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Research in Motion escalates smartphone battle with acquisitions

Research in Motion

The smartphone industry is a fast-moving, highly competitive industry. Gains in market share are created through thin marginal differences between phones that are quickly eclipsed by other companies. This summer’s 3G innovation becomes "too old, too slow" as this month’s 4G phone makes headlines. In order to successfully compete, a smart phone maker must be able to keep up with its competition and innovate to snatch small sections of market share. Research in Motion (RIM), currently the largest smartphone maker in terms of market share with over 50 million users worldwide and 12 million units shipped last quarter, managed to carve out a section of the smart phone market for itself during the early- to mid-2000s.

By focusing on creating a phone that excelled at business tasks such as email, calendars, and the ability to sync with the home office half-way around the world, Blackberry became synonymous with ‘the successful business person’s phone’, which led to a trickle-down effect for all consumers who wanted to be seen that way. Through specific market targeting, leading innovation, and complimentary products, RIM was at the top of the game and no major challenger seemed close to catching up.

RIM’s enjoyed 49% of market share in the smartphone industry before Apple introduced the iPhone in early 2007. Apple experienced a growth of 0.3% in 2007 in its mobile phone market share, and about 2% in year 2009, while RIM mobile phone growth was from 1% to 3% during the same period. However, Apple’s iPhone product launch into a sea of keyboard-based phones was so innovative that no other company could produce a product like it: a touchscreen smartphone that used a base software platform that by the second generation was augmented with application add-ons to create constant innovation - either by the company or by the users themselves. While the iPhone was not specifically targeted at the business community, its innovative new features and sleek styling made it a must for the glitterati and the phone to have for young, promising execs.

RIM’s share of the American smartphone market reflected this shift. According to Nielsen, in the last six months alone, it decreased by approximately 22% from 35% at the end of Q1 2010 to 27.4% in October 2010. The combined share held by iPhones and Android handsets rose to 50.6%, from 37% over the same period. Within a year other companies, companies unheard-of inside the US market, were getting into the game. LG and HTC were rising from Asian obscurity to peddle their versions of touchscreen smart phones; and Blackberry with its small screens, manual keyboards and optical trackpads was left in the dust. As consumer demand for app-enabled touchscreen phones increased, Blackberry’s business centric model became seen as the reliable business phone carried by 45 year old mid-execs who distrusted change.

US Smartphone MarketshareThe iPhone platform continues to grow. “RIM’s market share lead over Apple has been shrinking and we estimate that Apple will be able to overtake RIM market share by early 2011”, stated Trefis Team, an analyst group, in the Forbes magazine in March 2010.

RIM needed a new strategy, something that could propel it back on top, or at least back into the competitive sphere. There were a couple options they could pursue: They could invest heavily in R&D and hope their software engineers could come up with something; they could slim-down their offerings and target only business customers, increasing their share in the niche market and creating smart-phones that revolved around doing business; they could try to buy out some of the other, more innovative, smartphone companies and use their technology to better compete.

RIM chose to focus on three areas of strategy: first, broadening its consumer market while making itself even more indispensable to its corporate clients. The greatest weakness of the iPhone is that users do not view it as secure: in late 2008 “after months of testing, several major corporations… decided to pass on the iPhone” (source). By taking advantage of what their competitors do badly RIM is able carve out an area of competitive advantage.  Second, RIM contributed to a venture fund, run by JLA Ventures and RBC Venture Partners, to spur new software development. The venture fund, BlackBerry Partners Fund, will be investing in companies with innovative smartphone technology. The fund also allows RIM to woo application designers away from Apple by offering them 80% of application profits as opposed to the 70% offered by the iPhone App Store.

