Authors: Mike Anderson Date: December 28, 2012
Topics: Mobile Research Note Number: 2012-46
Issues: Who are the vendors that are battling to lead the mobile computing revolution?
Summary: As it prepares to launch BlackBerry 10, RIM is racing to right its business, but it has also signaled that part or the entire firm might be for sale. Should a sale occur, RIM’s future would take a very different shape.[wlm_loginform] [private_Provisor level]
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Research In Motion (RIM) was the dominant supplier of enterprise smartphones for over ten years. Its signature product was the BlackBerry phone/PDA, which was arguably the first smartphone. Since the advent of the iPhone and Android smartphones and tablets, however, RIM has been in a catch-up mode, since its singular focus on email and messaging has been overrun by literally thousands of mobile apps from other vendors. This once-dominant leader has become a struggling business with dwindling enterprise confidence that desperately needs new products to restore its fortunes. This note examines three scenarios that are tied to the possibilities of selling part of all of RIM.
During its ten year run, RIM was at the forefront in provide secure mobile access to email and enterprise networks. At the outset RIM provided critical business functionality not available elsewhere. Its trademark characteristics, such as secure and robust email combined with a great keyboard experience, drove strong enterprise adoption and fueled BlackBerry’s early lead.
Eroding RIM’s Business
The erosion of RIM’s dominant position has occurred over years. The many visible signs of decline include reductions in sales, market share, company valuation and impact on individual consumers. However, in 2012 the decline accelerated, with network outages, delays of new products and an overhaul of top management adding to the pain. That year, the company’s strategic review of its situation included hiring two banks to help assess its options from restructuring to selling off portions of the business. These maneuvers increased the already substantial uncertainty within RIM’s enterprise customer base (see Note 1).
With its core franchise under siege from Apple, Google and the many smartphone providers, RIM also faced the rapid growth of new high-speed data networks from the large wireless carriers. Its initial response was to release some touchscreen BlackBerry phones, followed by a BlackBerry tablet, the PlayBook. However, the PlayBook was originally crippled by an inexplicable design decision from the erstwhile king of mobile email: it had to be tethered to a BlackBerry phone because it had no native email capability (after a 2012 upgrade, users did get a new email function in PlayBook OS 2.0, but the damage to credibility had been done).
Product Delays and Customer Defections
When RIM delayed its new Unix-based Blackberry 10 software and phones until 2013, the decline in sales accelerated. Technology markets can be brutal and today, a product slip of even a few months can have a devastating impact. With a direction clearly based on new devices, a new client operating system and new management servers, the protracted delivery timetable stimulated existing customers to defect. Although RIM has held onto its total BlackBerry user base, with a small loss in its most recent quarter, some highly visible defections in critical, security-focused government agencies have amplified the negative market signal (see Note 2).
RIM’s Path Forward: Strategic Review of the Options
Throughout 2012 a wide range of RIM’s future options have been discussed, and one or more of them may actually occur. The strategic choices can be summarized as three alternatives:
- Complete sale of the company
- Split up RIM: divest the business units
- Go it alone: Reinvent RIM around BlackBerry 10
Sale of the Entire Company
RIM’s greatest challenge lies in the competition for its overall mobile device and managed secure connection businesses. The business revolves around BlackBerry devices that run RIM’s BlackBerry OS (now in v.7) and connect to secure enterprise services and carrier connections provided by RIM. The foundation for success hinges on the ability of competitive devices, OS and apps to be drive demand for the secure email, messaging and other app connections provided by RIM.
If the entire business were acquired, the most likely outcome would be a substantial restructuring and likely split-up or sale of valuable components. It’s most likely that such changes would be made by RIM itself, and unlikely that an outside buyer would or could keep substantial portions of the business intact. Although RIM’s user base, services and patents have significant value, the real value comes from using them to fulfill a new strategic direction. Should such an effort fail, the pieces could then be attractive to many other companies, but a complete acquisition is not likely.
Sale of One or More Business Units
Option two is breaking up the pieces of RIM and divesting individual business units. There is considerable value in multiple elements of RIM’s business, and each could be attractive to different buyer segments (see Note 3).
Split off the device business: RIM’s device business is its largest unit, recently more than 75% of its total revenue. However, the device business, and the competition from iOS and Android, has created the greatest pressure for RIM. In its most recent quarter, even though it slightly beat lowered expectations for device sales, that ratio dropped below 60%.
