Francisco Kattan

Insights on the Mobile Ecosystem

Why Droid will hurt RIM more than the iPhone

By now I’m sure you’ve seen Verizon’s aggressive “idon’t” campaign to compete against the iPhone with its new Motorola Droid.  This is Verizon’s second attack on the iPhone after the first attempt with the Blackberry Storm failed miserably.   Despite the Storm, AT&T continued to add new subs on the strength of the iPhone.  Just last quarter AT&T added another 3.2 million new iPhones, 40% of whom were new customers to AT&T (a 2 year trend now).

Although Verizon desperately needs to counter the iPhone, I believe this latest attempt will hurt RIM much more than Apple.   In other words, it will backfire cannibalizing more Verizon RIM devices than AT&T iphone devices.   Here are two reasons why:

1. Droid Takes Advertising Dollars from RIM

RIM was until now Verizon’s flagship smartphone partner.  If we ignore the ailing Windows Mobile platform, RIM has virtually the only competitive smartphones in Verizon stores.   In the past Verizon poured most of its advertising dollars in the smartphone category to promote RIM Devices.  But that is about to change.   Not only does RIM have to share Verizon’s ad budget with Droid, Droid will get the better part of it.   Verizon has said publicly that it will promote Droid with its “biggest marketing campaign ever.”   This is going to hurt RIM.  Although other carriers in the US carry RIM devices, Verizon is the only operator where RIM enjoys flagship status.  AT&T’s flagship device is the iPhone of course.  Sprint’s flagship devices are now Palm and Android devices.  And T-Mobile is pushing Android of course.

2. Droid’s Target Market Overlaps more with RIM’s than the iPhone’s

The second reason is a bit more subtle, but perhaps more significant.   Droid’s feature set will appeal more to the traditional RIM user than to iPhone’s target market.  This means that Droid will naturally attract more would be RIM users than would be iPhone users.  Let me elaborate.

Roughly speaking, there are two main clusters of smartphone users:  those users who optimize for communications features and those who optimize for entertainment features.   Users optimizing for communications features need good quality voice service, great email and Exchange support, and a preferably physical keyboard for typing lots of emails.    Users optimizing for entertainment want a great gaming experience and great music and video services, including media synchronization (i.e.  iTunes).  Although these two segments are increasingly overlapping,  they are still distinct.  It’s no mystery that the iPhone dominates the entertainment segment with its great music player and iTunes integration.  When it comes down to it, the iPhone is a great entertainment device and not that great voice phone (which users who optimize for communications demand).   Unlike a voice phone, the iPhone has no physical keyboard.  And running on the AT&T network, iPhone users often complain about dropped calls but put up with the problem because they favor the entertainment features.

I know many of you are thinking that the iPhone is a good email device too.  Although the iPhone is making clear inroads into the communications space with Exchange support for example, this is not the iPhone’s sweat spot.   RIM of course optimizes around communications capabilities.  With the best support of corporate email systems, a great physical keyboard for typing lots of emails, and a good voice phone.

Droid is a better communications device than it is a good entertainment device.  For this reason, Droid will hurt RIM more than Apple.  Droid comes with the Verizon network which offers better voice service and fewer dropped calls.   Droid is made by Motorola, who makes better phones and radios than Apple.  Droid featurs a physical keyboard that many RIM users will demand before switching to a new platform.  At the same time, Droid is missing key entertainment capabilities such as VCAST music,  iTunes support, or any other good media synchronization service.

It will be interesting to watch what happens, but for these reasons, my bet is that Droid will hurt RIM more so than the iPhone.  This is despite such aggressive Droid marketing campaign attacking the iPhone directly.

What do you think?   If you are an iPhone user, would you switch to Droid?   If you are a RIM user, would you?

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Written by Francisco Kattan

November 18, 2009 at 10:20 pm

11 Responses

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  1. […] of the Droid? Palm as we know took the biggest hit when the iphone first came to market and so Francisco Kattan predicts and outlines why he believes the new Droid will also fail to impact the iphone and will […]

  2. The Android smartphone offerings going forward are going to take both communications and entertainment paths depending on the device OEM, so I see Droid impacting both RIM and Apple. But the smartphone market’s growing fast and a rising tide lifts all boats that are built solid. I see RIM, Apple, and Android as solid for now. WinMo and Palm are not scaling in the developer community nor outside the US, and are vulnerable. Nokia is caught into giving up its beloved Symbian, which developers do not like to develop for anymore, and is pushing the dev base to Maemo when they should just go with Android. But Nokia, like Apple, wants a lot of control. There is no room for six smart phone platforms two years from now, but three, yes!

    Randy
    http://newdigitalcafe.com

    Randy Giusto

    November 23, 2009 at 8:27 am

    • Randy, great insights. Thank you for sharing! I like how you have addressed so many key points with such few words. I’d like to elaborate a little as these are meaty topics you are raising.

      Good point on Android taking both paths, depending on the OEM (and even device model). For my post I was focused on the Motorola Droid which has a decent physical qwerty keyboard, a very good voice phone, and of course the Verizon network. But Android will likely fragment over time with each OEM optimizing around its target segments.