It was well known in the industry that RIM’s hardware had never been much of an issue for its consumers, who liked physical keyboards to type emails and that RIMs internal components were the acknowledged industry leader (cnn.com); it was the software that was badly in need of a major overhaul. In 2009 RIM made a bid on QNX, a software studio whose core business is creating operating systems for embedded devices, such as mobile phones and tablets. It was with this purchase that RIM began to show the third prong of its current strategy. Instead of investing in its own R&D, RIM was setting its sights on industry leaders in areas that it was currently uncompetitive; hoping to purchase and leverage their technology to put RIM back on top. Through this, they have incorporated QNX technology into new RIM products such as their PlayBook tablet as well as future versions of the Blackberry OS.

While the acquisition of QNX was a major step, it was only a small one in the big picture. RIM needed QNX to develop new software to create touchscreens and tablets but the market was heading toward application-based user interfaces, which is where TAT, The Astonishing Tribe, stepped into the picture.

On December 2nd, 2010 RIM acquired TAT in a bid to create a better user interface and more user friendly software. Through this acquisition RIM has positioned itself to better serve its core customers and reimage itself to again be seen as an industry pioneer.

TAT is a group “based in Sweden, [that] makes several different products for mobile device makers and its invested in the Android market with its ‘custom home screen,’ called TAT Home. That offering delivers gesture navigation and 3D widgets, and according to the company, is designed to give users more control over the ’look and feel of the Android home screen.’”  The user interface is a critical component of the mobile experience; by incorporating the expertise of TAT into their devices, RIM hopes to win back the business of customers who flocked to the superior user interface experiences of the Android and iPhone platforms.

Already changes can be seen in Blackberries. Most major phone companies follow the same hardware format of an oblong design with a QWERTY keyboard coming out from the side. The newest Blackberry, the Torch, is a touch-screen phone, the same shape Blackberry has always had with a full QWERTY keyboard that slides out from the bottom --no need to turn the phone sideways to type. Further augmenting their software offerings, RIM continues to entice developers to create applications for their platform’s App World store, which currently sees 1.5 million apps downloaded daily. On the hardware front, RIM is planning on launching phones that appeal to the cost-sensitive segment of the market, filling in gaps left vacant by the current Apple and Android offerings.

Characterized by ebbing market share, 2010 has arguably not been the best year for RIM. RIM had lost its customer reach and suffered the consequences. In need of action, it chose the acquisition path, a path to success it hopes. Its steps so far lead in the right direction, but it must move quickly.

References:

Analyst: iPhone to Beat BlackBerry Market Share in 2011
http://www.intomobile.com/2010/03/08/analyst-iphone-to-beat-blackberry-market-share-in-2011/

Blackberry Maker Battles Back, Jessi Hempel, http://money.cnn.com/2008/11/13/technology/blackberry.fortune/index.htm

Could TAT be the savior RIM has been looking for?, Taylor Martin, http://www.phonedog.com/2010/12/03/could-tat-be-the-savior-rim-has-been-looking-for/

iPhone Could Overtake BlackBerry Market Share in 2011,  Trefis Team, http://blogs.forbes.com/greatspeculations/2010/03/05/iphone-could-overtake-blackberry-market-share-in-2011/

Nielsen: Android makes huge gains in US Smartphone market share, RIM takes a backseat, Apple leads in desirability, Laura June, http://www.engadget.com/2010/12/01/nielsen-android-makes-huge-gains-in-us-smartphone-marketshare/

Nielsen: iPhone, Android gain on RIM, Philip Elmer-DeWitt, http://tech.fortune.cnn.com/2010/06/04/nielsen-iphone-android-gain-on-rim/

RIM acquires TAT, designer of user interfaces, Don Reisinger, http://news.cnet.com/8301-13506_3-20024378-17.html#ixzz17GocVlJk

What RIM's TAT Acquisition Means for BlackBerry—and You, Al Sacco, http://advice.cio.com/al_sacco/14635/what_rims_tat_acquisition_means_for_blackberry_and_you

This report was a group project for the Global Strategy class of Thunderbird School of Global Management Professor Nathan Washburn, Ph.D.