The current BlackBerry smartphone line is a significant part of RIM’s business challenge. In 2012, RIM introduced new devices and updates to BlackBerry 7, the current version of the OS. However, so far the devices, the OS and the company’s app-development environment are still not competitive with the iOS, Android or Windows 8 ecosystems.
Without the device segment, RIM would retain its secure enterprise messaging network, its network operations center, and a software business comprising the BlackBerry device OS, its enterprise messaging and MDM services, and the BlackBerry App World app store. RIM’s software business is relatively small, but a successful OS and a thriving app store are the heart of a mobile ecosystem. RIM has long differentiated itself through its secure network and rich mobile management functions, and without that tight linkage the remaining parts will likely not be enough to compete with iOS, Android and Windows 8.
Split off the messaging network: RIM’s network business is the backbone of the secure mobile email and messaging for which BlackBerry is known. The capabilities of the network, providing email, security, data compression services and BlackBerry Messenger (BBM), present an attractive offering. With more than 60 million BBM users and nearly 79 million BlackBerry subscribers, servicing that community and the RIM network could be attractive.
While maintaining the nearly 79 million BlackBerry subscribers would be a significant business, real opportunity comes from attracting them into the new BlackBerry 10 environment. RIM claims 90% of Fortune 500 enterprises as customers, and more than 250,000 BES servers support secure email and Internet connections. While managing that environment separate from the mobile devices may be a viable and attractive business, any further growth will require a compelling device and mobile ecosystem as well.
RIM’s enterprise communication services have only recently begun to address the multi-vendor nature of enterprise mobility. BES provides proprietary connections and secure communication for BlackBerry devices, but while BlackBerry Mobile Fusion extends device management to iOS and Android devices, the capabilities RIM offers those products don’t match the ones for its own smartphones and tablets.
Managing the current installed base would not be a sustainable business for long. BlackBerry 10 must be successful to breathe life into the enterprise communication services business, and to leverage the secure connectivity between BlackBerry devices and BES.
Extending success of the messaging network outside of RIM would require the other mobile ecosystem vendors, Apple, Google and Microsoft, to retool their device management and connection security to match RIM’s. Alternatively, RIM could extend the proprietary BlackBerry protocols to provide the same level of security and support for iOS, Android and Windows 8 that it now has in its own environment.
Patent Portfolio: RIM has a solid set of mobile patents. It does not depend on Android, so it could attract user and developers if it can keep innovating.
Go it alone: Reinvigorate RIM with Blackberry 10
If RIM makes no strategic business changes, its future will depend on the pending relaunch of the company around its new BB10 phones in February. Faced with a choice between breaking up the business or betting the company on a reinvention around BlackBerry 10 and BES, RIM has continued to aggressively pursue the latter.
Sales of RIM’s existing product lines have been enough to keep its total subscriber base stable, and the company is on track to deliver BlackBerry 10 in January 2013 as announced. RIM executives have been seeking support from users, developers and enterprises with roadshows and extensive marketing travel. While a successful on-time BB10 launch and rollout is critical, RIM must also build positive market sentiment and substantial developer support.
The success of BlackBerry 10 is essential to RIM’s future, and that outcome remains a major uncertainty. Of the many potential outcomes, we envision three scenarios as most likely (see Note 4). Should RIM not emerge as a competitive ecosystem force, we believe further strategic change will be necessary.
As it modernizes its mobile OS, RIM is now in a transition period where it offers two versions of its platform: its smartphones run on the classic BlackBerry OS (version 7) but the Playbook tablet’s OS is based on QNX, a Unix derivative that RIM acquired in 2010. RIM is now completing a QNX-based OS for its phones as well (BlackBerry 10), and recently sent the gold version of the BB10 SDK to developers in support of its planned January 30 release. New phones running BB10 will not be available until at least February 2013.
For RIM, timing is critical. Given the success of iOS and Android, and a newly active Microsoft, the company is playing catch-up. Its current devices lack competitive features and will not upgrade to the new OS. In 2011 and 2012 network outages, product slippages and financial difficulties sent its stock plunging, and it continued to lose market share even though its total installed base remained stable. The success of this rollout hinges on RIM’s ability to hit the ground running from day one, with top-quality hardware, rock-solid software, a compelling user experience and a clear, robust ecosystem strategy that renews enterprise confidence. Given the competitive landscape, there will be no time for do-overs.
