BlackBerry 10 will not save RIM

New CEO Thorsten Heins wasted no time embarking on sweeping reorganisations, realignments and austerity measures.

---

Research In Motion (RIM) is in dire straits, and needs something very special to pull it back from the brink of irrelevancy. BlackBerry 10, the keenly anticipated next-generation smartphone, is viewed as a Hail Mary pass to restore market share. But BlackBerry 10 (BB10) on its own, even if it is successful, will not save RIM.

Fortunately, BB10 is not all RIM has up its sleeve. Along with a deep-rooted reorganisation of the company that has seen thousands of jobs cut and R&D realigned, new CEO Thorsten Heins has articulated a strategy that refocuses on the business market. To that end, the entire portfolio - devices, enterprise software, and services - are being refreshed in one massive overhaul. That, however, still won't be enough to save RIM.

But, if it works, the new suite will buy time. Time for RIM to execute on a long-term strategy, possibly making some painful decisions along the way, but time to re-establish itself as a strong contender in the enterprise smartphone market.

Because it is going to take time for RIM to restore itself to health, a scorecard has been put together for the company. As it hits milestones, I'll revisit the scorecard and see how it's doing.

Let's start with the company itself.

Last October, RIM's share price finally halted its downward tumble. In five years, the firm had lost over 95% of its market value, from stock trading at $140 in 1998, to just $6.22. Investors had been spooked by the steady drop in the company's market share, its inability to bring products to market and attract new users, and a lack of long-term strategy.

But, now, things look more stable in Waterloo. When founder and co-CEO Mike Lazaridis finally stepped aside just a year ago, new man Thorsten Heins wasted no time embarking on sweeping reorganisations, realignments and austerity measures. Some of them hurt - the company shed thousands of jobs to become a more efficient operation - but the company is now in a stable financial position with plenty of cash on hand. The investors have perked up a little - RIM climbed steadily from October to sit over $14 by the end of January. (You can't read too much into the stock price - there are millions of short positions on the stock, and it's likely the stock will dip after the BlackBerry 10 launch.)

"They appear to have the right leadership," says local analyst Arthur Goldstuck, MD of World Wide Worx. "After Thorsten Heins did his road show around the world last year, he came out of it with everyone willing to give him a chance, almost without exception. I saw very little negative coverage."

RIM's transformation over the last 12 months has left it in decent shape, well focused on the next phase of its life. Now, it's all about execution. But, before looking at that more closely, let's consider its market position. That ties closely to a key factor in the firm's future financial well-being - its ability to generate profit margin from its products.

In 2008, BlackBerry enjoyed over 60% smartphone market share. Research in Motion had redefined the business mobile phone in its own image, creating products so popular, with legions of devoted fans so addicted to its always-connected vision, that the devices were nicknamed "CrackBerries".

But then the iPhone happened. Apple in turn redefined the mobile phone, and RIM (and others) had no answer to the sleek, sexy new fashion. Almost overnight, the smartphone market took off as mass-market consumers embraced smartphones, and RIM's market share began its inexorable decline.

Today, Gartner pegs the BlackBerry global share at just 5.3%, and predicts it will fall even lower - as low as 1.4% in 2016 - says Roberta Cozza, research director at Gartner.

However, it's important to keep the numbers in context. RIM did not, until late last year, actually lose many users. It's just that the market was growing so rapidly, and RIM was not. "At the time BB owned the smartphone market, there wasn't much competition, and there weren't that many smartphones," Goldstuck says. "If you think about it, the last quarter was the first quarter - the first time ever - in which RIM's overall user base slipped."

Cozza agrees, but paints it as a tipping point, not a blip: "We are forecasting year-on-year decline in user numbers. It will be very difficult to deflect demand from Android and iOS." Even with BB10 on the horizon, Gartner predicts steady decline for RIM until 2016, a timeframe in which it expects Microsoft to win over 12% share.

The challenge is therefore twofold: can RIM grow its absolute number of users as well as its relative market share?

There are two very different parts to that puzzle. In the developed world of the US and Europe, BlackBerry market share is negligible and unlikely to recover much. The company focus, emphasised by CEO Heins, will be on recapturing enterprise users. That will position it against Microsoft, which also hopes to carve out some market share in that space, while leaving the consumer segment to Apple and Android, with its tsunami of Asian suppliers.

