Francisco Kattan

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.