phone. One of RIM’s huge selling points to enterprise IT departments was ease of management (and RIM may be best in that area today). However, today corporate IT departments are talking about and dealing with the “consumerization” of the enterprise, which is very much driven by the iPad effect that vangrieg brings up. The combination of the iPad effect and the underwhelming products from RIM over the last few years have forced corporate IT departments to loosen their strangleholds on issuing corporate BlackBerries and allow employees to bring their own devices to work. Once corporate IT departments allow multiple devices, then they figure out how to manage multiple devices (BlackBerry + iOS + Android), and then they wonder whether they should change their corporate standards for new employee issued phones.

        A couple of concrete examples: I worked at IBM until a few months ago (over 400K employees), and to this day, the corporate issue phone for every employee that needs to travel and get email is a corporate BlackBerry. I was issued 3 new BlackBerries in the last 6 years working for the company. In 2005, when I was issued my first IBM BlackBerry, I was thrilled to be owning one of the best mobile email devices made. In 2007, I was happy to get my second IBM BlackBerry, and it was faster and better than my previous one – a nice productivity improvement. The iPhone had just come out, and it was still a toy (as far as getting work done was concerned). It didn’t integrate with Lotus Notes, calendar, etc. In 2010, I got my third BlackBerry, but this time, I really wished I had been issued an iPhone. All my friends outside of work were getting iPhones, and it was clear by 2010 that iPhones could work just fine in the enterprise…. yet being an IBM employee, I was forced to use a BlackBerry. I settled for an iPod touch and an iPad, but had to use my IBM BlackBerry to make calls and do corporate email.

        Fast forward to today: I joined a smaller company with 20K employees about 3 months ago, and my first day on the job got a ThinkPad and a corporate-issued iPhone 4. All employees that need them get iPhones instead of the BlackBerries that were issued in prior years. This company made a corporate decision to “standardize” on iPhone 4 since that is the most popular device that employees are asking for. If employees ask for BlackBerry or Android support they can get it, but standard issue is iPhone 4.

        I believe that quite a few companies have changed their standards over the last six to nine months away from RIM (nobody ever standardized on anything else, right?), and it could be that this is an irreversible trend for RIM as they lose the exclusive channel into the corporate world. This reminds me of when Hertz finally started buying Toyota Camrys instead of exclusively buying Ford Tauruses, years after it was clear to everyone that the Camry was a better car.

    • davel

      @vangrieg

      You make a good point. I wonder how many companies are really switching away from RIMM. I know companies are allowing iOS now, my company does, but I believe the corporate standard for phones is still RIMM.

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

        I’m no expert on corporate standards setting but do IT managers consider whether an approved vendor is financially viable?

      • davel

        I am no manager, but I believe so. I was a former Sybase DBA and one thing I heard over and over again in analysis of the database market was corporate stability. Wall Street favored Sybase for its efficiency, ease of use and flexibility. The strikes against it was scalability and financial viability.

        The lack of execution by the company caused its customers to consider other vendors. They choose its competition, Microsoft, IBM and Oracle. Even when Sybase started addressing their weaknesses it was too late. Management had made their decision and although Sybase is still around, companies still spent significant resources to convert their application stack to move from Sybase to other less flexible systems because of cost and simplicity.

        Big companies like a one stop shop which I think is a big benefit to companies like IBM who offer a wide range of systems with bulk pricing.

        My company which is a medium size financial company is bringing in many IBM products. I believe this is because of pricing – more stuff means deeper discounts – and the fact that the individual items fill a product category.

        Many developers I know who work in each space say a different product is better. Perhaps it is familiarity, but decisions are made at the top, not always based on capabilities.

        To address RIMM, I think that its strengths of Office integration has weakened. Now that Apple and Android can tie into Exchange fairly well is a major problem for RIMM. The last advantage they have is security, but I expect that advantage to erode over time.

        Also add to this that executives are consumers as well. So their personal phone or tablet may be Android or Apple. They can see that those devices are more functional and when they make the decisions it is easier to choose something else.

      • http://twitter.com/PaulMaxime Paul Franceus

        Definitely. I worked for a large organization once that had a competition for Unix workstations. Silicon Graphics won the competition, but then the organization didn’t go ahead with the contract because they felt that SGI wouldn’t have been financially able to support the volumes that we were going to buy. As a geek, I would have loved to have one of those SGI machines on my desk. In retrospect the “Powers that be” were probably wise.

