Is RIM drowning in a red ocean?
Smartphone users are a notoriously fickle bunch. The slightest flaw in a phone sends users off to a new phone faster than you can say “service contract.” Research-In-Motion, or RIM, has remained relatively immune to all of this until recently.
More than a decade ago, RIM created its own competition-free market space when it introduced the Blackberry; the company created what industry specialists like to call a “blue ocean.” Nearly everyone in my salary-challenged office had to have one: a mobile device that offered email. By 2002, RIM added short messaging service (SMS) and Internet surfing, and then even the janitor had one (although it was only for a couple of weeks).
Times were good for RIM. By 2004, they had addicted more than a million subscribers, giving rise to the term “crackberry.” By 2009, even the drug cartels never had it so good—RIM had 41.6% of the U.S. Smartphone market. Mighty Apple stood in their shadow with only 26.5%, and little Google nipped at both their heels with just 5.2%. Even the President Obama was hooked on the Canadian marvel, as he became the first sitting president to have twiddled his (sore) thumbs in office while still being considered busy.
But by April of 2011, RIM their ocean had turned red with new competitors as their 41.6% market share had dropped to 25.7% and kept falling. Mighty Apple fell just a percent while Google’s Android grew up to be the little OS that could, grabbing more than 20% more of the market to stand tall at 36.4%. A chilling survey revealed that just 42% of current Blackberry users expected to buy another phone from RIM. The Blackberry was now the has-been opiate of the masses. What happened?
Have we put a lid on RIM?
Some devotees blamed the new phones and operating systems of Apple and Google, as well as the pressure from recent entrants like Microsoft, Samsung, and HTC corp. Indeed, warranty research conducted last month revealed Apple’s iPhone to be the most reliable phone and OS with the makers of Android phones trailing right behind. Blackberry, in contrast, had triple their failure rate (6.3-6.7% in the first 12 months). Apparently reliability matters, as little yapping Google is expected to grow up to become the dominant Smartphone operating system in the U.S. by 2014.
Others blame RIM’s schizoid dual-CEO organizational structure. Are two heads really better than one? Ask RIM’s shareholders, who have expressed worry that Siamese CEOs could inhibit RIM’s ability to make necessary organizational, operational, and positioning changes. Separating them could prove more difficult than cutting along the dotted line, however. Together, the two CEOs own around 10% of RIM, and far from tearing the body in two different directions, they seem insistent on taking the company down a path that many shareholders insist is the wrong one.
Then there are those who point to tablets as the reason for RIM’s declining market share. They argue that Apple created its own “blue ocean” with the holy trinity of iTunes, the iPhone, and the iPad. RIM’s response to this was to take on Apple on its own turf, launching the Blackberry Playbook in 2010. “Crackbook,” it was not: through the third quarter of 2011, Apple had sold 9.2 million iPads—46 times the sales of the Playbook.
RIM on the ropes
RIM isn’t just a copycat. It has fought back in other ways, to be sure. In a rate that eerily matches their phone’s failure statistic, RIM spends 3 times as much as Apple on R&D, or 6.8% of its revenue. This allowed RIM to mimic its competitors in other ways too.
Like Google and Apple, RIM took control of its supply chain, shedding its outsourced OS and acquiring Ubitexx to create the BES operating system. Like Apple, RIM took control of its production by reducing the suppliers of 90% of their production to just five companies for which RIM was a major customer—allowing the company to negotiate prices that were proportionally lower with their falling profits. Finally, like you-know-who, RIM also took full control of its application channel, launching “Blackberry App World” in early 2009.
But RIM didn’t stop there. It acquired QNX software systems, one of the largest suppliers of software for infotainment systems in cars. This company gave RIM’s Blackberry and Playbook devices new communications capabilities. Did you know that your Blackberry can now talk to cars? RIM envisions a future where its devices can talk to homes and appliances. Have you ever wanted to text your toaster in the morning?
RIM: in a red ocean or circling the drain?
For all of RIM’s faults and desperate attempts to grab blue water, the company has a very valuable brand. The Blackberry is the 25th most recognizable brand name in the world, but perhaps that is part of the problem: while the brand continues to gain awareness globally, it’s still the same Blackberry in the minds of these potential new customers—a phone that looks like a scientific calculator in a world of slick bricks of glass and polished aluminum with colorful social apps.
But what company will fill the void left by RIM if it drowns? It is quite likely that many of the readers of this article would be left without a business Smartphone alternative in a future without RIM. The company is the only Smartphone maker whose device has a brand association synonymous with government and enterprise communication. Can any other Smartphone maker boast the same level of commitment to those areas? Does any other Smartphone maker have a device with cutting edge security features that have won it industry awards and led its ban from certain countries? The answer to both questions is a resounding no, and that is because they are both RIM’s competitive advantages in the Smartphone market. And yet the company is barely treading water among its competitors.
RIM is worth saving, if only because there is no other company that that can take its place. But for lack of a lifeguard in the ocean, what RIM needs to do is swim somewhere else. The company can’t compete with companies like Google or Apple who are now synonymous with flexibility, adaptability, individuality, and new trends. RIM’s only option is to reevaluate the recently expanded size of its consumer scope and then make the decision to redouble its focus again on its original customers: target markets that are business-like in nature and require high levels of security with their communication devices—where its traditional strengths of Enterprise-branding and security confer competitive advantages on the company.
These markets, which include the oft-neglected and security-sensitive government and military, require safe, easy, and convenient communication. They can leverage RIM’s capabilities and supply higher demand that the company’s competitors are not actively targeting. RIM’s current capabilities surely aren’t giving it market share in the areas that Google and Apple are vying for. Only these steps will invigorate RIM’s position, strengthen consumer and shareholder confidence, and establish a blue ocean to float the Blackberry brand on in the future. Peculiarly enough, it may turn out that RIM’s bluest waters to come are the very same waters it tried to leave.
And after all, do you really want the POTUS to play ‘Angry Birds’ during staff meetings?
--Team 6, Competitive Strategy OD
Comscore- Dec 2009; ComScore Reports-December 2009 U.S. Mobile Subscriber Market Share
Comscore - April 2011; ComScore Reports-April 2011 U.S. Mobile Subscriber Market Share (http://www.comscore.com/Press_Events/Press_Releases/2011/6/comScore_Reports_April_2011_U.S._Mobile_Subscriber_Market_Share).
RIM 2002 Financials; 2002 RIM Investor Report; http://www.rim.com/investors/documents/
RIM 2004 Financials; 2004 RIM Investor Report; http://www.rim.com/investors/documents/
WSJ; Corporate News: Pressure Mounts on RIM --- With Stock Plunging to New Lows, Fresh Calls for Change to Co-CEO Structure; Will Connors, Joann S. Lublin. Wall Street Journal. (Eastern edition). New York, N.Y.: Dec 15, 2011. pg. B.3
Woyke, Elizabeth. "BlackBerry Battles Back." Forbes. 28 2 2011: 34-36. Print.
Datamonitor: Research in Motion Limited SWOT Analysis,Jun2011, p1-9, 9p, 2 Charts
Data Green Study: Smart phone U.S market share analysis, August 2011.