Francisco Kattan

Insights on the Mobile Ecosystem

Is RIM in the Smartphone Business? Or the Messaging Business? Time to Decide

When you buy a BlackBerry, why do you do it?  Because you want to run many apps?  Or because of RIM’s leading messaging applications and services?

In the era before the iPhone (aka “Bi“), this question did not matter as there were no viable alternatives.  In fact, with hindsight, the notion of a smartphone to run many apps did not exist for most consumers.    You bought a BlackBerry primarily for messaging and phone calls (maybe a couple extra apps, at best).   However, in this new “Ai” era (after the iPhone), the situation is dramatically different.  RIM has been incapable of defending its position as a smartphone platform against new entrants Apple and Google.   And the situation can only get more difficult for RIM with the resurgence of Web OS under HP and of Windows Phone thanks to the recent Nokia deal.  If RIM can’t compete in a 3 horse race, can it survive a 5 platform war?

By contrast, RIM has been very successful with its messaging and collaboration applications.  RIM is the clear leader in Enterprise email, with others playing catch up.  And in case you have not been paying attention, RIM has been able to build a very large base of consumer messaging users with its flagship BBM application especially in international markets.   In fact, RIM’s troubles in North America are only being masked by its unprecedented growth of consumer messaging users internationally (for more on this, check out Mike Mace’s Tale of Two BlackBerries).

Should RIM continue to try to compete as a platform play? Or would RIM shareholders be better off if RIM focused on building its messaging franchise across more platforms?

The answer to this question will have dramatic implications on RIM’s future actions.  For exampe:

  • Should RIM invest to not only catch up, but differentiate its operating system and app store?
  • Should RIM scrap its plans to launch the Playbook and instead launch its apps on the iPad and other tablets?
  • Should RIM port its enterprise collaboration suite to competing platforms?
  • Should RIM port its successful BlackBerry Messenger (BBM) to iOS and Android?

What business is RIM in?

Let’s run some quick “back of the envelope” numbers to shed some light on this question (source):

  • RIM’s Device Average Selling Price = $300
  • Device Margin = $105     (35%)
  • Messaging Subscription Revenue = $15 per quarter per user (or $60 per year, $120 for two years)

If we look at the numbers over the typical 2-year contract in North America, RIM generates subscription revenues per user of approximately $120, but a margin of only $105 for the device.

At a very gross level (say nothing else changes for a rough “order of magnitude” approximation), if RIM could double the number of user subscriptions by porting its apps to all other platforms, it would more than make up the lost margin from device sales.  Doubling messaging users would be no slam dunk, but it’s definitely attainable with the much larger addressable market that would result from this move.

On the other hand, if RIM does not port its apps to competing platforms and its device market share continues to drop, both subscription and device revenues could plateau and then head south over time.

Is RIM a player in consumer messaging?

It is common knowledge to those of us in Silicon Valley that enterprise email is what keeps many users loyal (or should I say “hostage”) to RIM devices, especially given corporate IT guidelines.  However, the same is true in the consumer segment in international markets such as Latin America and the Middle East with RIM’s BBM app.    In those markets, many consumers pick up BlackBerries so they can message their friends at no additional cost using BBM.  In addition to lower costs, BBM offers enhanced functionality such as presence and read receipts that SMS can’t offer.   For example, how quickly a message status of “D” (delivered) changes to “R” (read) indicates to the sender whether the recipient is engaged in the conversation or perhaps busy with something else.  For more on BBM’s popularity, check out this post.

The BBM community of users has kept many consumers in these markets loyal to RIM devices.  If most of your friends are on BBM, you will think twice before you switch to an iPhone or Android device (which doesn’t offer the BBM service).

Anecdotally,   I personally have many friends and relatives in Latin America on my BBM and this is one reason I carry multiple devices rather than outright switch to one of my newer devices.  Even when I travel to Europe where roaming SMS rates skyrocket to 50 USD cents, I can still stay in touch with my LATAM contacts at no additional cost.

How long can RIM keep its messaging users hostage to its platform?

RIM needs to either 1) offer a competitive platform with a thriving developer community and regain device market share or 2) port its apps to new platforms and grow its base of messaging users across a larger addressable market.

Time is running out

  • RIM has just lost its long held No. 1 position in the US to Android and with 300,000 activations per day, Android shows no signs of slowing down
  • RIM’s developer acquisition efforts are far behind competing platforms, as illustrated by this wake up call to RIM by a prospective developer that went viral
  • After 2 years since its launch, RIM’s App World contains a meager 20K apps, compared to several hundred thousand for iOS and Android
  • RIM has yet to ship its first tablet while Apple has already raised the bar with its second generation design and aggressive pricing and Android tablets are beginning to crowd the space
  • HP, the world’s largest PC maker, is playing to win: planning to ship over 100M Web OS devices per year, including PCs
  • iOS is quickly catching up in the enterprise, RIM’s traditional stronghold, with many IT departments already welcoming Apple devices
  • Windows Phone now has a much better chance to be a contender given Nokia’s recent endorsement (though this won’t be a slam dunk either)
  • Facebook is about to launch its Chat service on the BlackBerry platform, attacking RIM’s own BBM.  If Facebook Chat will have all your friends,  and BBM will have only the portion of your friends who own a RIM device, who do you think would win this battle?