      • Anonymous

        They do, but more for platforms where the company is buying product vs. where companies are admitting product. And IMO that is the key difference that is really sinking RIM.

        Two years ago, most corporate IT shops were in control of the hardware and software that was brought in to the enterprise. Corporations provided hardware (PCs and phones) to their employees as part of their company-issued equipment. The IT department therefore picked all the hardware, and made such decisions based on criteria that matter to IT departments: relatively low cost, secure operation, ease of administration. RIM does well on these criteria, and their sales methods are based on this world: win the hearts of IT decision makers.

        There has been a substantial shift in IT departments in the past two years, and that trend is accelerating today: IT is getting out of the hardware provison business at the employee level.

        Vangrieg’s point above is excellent and is part of the story: the iPad was compelling enough that senior executives decided they were going to buy one, and when the IT department said “you can’t do that,” this level of executive forced change upon IT. I work with this level of individual across many companies and I’d estimate iPad adoption in this group at above 25% and climbing. While anecdotal, this point is easily verified: see what first class fliers are using on airplanes. Gogoinflight (sp?) estimated traffic from iOS on flights where it provides Internet service at well north of 50%

        The other half of the story: compelling cost control. The financial crisis of 2008+ forced major cost control on IT departments worldwide. One easy way to cut costs: extend the life of IT assets and shift costs out of the IT organization. So laptops that were replaced every three years are now replaced every four or five years. And when employees started to ask about bringing their own equipment, it was easy to say yes. Your average laptop costs IT departments $1500/yr to support and maintain. If my employees are banging down my door to provide their own, why tell them no? Cloud architectures and the improved security on mobile devices have made the security concern easier to manage. And for $1500/user/yr in savings, I can provide a whole lot of security support for a client load (or better yet, just expose my applications to authenticated end users and never even give them the data) and still come out ahead.

        So the consumerization of corporate IT continues apace. And the clear winners in that space are those who provide compelling consumer experiences, cool hardware, and good enough security. Right now, that’s Apple and Google.

        I figured RIM was truly finished when Balsillie, near the Playbook launch, crowed about how their technically superior Playbook would be compelling to IT departments because its tethered email solution was 100% secure — while ignoring the fact that there is not a consumer on earth who would buy a mobile device without an independent email function. He was possibly correct — but he was correct about an irrelevant problem. RIM fundamentally does not understand why they were successful, and so does not understand its failure now.

        Microsoft does not understand the boiling water they are sitting in either (Jobs was right, PCs are becoming trucks) and will be the next to fall, for very similar reasons that are currently killing RIM.

      • Anonymous

        Yes. Depending on how large the contract is. For sole sourced cell phones definitely, blackberry and iphone. For android they might not care as much about HTC Vs Samsung but Google.

      • Anonymous

        They do, but the competitor to RIM isn’t iPhone or Android, but something like Good (http://www.good.com/) running on iPhone/Android. And Good is by no means as financially secure as RIM as it’s a small startup.

        The real benefit here is by using a software solution and the employees’ own cellphones the firm can both save money and please employees.

  • Dodge Ch

    I think the fall has to do with how many new models they are pushing to market. AAPL is the only company out there currently that can sell a phone that is more than a few months old, so once you stop cranking out new models as fast your market share is going to drop precipitously.

  • Dshim

    I suspect that RIMM and Nokia’s growth curve was starting to flatten out since early 2010 when Android started to grab the low-end of the market. But RIMM and Nokia managed to mask the trend a bit by stuffing the channels in China, India, and Latin America. When those markets became saturated is when you see the “cliff effect” happening.

    • Anonymous

      I think if you had a geographic breakdown of RIM sales, you might be able to prove this point, as it’s something I have long suspected.

      When home market sales flatten, and the company starts chasing sales in countries ahead of its closest competitors, then the business is on the ropes. Once Nokia started talking about their BRIC strategy and bringing cellphones to the world, I knew they were in trouble, it was only a matter of time. Now, the same with RIM. Their growth in N America had flattened, they had diversified into other regions and were now chasing BRIC markets where their closest competitors like Apple were weak. Then of course, RIM osborne’d itself by announcing QNX phones soon, while still selling the old phones, just like Nokia did with WP7.

      • GeorgeS

        “Their growth in N America had flattened..”

        And, apparently, has declined recently.