In emerging markets, things are different. In South Africa, BlackBerry devices account for much more of the market - fully 18%, according to World Wide Worx's Mobility 2012 survey. And tellingly, it's even higher among the youth, with 28% share. In other African and Asian markets, it enjoys similar strength, though BlackBerry was recently displaced from top spot in Indonesia - the same patterns are playing out.

That's a hefty consumer share, but the question is whether RIM wants it or whether it will, like Nokia, turn its back on the strong consumer base and focus instead on premium models. Part of the attraction to emerging market consumers is the free messaging offered by BBM, and in SA especially, the free BIS Web browsing and e-mail. Can that continue? With price restructuring expected for BIS, and pressure from carriers around the world to reduce its fees (carrier fees reportedly account for nearly a third of RIM's revenue), the value proposition may change. And if the firm shifts focus to high-end models, the next generation of BlackBerry may simply be out of reach of low LSM consumers. Cheap Android devices will likely dominate, in that case.

It actually makes business sense for RIM to do just that, Goldstuck says. "The real problem is that the big margins are to be had in phones with big price tags. Where Nokia was succeeding in feature phones and RIM was succeeding in smartphones was in lower-cost devices. RIM's most popular smartphone in the developing world for the past two years has been the Curve 8520, which is a R2 000 phone, as opposed to the R8 000 phones driving profit in the developed markets. The very first financial element of their scorecard hinges on what kind of margins they can deliver on their phones. If you can deliver healthy margins, you can deliver healthy profit."

Of course, with the smartphone market ballooning so rapidly, RIM does not need to aim to reclaim its 60% market share of the past. A much more modest slice would do. Goldstuck feels even 5% could be healthy. Cozza reckons double digits would be needed. With Gartner's predictions of joint 14% share for Microsoft and RIM in 2016, that means we can expect to see stiff competition between the two.

What products, then, are expected to be in the vanguard, leading RIM's charge into the breach?

As this goes to press, the world's attention is on the upcoming launch of BlackBerry 10. This will see a new series of devices, engineered to compete with top-end products from Samsung and Nokia, running the BB10 operating system, a completely new OS based on QNX.

BB10 has some important elements all its own, but it is only a part of the RIM portfolio. For the company to regain its footing, every part of that portfolio has to work, and work well.

Goldstuck says he is optimistic about BB10 itself. "I'm very enthusiastic about BB10," he says. "I've played with it a lot. I'm enthusiastic about the OS and the software ecosystem for the OS. I think more than ever before, RIM has focused on the software and development side, where historically it was a hardware platform. It was a technical approach, whereas now it's a user-oriented approach, even more so than Windows 8. It represents a profound shift in philosophy at RIM, which was probably impossible under the previous management."

"Finally, we're seeing more competitive full touch devices," says Gartner's Cozza, "but it's very late. From the design perspective, I'm not sure how much differentiation it can drive, and the market is moving to larger displays. I think it will be competitive enough, but I am not sure how much users will understand RIM's differentiation. And with a new OS there is a learning curve, which might be a barrier."

Just as RIM shaped the smartphone industry, and was then trumped when Apple did the same, so Samsung has redefined part of the market with ultra-large screens ('phablet' is the awkward moniker for these 5-inch+ devices). It remains to be seen whether RIM will compete with phablets, which are gaining traction particularly among business users who like the extra real estate for productivity apps, or take a new, more ambitious approach to redefine the market yet again. Either RIM will have to produce products which can compete toe-to-toe with the top competitors, or roll the dice and try to out-market the big incumbents. Either way, the bar is now set very high.

BB10, then, is coming into a tough market at a very difficult time. This year, we can expect to see announcements of the next version of Android ("Key Lime Pie"), an iPhone 6 and possibly other iPhone derivatives (rumours abound of both larger and smaller iPhones), Samsung's Galaxy S4, and probably a refreshed Lumia series from Nokia. This time next year, RIM will have to do it all over again - the treadmill of competition is spinning frantically and one successful launch will not be enough to turn around the company's fortunes.

"RIM needs BB10 to be a huge success, but it needs to produce a miracle again and again and again," Cozza says. "They must aim for at least double digit market share to remain viable."