      I still find it hard to believe that the Motorola Droid would hurt Apple however. But we’ll see how it plays out. Neither AT&T nor Apple appear to be too worried about Droid based on my visits to both stores. Given such direct attacks from Verizon, I had expected especially the AT&T store clerks to be prepared with Droid competitive knock offs provided by their marketing department. Instead both stores I visited took the high road highlighting the capabilities of the iPhone.

      You offer great insights about likely winners and losers. As the mobile platform industry consolidates, who will survive? It’s amazing to me to see almighty Nokia hurting so badly. Nokia and Microsoft are clear losers in my opinion, so I agree with your assessment. I’m not so sure about Palm however (more on Palm below). Nokia will likely have to focus on emerging markets where it has a distribution advantage and also better brand equity over the likes of Apple, Google and RIM.

      I think Palm has a decent chance. Palm’s future hinges on 3 key issues, in my opinion:

      1) Revenue from the outdated Treo is falling faster than the Palm Pre and Pixi are able to compensate for. Will Palm have the cash to weather the transition?

      2) As you pointed out Palm needs to scale its developer community. Palm is way behind in this area. Palm is betting that a good chunk of the millions of existing web JavaScript developers will want to leverage their existing skills and adopt Web OS. But unless Palm offers good distribution opportunities, web developers won’t adopt the platform in mass.

      3) Palm, by its own admission, is targeting the “middle” of the market – right between the entertainment focused and communications focused users (as we have discussed on this post). So the issue here is: how big is this “middle” market? Is it big enough for Palm to thrive? Or will Palm be squeezed between the entertainment focused iPhone and communications focused BlackBerry? Palm must have researched this issue before the launch, but time will tell us the answer.

      franciscokattan

      November 24, 2009 at 1:30 am

  3. […] by Burning the Bacon with Barrett. It includes an interesting article from Francisco Kattan “Why Droid will hurt RIM more than the iPhone” where he predicts and outlines why he believes the new Droid will fail to impact the iphone […]

  4. Your logic seems good, but you didn’t explain why you think the Droid is not a good entertainment device. Like to know your reasoning there (as someone who is thinking about getting one because AT&T’s coverage is so bad–especially at our house).

    Neicole Crepeau

    November 23, 2009 at 10:37 am

    • Hi Neicole. Good catch and thanks for asking. I would not say that “Droid is not a good entertainment device.” Instead I’d say that when compared to the iPhone, the iPhone is a much better entertainment device, but the Motorola Droid is a much better communications device. Because of this, as more and more users replace their feature phones with smartphones, Droid will attract more would be RIM users than would be iPhone users. Does this make sense?

      To answer your question more specifically, consider that (generally speaking) users optimizing for entertainment features want a great gaming experience and great music and video services, including media synchronization (i.e. iTunes). I believe you will find both higher quantity and better quality games on the Apple App Store compared to the Android Market Place. And when it comes to music and media synchronization, the iPhone wins hands down. Google missed an opportunity to upgrade its dismal music player with Android 2.o and Verizon did not even include its own VCAST music store on the device. And if you use iTunes, you’ll have a very difficult time synchronizing your music and videos to Droid.

      Each person obviously has her/his own personal criteria. My comments relate to “clusters” of users in general, and Droid may be just right for you :). If you do get the Motorola Droid, it would be great to hear what you thought of it.

      franciscokattan

      November 24, 2009 at 1:45 am

  5. Or perhaps Droid will help RIM, once/if RIM goes the Android way… 🙂

    ceo

    C. Enrique Ortiz

    November 23, 2009 at 3:26 pm

    • Hi C. Enrique. Boy, this would be quite surprising to hear. Seems very unlikely at first glance, but would love to hear more. Why do you believe RIM would adopt Android?

      franciscokattan

      November 24, 2009 at 1:47 am

  6. I will expand on my blog later, but here:

    Why Unlikely?
    * “not built here” kind of mentality”;
    * “why promote a competitor” kind of mentality.

    Why Likely?
    * Reduced BOM costs;
    * Android OS is advanced and customizable, and open;
    * Java-based satisfies current developer base;
    * Provides migration path – continue exposing existing BB Java-based APIs as needed;
    * IDE tools (Eclipse) already in place.

    C. Enrique Ortiz

    November 24, 2009 at 8:28 am

    • Hi C. Enrique. I hope you had a good Thanksgiving holiday — if you are in the US 😉

      I read your blog post and you make a good case. However, I think the biggest reason RIM will not likely adopt Android is that RIM would be foregoing its differentiation and would be forced to compete based on cost and volume with other Android OEMs. RIM is not in a position to compete on this basis. In fact it would be at a significant disadvantage when compared to the likes of HTC, Samsung, LG, and Motorola. This may be an over simplification, but if we relate this to the PC world, Android OEMs will need to follow more of the Dell model. You run on a standard OS and optimize the heck out of your cost and distribution. This would be RIM’s battle to lose. Sure there are some opportunities to differentiate with software as an Android OEM. This is what HTC is trying to do with HTC Sense for example. But by and large, the biggest opportunity to differentiate would be with hardware, cost, and distribution and this is not a good place to be if you are RIM.

      franciscokattan

      December 2, 2009 at 7:34 pm

  7. google makes money in desktop, but the don’t need produce PC, now it makes money in every smart phone/tablet, now device is still makes money so google produce device for a while, 3 years later, every producer feel hard to make money, google will sell their phone at cost price and make money.

    maxmz02

    December 12, 2011 at 10:48 am


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