        Re: “Osborned” There is a myth about the “Osborne” effect from pre-announcements of upcoming products. Some years later, Robert Cringley discovered that the real causes of Osborne’s decline were 1) Kaypro came out with a computer with a larger screen at a lower price; 2) inventories of Osborne 1 dropped, sending more customers to Kaypro; and 3) an Osborne vice-president found 150,000 assembled Osborne 1 motherboards and decided to spend $2M on additional parts, cases, etc, for computers that weren’t selling.

  • RobDK
    • Nangka

      Yeah when I read about Horace’s comment about this being an art and not science, I immediately thought of Michael’s (10/2010) post. The sales graph in his post looks eerily similar to RIMM’s above.

      Perhaps Michael should write a book on this and make it a science.

    • Nangka

      Yeah when I read about Horace’s comment about this being an art and not science, I immediately thought of Michael’s (10/2010) post. The sales graph in his post looks eerily similar to RIMM’s above.

      Perhaps Michael should write a book on this and make it a science.

    • Tatil

      I follow his blog, too. I wish he posts more often, as he always has some cool nuggets when he does. His Oct. 2010 post is really well written. He predicted that when the end came, it would be off a cliff. That was way before RIM’s financials took a nose dive, so it was good foresight. RIM behaved just the way he explained most failing tech companies do. Apparently, the management just did not see it as clearly as he did.

  • http://twitter.com/PatrickIgoe Patrick Igoe

    I think a key factor in the timing was Apple’s timing in closing the holes in the “iPhone can’t replace BlackBerry because…” list. Remote wipe, VPN, Exchange support, robust centralized management and app deployment.

    Also, I suspect psychologically, the market perception that “RIM is dying” has been self-fulfilling.

    • Canucker

      I agree. The smartphone market is very sensitive to perceptions. People are looking for devices and companies that are seen to be capturing the gestalt. You are as good as your last device. The additional problem is that RIM utterly deluded itself that the PlayBook was going to be a winner and buy it time. Instead, it was pre-announced far too early. The company then failed to learn from this blunder and pre-announced the QNX phones which means, to anyone actually listening, that their current BB OS7 devices are short-term stop-gaps soon to be obsolescent. Perhaps we should call the consequences of the Osborne Effect being “RIMMed”?

      • Anonymous

        I’m less enthusiastic about your momentum/perception story but RIM absolutely blew it by those standards.

        And it was a self-inflicted wound. First, the Playbook should’ve been introduced as a technology demo of how wondrous QNX is and how powerful BB phones would be (very soon). Great tablet, it’s not gonna have the apps you totally want.

        Two, every available RIM software resource should’ve been thrown at native developer tools for QNX. Devs would’ve gotten incomplete specs, maybe even sign up free for an open-source style effort.

        And three, every current BB should’ve been sold with a coupon good for a steep discount on a QNX phone, or some other way to hold existing customers. As the very perceptive Mace blog (referenced here) says, “just wait” are the 2 most dangerous words in marketing.

        These admittedly expensive moves would’ve helped keep BB momentum going.

  • Fred M

    The reason for the drop is obvious. Before the wave of BlackBerry 7 devices, all BB on the market were over a year old.

    • Chris_SVP

      Yet Apple can’t make their 1yr and 2yr old phones fast enough to meet the demand.

      • Dshim

        Shows you how much of a lead Apple has over the competition…

  • Yet another steve

    I think it is simply customer inertia. The average customer learns of alt products from friends and colleagues–and replaces device when contract is up. They DO NOT follow product releases carefully. And RIM had a lot of brand loyaly to be eroded as their customer base slowly discovers that their products no longer measure up.

    . How to model that well enough to predict it… Good luck. :)

    • http://riverlaw.myopenid.com/ riverlaw

      No, it is not simply inertia. App phones have a real benefit for every day users. Feature phones are not as adaptable. BB makes excellent feature phones that have some app phone qualities.

  • kevin

    Horace,
    I think RIM seriously miscalculated its BB shipments for Q3 (ending 11/27/10) and Q4 (ending 2/28/11) which resulted in the channel being stuffed. Since then, RIM has slowed shipments, cutting back to 13.2m and now 10.6m, but like Nokia, it is still selling off that old inventory at much lower prices (outside of the US). On its balance sheet, RIM’s inventory has more than doubled from $618m (Feb 2011) to $943m (May 2011) to $1372m (Aug 2011).