There's more to RIM than BlackBerry devices, though. A major part of the company's success in the 90s was BlackBerry Enterprise Server, which provided corporates with the messaging glue to integrate smartphones with their internal e-mail systems. Today, though, e-mail integration is taken for granted, the drive to the cloud is reshaping messaging infrastructure, and BES needs to up its game to stay relevant. RIM has launched a new version, BlackBerry Enterprise Service 10, which extends the messaging integration with mobile device management services, including support for other manufacturers such as iOS, Windows 8 and Android. BES 10 brings enterprise management tools such as group policies, remote lockdown and wipe, and data security. And with BES comes BlackBerry Balance, a framework built into BB10, which allows users to keep personal and business data and apps on the same device, sharing unified inboxes, for example, but with no interaction or leakage allowed between the two. BES 10 and BlackBerry Balance are RIM's trump cards against Microsoft, from whom it hopes to chisel out a niche among business users. Whether it will work remains to be seen - Microsoft is pushing aggressively into the same space, and has big guns of its own.

"I don't think BES will drive sales," Cozza says. "There's some value for vertical markets, such as companies with very stringent security requirements. But we're seeing a major rethink in what enterprises should invest in, and whether BlackBerry fits. I don't see the value, especially if other platforms improve their security to match. With Android, security is still a challenge, but there are third party products which address that. We expect it to turn out to be RIM versus Microsoft in an enterprise niche, with the rest of the market going to iOS and Android. And I think Microsoft is better positioned right now to take advantage of this, with Windows 8 offering a consistent story from PC to tablet to smartphone. And Windows 9 is on the horizon."

"The big fight will be between RIM and Microsoft," agrees Goldstuck. "And BB10 is more like Windows 8 than anything else - I actually worry that it will be confused with Windows 8.

One of Microsoft's advantages is its own strength in enterprise messaging and groupware, and the Office productivity suite, which it has pushed to mobile devices. Apps, especially business apps, will be a huge factor in RIM's success or failure. In the smartphone world, the device and its operating environment are only the tip of the iceberg - apps are where it's at. "For us, the main point is beyond the device," Cozza says. "It's the ecosystem."

Heins knows apps will drive user adoption: he has said as much in detailing the BB10 strategy. "Users really look at apps," Cozza says. "There's no more differentiation in e-mail. We're seeing BBM shrinking in Europe, with the cross-platform alternatives like WhatsApp."

With the QNX foundation in BB10, RIM has built a framework which allows many (not all - there are still differences) existing Android apps to be ported quickly and easily to the BlackBerry OS. The firm has hosted "port-a-thons", promotional programmes offering cash bounties to app developers who port their apps. They have worked - the company expects to exceed its goal of 70 000 apps in the newly rebadged "BlackBerry World" app store at launch.

But the raw number of apps is a distraction. What matters are the key apps, the widely adopted popular apps which users demand, and may outright reject a phone if they aren't supported. Of 200 key apps identified, RIM said it hopes to have 90% ported by BB10's d'ebut.

"If they have the key apps, the total count is irrelevant," Goldstuck says. "They've got to invest not in the number of apps but in the number of in-demand apps. The long tail is important, but it's tiny. It's probably not an 80-20 rule, more like a 98-2 rule!"

With the Android portability, an interesting possibility emerges. Android is widely seen as plagued with malware, even though most of the malicious apps are not in Google's own Play Store. RIM, with its strict vetting of apps coming into the BlackBerry World store, could find itself with a better-curated portfolio of Android apps than Google itself. (This is similar to Amazon's strategy, with its walled-garden Android variant on Kindle devices.)

Whether the developers will continue to support BlackBerry once the porting drives end remains to be seen. Even with the ability to port, it is a fourth platform for support after Android, iOS and Windows 8, and Cozza questions whether RIM can retain the interest, if not the loyalty, of the developers.

It comes down to the sum of the parts. Put together, the new devices, the business services, and the developer ecosystem all add up to RIM's value proposition, and whether it is strong enough to take root and flourish.

BlackBerry's key values have been eroded over time. BES has become less compelling, and BBM, the free messaging platform, is also falling from favour in some markets, with the advent of cross-platform messaging apps like WhatsApp.

Focusing on articulating a business value proposition could be a mistake, Cozza says. "There's no more distinction between business users and consumers. RIM disregarded the consumerisation of the smartphone for years - the players that are winning in enterprise are the ones winning consumers." To take on the combined might of Microsoft, Apple and Samsung is going to require RIM to dig deeply into its cash reserves for marketing, promotion and joint campaigns with carriers.

