Research In Motion: ? And now the hard part Latest Business News

Research In Motion: ? And now the hard part

31 January, 2010

To truly appreciate what kind of obstacles and potential obliteration Research In Motion faces in the era of the iPhone and other “smartphone” competitors — not to mention how it might almost as easily continue to innovate, dominate and grow, grow, grow — you have to start with what co-CEO Jim Balsillie was doing 10 years ago.

The first-generation BlackBerry had only been on the market a short time. Few people had heard of it. Yet Balsillie was already well on his way to making sure it was a product and a brand everyone would know.

Balsillie was a relentless evangelist for the company’s first BlackBerry devices, meeting with executives, analysts, bankers — busy people who needed to be connected with each other and their data around the clock — and selling them on its virtues in hopes of signing them up as subscribers. It did not take long for the BlackBerry to become a staple in corporate and government offices in North America.

These days, RIM doesn’t rely on Balsillie’s travelling salesmanship to catch customers. The company has a marketing machine in his place. This fall it rolled out a slick campaign that says less about its products than it does about how the market is changing and how RIM is adapting.

A series of television ads, centred on the slogan “Love what you do,” features bright young things doing what they love: an indie rock band performing live; a group of teens breakdancing; a fashion designer presiding over her runway show. The BlackBerry itself barely appears. Instead, RIM is selling a lifestyle, one of success, but also something else: fun.

RIM’s message is the BlackBerry is for everyone — not just corporate types. While they still matter hugely to RIM, clearly it recognizes the future of the smartphone, its future, lies with individual consumers.

This puts RIM in unfamiliar territory. Take all the competition. The Waterloo, Ont., firm, which was co-founded by BlackBerry inventor and co-CEO Mike Lazaridis, essentially created the product category. For years it was the only reliable player in North America. Today, it’s mixing it up globally with traditional handset makers such as Nokia and Motorola, and newcomers are jumping in. Google announced in early January it would be selling its own smartphone, the Nexus One, in addition to having already developed Android, an operating system used by many handset makers. And then there’s the iPhone from Apple. The iPhone accounted for 13% of all smartphone sales in the past year, according to Gartner Inc., putting it third behind RIM, which held 20%, and market-leader Nokia, at 42%. The iPhone’s growth is impressive, considering it launched in only 2007. It has also set a precedent for what a consumer smartphone should be.

Since the iPhone’s arrival, not one new RIM handset has captured buyers’ attention in the same way. RIM’s sales keep climbing — its subscriber base jumped to 36 million from 21 million between late 2008 and 2009 — yet the company has made mostly small, evolutionary changes to an expanding product line that’s brought little particular notice.

The iPhone has also exposed other deficiencies. The Web browser on a BlackBerry is outdated, and there are fewer third-party applications available compared to other mobile devices. Some analysts contend these challenges are serious and could cause the company’s phenomenal growth to slow. In particular, investors expecting RIM to remain the knockout stock it’s been for a decade could be in for a surprise. “There will be a rude awakening soon,” says Neeraj Monga, executive vice-president and analyst at Veritas Investment Research in Toronto.

But that’s also been a common refrain for years — and RIM has consistently proven critics wrong. The company has achieved as much because management understands success requires more than a pretty device. Often ignored in any discussion about RIM’s future is that the company has cozied up to carriers like no other handset maker, helping to manage traffic to keep networks from overloading. RIM also tries to provide each carrier with a unique BlackBerry so wireless operators can stand out from competitors. “A lot of people totally underestimate RIM’s value proposition, which is security and bandwidth efficiency, and how important that is to the carrier,” says Gus Papageorgiou, managing director of technology research at Scotia Capital.

And so these are the factors that will determine who prevails in this defining phase of the smartphone market’s evolution. RIM still has momentum and certain inherent advantages. But in other areas, even its most bullish backers say it has fallen behind. Not that the latter is something Balsillie wants to hear. The Financial Times raised the issue with him last fall. “We changed the world,” he sniffed in reply. “And you frame it as a catch-up? I’m shocked.”

For outside observers, however, there is nothing shocking about an innovative company — even the flagship of the Canadian tech economy — fighting to maintain an edge as savvy competitors redefine the market. To prove its detractors wrong this time, RIM will have to find ways to beat those competitors at their own game.

In the rapidly changing world of technology, it’s easy to forget how many threats RIM has already vanquished. Back in the late 1990s, Motorola’s attempt to compete with RIM’s original two-way interactive messaging devices fell flat. Later, Nokia’s first smartphones did little to hinder RIM’s growth in North America. Microsoft launched an operating system for mobile devices in 2004, and offered free push e-mail for corporations, a direct assault on RIM’s core business. (“Push” means a message is sent immediately to a user’s handset without them having to retrieve it.) But the company kept growing. Then there was the NTC patent lawsuit, which cost huge amounts of time, energy and money to settle. Motorola attacked again in 2006 by purchasing Good Technology, a provider of push e-mail, hoping to integrate the service with its devices. The acquisition went nowhere. Motorola sold the company last year.

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