    Two reasons. One, Steve Jobs had egged RIM by noting Apple had passed RIM. Two, more seriously, US carriers didn’t market or do BOGO free for BBs during fall/Christmas 2010 because they were doing free, 1 cent, or BOGO free Android promotions. Thus, they refused any more RIM shipments, and/or returned BBs to RIM, resulting in a pileup of inventory.

    • Anonymous

      @ kevin
      Somewhat agree.
      Anecdotal tale: at a BBQ in mid August, a regional manager of a UK phone company, was grumbling about not being able to reduce their RIM inventory because the channels were full to overflowing – a situation unchanged for almost a year. They had previously had several BOGOF promotions and RIM took that as a reason to push out even more stock without appreciably reducing prices. He commented that they had no trouble moving iPhones with little or no promotion even whilst Korean manufacturers were giving them(in his words) “incredible incentives” to push through Android kit.
      Given that evidence, it would seem likely that RIM are not just having trouble getting sell-thru’ but are likely to see a precipitous fall within the next 6 months of both sales and income.

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

      Sounds very plausible. In other words, Android became the new low end.

  • Canucker

    The inflection coincides with the realization that the PlayBook was a dud, not the saviour they predicted would keep the iPad hordes at bay. At that point, people realized the emperor was stark naked and pot bellied. The knock-on effects for this failure have been exponential and have driven a catalytic failure. RIM thought it knew its customers and could dictate their desires. Like many companies, they’ve discovered their customers have minds of their own and as businesses lifted the artificial monopoly on approved devices, their customers have defected to better products. The Blackberry has become the Trabant of smartphones.

    • davel

      I think RIMM seriously miscalculated on the tablet.

      How do you release a tablet that can access email only by tethering?

      All the other issues aside I find this blunder blinding. My reaction would be shock quickly followed by a phone call to the vendor returning the device.

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  • Mistervernon

    My guess is that a significant amount of RIM’s revenue comes from contracts with the biggest institutionalized purchaser of IT services in the world – the US Government. Considering the seemingly “imprudent” procurement system that the USG employs this hypothesis may account for the difficulty in determining the “when” of market impact associated with the financials of RIM.

  • Anonymous

    I wonder if this has to do with the mobile contracts people are tied into – in the UK for example it’s usually 18-24 months. Maybe the contracts are starting to expire in volume now and people can freely choose more capable devices?

  • Anonymous

    Michael Mace paraphrase:

    BB has finished burning through the stragglers. They started dropping their prices to shore up sales. The lower prices boosted sales by attracting people interested in those lower prices: developing countries, teens, etc.

    Now, they’ve used that market up and sales have fallen over a cliff.

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  • Anonymous

    Every reason above looks likely a contributor; it might just be the limits of data/logic that we will not be able to disentangle how much they contributed individually or jointly.

    But here’s my favorite candidate: the Playbook roll-out was awful largely because of a horrible shortage of native 3rd-party apps. Normally, this chicken-and-egg problem is fixed by developers’ enthusiasm and ingenuity. But astonishingly, as a late entrant into a coalesced market, RIM has NOT released tools for 3rd parties to write native apps. (To my knowledge, it hasn’t even released a roadmap.) It has NOT released its announced toolkit to adapt already-written Android apps to run (with unknown performance and inflexibility) on QNX. It has NOT released a toolkit to adapt developers’ existing BB5 apps to run under QNX.

    In other words, if the QNX phones were available tomorrow, there’d be virtually no 3rd party apps to run on them. Developers have no incentive to write for BB5 because it’s clearly End-Of-Life.

    So the package of goodies you have on today’s BlackBerrys is both limited and stale; the package of goodies you will have on tomorrow’s BlackBerrys is non-existent.

    I see this as the triumph of the idea that Apps Win in today’s smartphone market. RIM fought this for years and the chickens have come home to roost.

    • Canucker

      Walt, they blew it by hedging their bets. Why would anyone develop for QNX with the promise of a simple Android port? Aside from the fact that there is no Android container yet (nor the other promised updates to provide essential software), Android apps for tablets are still pitiful in number and quality. Another question is whether a RIM QNX device running Android apps is significantly better than an Android device. The supposed Android compatibility opens up all sorts of cans of worms. RIM likely did their homework and found significant reluctance or inertia within their BBOS developer community (which is not known for its ebullience) to have to move to QNX. The Android virtual machine was a way to bridge the gap. They didn’t realize that the bridge was made of termite infested planks.