Is RIM internally conflicted about its own positioning?

There is some evidence in the blogosphere that RIM may already be struggling with this decision.   The most recent rumor indicates that RIM is planning to bring BBM to Android and iOS.  Whatever RIM decides, it is critically important that it communicates the decision well and sticks with it.   This is in contrast to the recent Playbook positioning fiasco where RIM initially positioned it as the “First Professional Tablet” and “the Enterprise Standard” only to later reposition it in Barcelona squarely as a consumer device (games, music, videos) that is simply “enterprise ready.”   Perhaps the choice of a seemingly consumer brand “Playbook” for an enterprise device should have given us a clue that RIM was internally conflicted on the proper Playbook positioning (I wonder if this internal conflict contributed to the recent departure of RIM’s CMO Keith Pardy).  RIM can’t afford this kind of indecision in such a competitive market.  RIM needs to figure out how to play to its strength, position itself accordingly, and rally the company in that direction.

What do you think?  Should RIM be in the platform business or the messaging business?  Participate in the poll below and leave a comment with your view.

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Written by Francisco Kattan

March 20, 2011 at 8:57 pm

6 Responses

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  1. On the surface, RIM seems like Wang Computer–a dedicated and dominant word processing stack (including hardware) that gave way to generalized computing, which subsumed word processing. I think they have a RELATIVELY better chance at becoming the dominant word processor layer (messaging) than competing across the rest of the stack (hw, sw, developers, apps) as they are currently attempting. But messaging is becoming commoditized. Enterprise messaging is the better bet for them vs. consumer.

    Dan Nguyen

    March 21, 2011 at 4:05 pm

    • Thanks for your comment Dan. Your analogy to Wang is right on! Wang collapsed when the PC came out and word processing apps like Multimate and Word Perfect replaced the need for dedicated word processing systems. Instead, Wang could have ported its word processing application to the then emerging platform (the PC), extending its addressable market significantly.

      In the same way, if RIM figured out that it is really in the messaging business, it would be porting its market leading apps to iOS, Android, Windows Phone and Web OS, rather than face the prospects of a shrinking addressable market on its own platform. But RIM has to figure this out quickly or new apps that run across all platforms will eat its lunch. As I mentioned in the post, Facebook Chat is about to kill BBM (in the same way Multimate and Word Perfect killed Wang).

      I agree with your second point about enterprise versus consumer. It is evident that RIM can’t decide what it wants to be (as we saw with the Playbook positioning flip flop). RIM could have targeted the enterprise segment and enjoy a highly differentiated position. Instead RIM chose to play second fiddle to Apple and is now suffering the consequences.

      @BlackBerry, if you are listening, please decide what you want to be and marshal all your resources to win that market. Your indecision is evident by your actions and is hurting you in the marketplace.

      Francisco Kattan

      March 25, 2011 at 3:05 pm

  2. […] how much the BlackBerry manufacturer makes from both hardware and from messaging, and asks Should RIM be in the platform business or the messaging business? Meanwhile Jose Colucci at the Mobile Strategy Blog takes a good look at business smartphones […]

  3. […] how much the BlackBerry manufacturer makes from both hardware and from messaging, and asks Should RIM be in the platform business or the messaging business? Meanwhile Jose Colucci at the Mobile Strategy Blog takes a good look at business smartphones […]

  4. Hi Francisco,

    Good post :) Time has always been running out for RIM, yet they survive, in fact thrive. About 6 years ago people were pointing to the email clients appearing on phones that would remove the need to use and pay for BBM, yet here we are…

    RIM needs to be clearer on the two lines of business: enterprise and consumer. Enterprises move slowly; security, integration, and a few enteprise focused apps mean they’re not in a bad position. And could likely continue to carve out an enteprise-focused niche across an integrated solution.

    On consumer they were doing well back in 2007-2009, but the game’s changed thanks to iPhone and Android. The evil financial analysts continue to push RIM down the consumer route. RIM does have a base of consumers, its just not clear how loyal that base will be given the gap between the RIM ecosystem and iPhone/Android.

    Unfortunately ‘shareholder’ value is distorted by financial analysts that lack understanding of the market – let’s face it someone earning millions of dollars a year in NYC is quite detached from reality. RIM needs to focus on its base – enterprises and deliver secure, integrated solutions that mobilize enterprises across a range of devices – and ignore the analysts that keep pushing them into markets they’re just not going to be that successful in.

    Alan Quayle

    March 28, 2011 at 5:03 am

    • Good insights Alan. Thanks. Its interesting that Wall Street expectations would push RIM into the larger consumer market, as you suggested. Trouble is, it may be better for RIM to be a leader in a smaller market than an also-ran in a larger market. Wall Street analysts should understand this, but sometimes greed gets in the way.

      Francisco Kattan

      March 28, 2011 at 8:38 pm


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