And those same carriers are pushing back. Last year, RIM came under pressure from its carrier partners to reduce its fees for accessing BlackBerry data services, fees which reportedly contribute a third of the company's revenue. With voice, music and app services coming to BBM (partly a consumer play, but many have questioned whether RIM is really throwing its weight behind BBM), carriers are also looking to restructure data contracts - a reshaping of the BIS data contracts is widely expected when BB10 enters the market.

That may erode the firm's value proposition in emerging markets, unless it can strike deals which keep it the go-to choice for cheap data. Cozza thinks RIM may not bother. "BlackBerry 10 has much higher hardware requirements. I'm not sure they will be able to offer entry-level handsets as they have in the past."

"They have to deliver on numerous levels," concurs Goldstuck. "That's one of them, coming up with a value proposition that goes beyond just saving money on data. At least they're protected from the iPhone by one thing, and that's Apple's supply chain. Apple can't supply the developing world. We've seen that already with the iPhone 5, which should have been the company's biggest push into this market, but all the operators had shortages."

"BlackBerry can't compete on numbers with Android - it can't compete with Samsung and HTC and Sony and Huawei and everyone else. But in terms of quality, it can hold its own against Android and get a respectable market share," he says.

Until full details of product specs and data pricing come out, we won't know the full value proposition. But the analysts agree that RIM has all the ingredients to put together a solid offering, if it can just find a winning strategy and execute it.

The proof of the pudding is in the eating, and RIM's fortunes will rely on every part of its new portfolio succeeding. Any weak link may break the chain, and the company can ill-afford another year in decline - it may never recover from that. "We could be facing a world without RIM," Cozza says. "This might all be too late."

However, Microsoft and Nokia made missteps of their own bringing the Windows 8 and the Lumia series to market, and RIM may benefit from its competitors' mistakes.

"We must bear in mind that Apple didn't exist five years ago," notes Goldstuck. "If RIM takes the approach of being a new business, it's still possible for them to transform their own market, if not the overall market, in the same timeframe. BlackBerry did it with the original platform, and then Apple did it to them."

If reinvented RIM fails, then we must look at other options. Heins has not discounted other possibilities, such as selling off the firm's hardware business, licensing the software, or leveraging its patent portfolio. All of those are likely to be uphill battles. "Who would buy the hardware business," wonders Cozza, pointing to the huge manufacturing sector in the East. And with Android freely available, it would have to be a niche, security-focused player who would take up the software, she says. Analysts have also poured doubt on the patents, noting that RIM holds few key patents in the next expected patent gold mine - LTE.

There are other lines of business, too. "One area where they have tremendous strategic assets that Heins has hinted about is the global delivery network and architecture," Goldstuck says. "Obviously, they need to shore it up to stop the outages, but one of the examples Heins gave was that they're very strong in the automotive environment. The basis of BB10 - QNX - has been used for embedded applications in that industry. They are able to update software in vehicles via the BB global network, over 3G. There are lots of industrial possibilities. Asset tracking, healthcare - there are a lot of applications for this. It's an incredible strategic asset that would be a very attractive acquisition for someone who wants to specialise in that area. It certainly can't keep the business as it stands going, but it's a salvageable element of the business."

Heins has hinted at all these possibilities, but confirmed none of them. "The main thing for now is to successfully introduce Blackberry 10. Then we'll see," he told Die Welt. "He's keeping his cards close to his chest," Goldstuck says. "There must be some sort of roadmap, but RIM has always been very quiet about it."

BES 10 is already out. BlackBerry 10 launches momentarily. Local availability, probably a month or so after the product launch, will fill in some gaps in terms of pricing, services, and data. By mid-year, when the focus is starting to turn to the major competitors' launches, we'll have a clearer picture of whether the company has improved its scorecard in these key areas. That will set the stage for future developments, and the company, after pushing itself to exhaustion to launch BB10, will have to find the reserves to do it all over again.

This is not the last roll of the dice for BlackBerry. It's the first - RIM has to win several times in succession to claw itself back into contention. Ultimately, it will be the users who vote on RIM's survival. Has the company done enough to win your vote?

Slicing the pie

Gartner's smartphone projections through 2016 paint a dismal picture for RIM.