      • Anonymous

        People wondered about Microsoft announcing Win8 a whole year before availability but they stuck development tools (still a bit flakey) in developers’ hands. Dunno how many freebies but if it was 2500 @ $2K each (short production run), it was $5MM extremely well spent.

        Of course, they released compilers, frameworks, interfaces, test tools, all the stuff that BlackBerry developers DON’T have for QNX.

        I don’t know the BB developer community but I hadn’t previously heard that they were reluctant to port to QNX. It could well be that not only is the OS support utterly different (all for the good, I’d guess), but also the expectations are, so all apps would have to be rewritten from scratch anyway; a bunch of work. But with a smaller dev community and a more app-focused platform, there’d be good sales potential, no? Many more apps per user, you’d think.

        So when a top tier platform can’t get the developers motivated, something else must’ve been dreadfully wrong. Normally you’d guess bad RIM-Dev communications, but that has historically been seen as a strength, so I’d rack it up as lack of strategic roadmap. That should rest on the shoulders of the co-CEOs — and the Board.

    • Anonymous

      “In other words, if the QNX phones were available tomorrow, there’d be virtually no 3rd party apps to run on them. Developers have no incentive to write for BB5 because it’s clearly End-Of-Life.”

      Haven’t you Heard?

      “Apps are Fads.” A direct quote by one of the Brothers Rimm some time ago.

      Ayuh

  • Anonymous

    Every reason above looks likely a contributor; it might just be the limits of data/logic that we will not be able to disentangle how much they contributed individually or jointly.

    But here’s my favorite candidate: the Playbook roll-out was awful largely because of a horrible shortage of native 3rd-party apps. Normally, this chicken-and-egg problem is fixed by developers’ enthusiasm and ingenuity. But astonishingly, as a late entrant into a coalesced market, RIM has NOT released tools for 3rd parties to write native apps. (To my knowledge, it hasn’t even released a roadmap.) It has NOT released its announced toolkit to adapt already-written Android apps to run (with unknown performance and inflexibility) on QNX. It has NOT released a toolkit to adapt developers’ existing BB5 apps to run under QNX.

    In other words, if the QNX phones were available tomorrow, there’d be virtually no 3rd party apps to run on them. Developers have no incentive to write for BB5 because it’s clearly End-Of-Life.

    So the package of goodies you have on today’s BlackBerrys is both limited and stale; the package of goodies you will have on tomorrow’s BlackBerrys is non-existent.

    I see this as the triumph of the idea that Apps Win in today’s smartphone market. RIM fought this for years and the chickens have come home to roost.

  • http://twitter.com/Niilolainen Niilo

    That is a brutal chart and a nice article.

    (By the way, iSuppli have Huawei outselling Sony Ericsson in smartphones during Q2/2011and ZTE nipping at their heels. Time to update the vendor list you track?)

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

      If the shipments data is public, I’d be happy to add it. I do track Huawei and ZTE but I have not seen a published report of their smartphone volumes. Would like to see any data.

  • http://pulse.yahoo.com/_KEVQDCIMSOI6AFXXFFS5ZFFWBA PeterK

    Your chart clearly shows Samsung going into hyperdrive in the same qtr of BB’s collapse. The other Androids and iPhone add to the damage while Nokia’s collapse mitigates.

    If it’s Android going vertical and iPhone/iPad nearly vertical, we have a significant break between APP platforms and BB’s no app platform.

  • gctwnl

    Here is something I found funny. I entered a Vodafone shop this morning and asked them about the price difference between getting the same subscription with a 32GB iPhone 4 or a 32GB Samsung Galaxy 2S or other Android phone. As it turned out, the Androids were actually more expensive (around €30) with a subscription where the data limit was actually lower (rest the same). Basically, it costs more to use Android than it costs to use an iPhone.

    When I asked how that was possible, they told me that Android would be cheaper because most of the apps were free while those on iPhone would cost money. Hence, Android was more expensive ‘up front’. They mentioned one app that was free on Android and that cost €0.80 on iPhone (don’t recall which one,

    Anyway, I went in expecting the top Android phones to be somewhat cheaper than iPhone, but it was in fact the other way around. This supports your argument, Horace, made earlier that the market is still supply constrained, not demand constrained. It also suggests that your product/service combination must be really inferior if you need to compete on price (as with RIM).