Licensing BlackBerry 10
In addition to its strategic business review, RIM’s executives have also aimed to build success for BlackBerry 10 by seeking OEMs to license the new OS. Android is currently the mobile OS of choice for mobile device manufacturers, with investment beginning to ramp up for Windows 8 and Windows RT. However BlackBerry 10 could provide a competitive alternative, particularly as both Microsoft and Google are competing with their hardware partners.
RIM’s biggest challenge will be to persuade developers to port their apps to BB10. Today many enterprise software firms struggle with the decision to port their apps to multiple platforms. The battle for developers will be one of RIM’s biggest struggles, given the popularity of iOS and Android and the vast resources available to Microsoft.
The Enterprise Game
Right now the battle for the enterprise is between Apple and Google partners. Although RIM is still well entrenched in the enterprise and still has loyal users, each day more firms approve iOS devices as the new standard.
Microsoft is making a strong push with Windows 8, Windows Phone 8, and Surface tablets but there is still a wide-open race for third place. RIM has a strong presence in large enterprises, and is investing in pilots and early implementation assistance programs to revitalize its installed base.
How Does RIM Compete?
Key to RIM’s ability to compete is delivering BlackBerry 10 devices and OS with compelling features and user experience. While RIM has held onto its overall installed base, with a slight decline in the most recent quarter, it has lost its impact in terms of strategic enterprise mobility. The number of large government agencies switching away from BlackBerry continues to grow, showing how much of the market RIM has ceded to iOS, Android and Windows 8 through its lack of relevant and compelling new products. Although RIM’s marketing push is starting to attract agencies to explore BlackBerry 10, momentum has shifted away from the company overall.
- The risks are real but RIM is not standing still.
- Enterprises should have a RIM exit strategy ready to go, in case some or all of the company is sold.
- Plan to implement a multi-device support structure beyond just RIM. Support at least one other mobile OS.
- Your enterprise mobile strategy should be based on an ecosystem approach that addresses apps, content, management, development environment and devices.
RIM continues to struggle as it races to bring out major new products, and all or part of the company may be sold. RIM’s future at its best will leave it as a fragment of the previous market leader of its past. The mobile ecosystem is the critical enabler, and providers who falter on even one dimension risk a significant decline in competitiveness.
Note 1: RIM Hires Banks to Explore Options
In 2012 RIM announced that it had hired two banks, J.P. Morgan Securities LLC and RBC Capital Markets, to “explore their strategic options.” One specific statement referred to the “strategic review we referenced on our year-end financial results conference call to evaluate the relative merits and feasibility of various financial strategies, including opportunities to leverage the BlackBerry platform through partnerships, licensing opportunities and strategic business model alternatives.“ Translated, it means that RIM is actively analyzing every financial option, including possible exit strategies such as selling part or all of the company.
Note 2: High-visibility Customer Defections
- Booz Allen Hamilton
- Large US government agencies including:
- · DoD
- · GSA
- · Immigration & Customs Enforcement
- · NOAA
- · NTSB
- · TSA
Note 3: RIM Buyer Candidates
- Microsoft could be a candidate for licensing rights or patents.
- Samsung has been a speculated buyer of the BlackBerry device business, but the huge success of its current devices makes such a move unlikely. However, if the world’s largest device maker were to be severely hampered by large-scale losses in its endless global patent wars with Apple, a litigation-free hardware platform could be attractive.
- Amazon has been rumored to be eying the smartphone business, which makes much sense for its mobile ecosystem strategy. Amazon’s investment in custom Android for its Kindle Fire line makes that unlikely, but a solid BlackBerry 10 OS could be attractive as an Android alternative.
- IBM was rumored to have been investigating RIM’s server and services business, but such a relationship would only make sense for RIM as a last resort if all else were to fail.
Note 4: Scenarios for the Future of RIM
- BlackBerry 10 fails to gain market traction
- RIM maintains its hold on the secure mobile niche
- RIM emerges as a viable mobile ecosystem contender
Copyright © 2012 Aragon Research Inc. and/or its affiliates. All rights reserved.