    • http://twitter.com/ChrisRedpath Chris Redpath

      I think there is also some running-down of iPhone4 going on right now, almost everyone knows that there is an iPhone5 due in the next month or so and have been expecting one for a while now.

      That must be having some impact on iPhone4 sale prices, even if demand is still above the manufacturing rate. If only because retailers don’t want to be the one left holding loads of stock when the iPhone5 becomes available and they have to start discounting to shift it.

      • Anonymous

        iPhone 4 sales are at an all-time high, after 14 months in the market. The #1 device on every carrier (that has it) in North America.

      • http://twitter.com/ChrisRedpath Chris Redpath

        Maybe it does sound ridiculous, but the facts are that iPhone4 contract deals in the UK are cheaper now than they have ever been – and they are cheaper than high-end Android devices too.

        You can even get £100 cashback with an iPhone contract which isn’t available for the same priced Android deal.

        Something is happening, but I’m not sure what yet.

      • Anonymous

        Have to agree with SBMobile. Few outside of these type of forums are tuned in enough to know about rumors. Almost no one knows that a new phone is coming. I haven’t heard of anyone(certainly in the States) reducing the price of the iPhone 4 to move units. The thing just sold more phones than ever.

        Sorry, but your theory files in the face of what has occurred.

      • http://twitter.com/ChrisRedpath Chris Redpath

        True, but the networks presumably know that in one month (or however long it is) the iPhone4 sales will drop off a cliff at £30+ per month and they’ll have to drop them to sell through on devices they ordered months and months ago at their normal retail prices.

        Basically, my theory is that the order pipeline is longer than the pre-order pipeline for new models which allows inventory adjustments. i.e. you need to make orders for September a few months earlier (precisely because the sales are supply limited right now) and those orders are made before you find out for sure that the iPhone 5 is coming in October and can adjust your stock balances accordingly.

        Perhaps this is peculiar to the UK market – I don’t see anyone else reporting that the iPhone is getting cheaper yet.

      • Anonymous

        I agree that the appearance of the iPhone 5 will have an effect on the iPhone 4. But Apple has been pretty good with managing inventory, so I don’t think its unexpected. Heck, in the States, AT&T reports the 3GS as their second best selling phone.

    • Anonymous

      One thing your story covers inadvertently is the effect of the sellers of the store, especially the carrier ones. Windows Phone 7 especially suffers from this but so do iPhone. It has been written a few times and my experience also corroborates with the reports; for whatever reason the clerks at the stores tend to push Android phones to the consumers with all kind of reasons, some valid but a lot of BS too.

      • Anonymous

        All too true, but with one difference. People know the iPhone. Granted, it is difficult to quantify the effect. We know that the iPhone 4 is the best selling phone on AT&T, followed by the iPhone 3GS. On Verizon, iPhone 4 is the best seller. Worldwide, iPhone 4 sold more phones than any other phone.

        Could they have sold more? Who is to say?

  • Senator Gronk

    Seems obvious to me that they released the Playbook for Wall Street, not consumers.

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  • JKP

    Horace, one perspective that might be of value:
    data on RIM’s global shipments hide an important factor, namely that RIM has been losing US mkt share for quite some time. Their stagnation and decline (of market share) in the US in particular is not new or sudden. E.g, I’m looking at Strategy Analytics data right now that says they’ve lost US smartphone share at least since Q3.

    In contrast, they have been able to conduct sales & marketing efforts highly successfully outside of the US, in e.g., India and Indonesia in last year. Given that the US market has been a great early indicator for other markets, this was long in the cards. They’ve just been that good with sales in emerging markets using eg., BBM.

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  • Anonymous

    BlackBerry had user loyalty. Many BlackBerry users I know were expecting the next BlackBerry after iPhone to be like an iPhone, they were willing to wait for RIM to bring them that generation of device, not switch to another brand. Then at some point, each ran out of patience. At some point they realize they are the only one they know who is still printing out maps, and they go buy an iPhone that day. But they actually have to “dump” the BlackBerry first, they have to emotionallyblet it go before they can get an iPhone. BlackBerry was magical at one point like iPhone is today.

    • Spacegorilla

      I had a client say something along these lines, she said to me “It seemed like overnight Blackberry was ten year old technology.” She had recently switched to Android and that was her explanation. It does kind of feel like that, as if all of a sudden Blackberries are ancient.

    • Anonymous

      Printing out maps? I’m not sure what you mean by that, the only time I’ve used a BB it was a friend’s device – but one thing it did have was good map software. In fact its maps worked when offline, to get equivalent scale offline maps of the UK on my iPhone I’d be looking at a fairly expensive App.

      BB has a horrible UI, that little joystick button thingy makes me nauseous – but at least in the UK it has maps.

      • Tatil

        It has maps, but at least on my wife’s BB, they are not useful. She never uses it, so one morning I actually played with it to learn how it works and teach my wife, so that she would not ask for my iPhone every time we needed directions. It took me about 5 minutes of hard work to find the closest Starbucks. I tried for another 5 minutes to get directions from my current location to one of them. It kept insisting on an address for the starting point. I could not find a way to tell “Current Location”. It is the first option on an iPhone. I am sure there is a way, but after a total 10 minutes, I gave up. My wife still either uses my iPhone or calls me if I am not in the car with her.

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  • Anonymous

    I guess RIM will shipp/sell 14,8 million blackberrys next quarter – so enjoy this graph while you can applefan boys…
    sell-through was significantly higher for Blackberry (13.7 million) yes and above previous quarter, and with bb 7 sales and asp will explode soon
    the most important function on a phone is texting , and bb 9900 is a master at that

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

      14.8 million is hardly a good story given 14.2 million the year before14. RIM used to grow at 80% or more. Are you suggesting 4% Blackberry growth is cause for worry for Apple or Android?

      • Anonymous

        shippments of 14,8 coming quarter is better than 10,6 last quarter and is a “careful” calculation by me.
        My optimistic calculation is: shippments 17,8 – last quarter 10,6.

        sell-through LAST QUARTR 13.8 million and now “a stronger season” which gives a million extra in sales and then because the strong demand for bold 9900 2 million more. Now that is 16,8 compared to 13,8 previous quarter in SELL-TROUGH.
        The last million is from restoring the sales channel to normal levels.
        I did during a sleepless night yesterday study searchtraffic for blackberry around the world , it is not just UK and Latin – americe bb is growing, add Nigeria , Indonesia , Southafrica and so on.
        About texting… i did read a famous blogger say this was an important function.

        thank you all and I am glad for the replies.

    • Anonymous

      “Real soon now”, huh? Fortunately, we don’t have long to wait the see how well this prediction holds up.

    • Anonymous

      “the most important function on a phone is texting”

      You really believe that?

      Even if you do, well, when Apple releases iMessage with iOS5, the last thing BB’s had going for them will be obsolete.

    • Anonymous

      “the most important function on a phone is texting”

      You really believe that?

      Even if you do, well, when Apple releases iMessage with iOS5, the last thing BB’s had going for them will be obsolete.

    • Tatil

      > “the most important function on a phone is texting”
      Not even RIM management believes that unless you think they are bringing in QNX to improve texting. It will not matter whether there are 10 or 18 million shipments next quarter. It all depends on QNX. If it is well received, with a healthy apps market, good enterprise support and some popularity among consumers, RIM will cement itself as a viable smartphone company. If not, they will go out of business by 2014.

  • http://michaelkdawson.com/ TrendRida

    I’m ready for some more management failure discussion. It is amazing that all of these companies RIM NOK MSFT LG HPQ are failing essentially at the same time, but why? If it is inevitable that tech companies will be disrupted at some point – why are CEOs being paid such high salaries? I’m a certain that many of us could have proposed a better strategic plan for RIMM at a fraction of Balsillie’s salary.

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

      In the case of RIM, management is a large share holder and they don’t have an activist board. It’s unlikely there will be any “coup” staged.

      • http://michaelkdawson.com/ TrendRida

        I’m watching this happen and to a certain degree I am not believing what I am seeing. The comments by Ballmer & Balsillie from 2007 to date re: iPhone & iPad are “Ken Olson” like. Were there any lessons learned from the mini-computer disruption?

        re: RIMM

        It’s quite amazing that the shareholder proposal to end the Co-CEO roll was taken off the table in favor of a committee to study the structure. So, not only is management’s poor decision-making complicit in the company’s demise – but shareholders as well.

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  • Anonymous

    Perhaps the timing difference between Nokia and RIMM’s failures could be attributed to:
    • RIMM initially having a higher margin per handset than Nokia, allowing…
    • RIMM to defer their sales decline through Buy One Get One Free promotions.

    Deferral of RIMM’s failure may only have become visible when their margin finally shrank to the point where either they could no longer afford BOGOF promotions or the carriers were so stuffed with stock that they refused to accept them any longer.

    • Tatil

      Actually, it is worse than being mislead by the short lived demand due to BOGOF deals. I remember reading some reports that claimed that RIM forces the overseas carriers, which just started to carry Blackberries, to take large initial deliveries. As RIM was entering many new emerging markets at quick succession, there was a lot of channel stuffing on purpose. If so, they did not emphasize that point in their financials at the time, but they don’t mind emphasizing it now when the actual sales numbers are supposedly higher than the shipment numbers. It is almost fraudulent. I don’t know if they actually book the sales when they ship or when the phones are actually sold to the end customers and whether the carriers are allowed to return the unsold phones. It would not surprise me if there was actual accounting shenanigans.

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  • Anonymous

    There is the psychological element. We project our love into these brands, and we are denial when the brand does not love us back. BlackBerry was a strong paternalistic brand, not unlike Apple, actually. We might have resented its authority and remoteness, but the brand was looking out for our best interests or at least protecting us, or so we believed. We are hurt when we see it is not so. But there is a period of denial, which as you say cannot be accurately anticipated. The strong father turns out to be the obscene father, a narcissist. That is the “boom” moment.

  • http://vanderburg.org/ Glenn Vanderburg

    Horace, you wrote: “But why was there no effect in the company’s fortunes when the competition actually emerged?”

    I think the turning point happens when it becomes clear to customers that the company will have no effective response to the competition. There is some inertia that makes us want to stay with the system we’re using: familiarity, the trouble (real or perceived) it would take to switch, investment in apps and/or accessories, contract periods, etc. So we stay, hoping that the company will make good moves and compete effectively.

    For people like us that watch these companies very carefully, scrutinizing every public statement and analyzing their product direction, the fact that RIM had no idea how to compete with the iPhone was clear much earlier. But for most customers, something more obvious is required. It might be (as in Nokia’s case) publicly killing the platform. I suspect in RIM’s case, it was a combination of two things. First, simply the amount of time that had passed: after a long enough time, if you haven’t come up with an effective response, you probably aren’t going to. Second, the obvious failings of the PlayBook, after so many public statements by RIM about how important it was to them, made it clear that the company was lost.

  • http://vanderburg.org/ Glenn Vanderburg

    Horace, you wrote: “But why was there no effect in the company’s fortunes when the competition actually emerged?”

    I think the turning point happens when it becomes clear to customers that the company will have no effective response to the competition. There is some inertia that makes us want to stay with the system we’re using: familiarity, the trouble (real or perceived) it would take to switch, investment in apps and/or accessories, contract periods, etc. So we stay, hoping that the company will make good moves and compete effectively.

    For people like us that watch these companies very carefully, scrutinizing every public statement and analyzing their product direction, the fact that RIM had no idea how to compete with the iPhone was clear much earlier. But for most customers, something more obvious is required. It might be (as in Nokia’s case) publicly killing the platform. I suspect in RIM’s case, it was a combination of two things. First, simply the amount of time that had passed: after a long enough time, if you haven’t come up with an effective response, you probably aren’t going to. Second, the obvious failings of the PlayBook, after so many public statements by RIM about how important it was to them, made it clear that the company was lost.

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  • Juan Perez

    an old thread i’m catching up on…seems clear to me RIMM volumes “shipped” started dropping due to lack of new phones to keep the core base happy and also to reduce defections to android & apple.

    Quick history for new models released

    Aug 2010 torch 9800,
    Sept 2010 Curve 9300/9330,
    Nov 2010 bold 9780

    …since then…nothing till august 2011.
    That’s 9 months of no new phones. Crackberry.com forums were complaining about abandoning the storm 3 upgrade cycle “scheduled” for Nov 2010.

    RIMM tried to save themselves some time and go straight to BB 7 and hoping for a Q1 2011 or Q2 2011 release date but got behind. So Q2 and Q3 volume suffered…we’ll see about Q4 since the BB7′s finally got released…What they should’ve done (hindsight 20/20) is release all the BB7 fones with BB 6 and offer them upgrades when BB 7 was available. Maybe the momentum would’ve continued…they were growing volumes about 50% YoY prior to this attempt @ a short cut and go straight to BB7.

    QNX is facing the same problem…RIMM isn’t nimble and short cuts is screwing them badly…