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June 29, 2012

We are witnessing the end of RIM

RIM is now all but terminal as a standalone company. It will almost certainly be split up and sold for pieces, writes Allan Swann.

By Cbr Rolling Blog

"It’s like watching a puppy die. It’s terrible," said Matthew Thornton of Avian Securities in Boston. I think we all feel a bit like that.

Analysts and journalists are usually quite reserved when it comes to making pronouncements of a company’s future – even if they do believe such a company to be failing. The fact that comments like the one above can be made with such confidence and certainty (and regularity), with such emotive language, describes the situation RIM is in.

I too have been super-bearish on RIM for the longest time.

But, put quite simply, we are reaching the denouement of an iconic technology company’s long and dramatic narrative. RIM are finished.

Last night’s financials, while dire, were not unexpected. It is the collateral damage to these figures that is far worse for the company’s long game. The delay of the company’s BlackBerry 10 platform to 2013 is absolutely toxic.

By then, we will have an iPhone 5. We will be awaiting the launch of the Samsung Galaxy S4 (see the S3 review here). We will have an entire generation of Windows Phone 8 devices. We will have an iPad 4.

I doubt we will ever see BlackBerry 10 devices.

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It certainly would be grossly irresponsible for RIM to launch its allegedly in-the-works PlayBook 2, given the original’s disastrous performance.

To put it in perspective, RIM has just completed the first quarter a year where they will release no new products whatsoever. The last ‘new’ product they released was the aforementioned Playbook in March 2011, based on the PlayBook OS (QNX based). All the devices RIM has released since then have been slight tinkerings of the BlackBerry 7 platform – i.e. endless iterations of the BlackBerry Bold. The BlackBerry 7 OS launched in Autumn 2010.

That is a near three-year generational product revision cycle. As any analyst will tell you, that is absurd. It is incompetence on a massive scale.

Jim BalsillieMike Lazaridis
RIM’s co-founders, former co-CEOs and a large part of the problem at the end

By the time founders and co-CEOs Mike Lazaridis and Jim Balsillie were removed in January this year, the company was terminal, after a disastrous 2011. Hope was held out that in 2012, BB10 would launch and perhaps enable the company to preserve some government contracts, and some private sector business. That is now not happening.

I would go so far as to now call BB10 vapourware. Yes we have seen tech demos of ‘features’ of the new OS, but no complete demo, and no hardware.

Realistically, the appointment of Thorsten Heins, the company’s former COO – a money man – is to prep this company for sale.

RIM still has a solid installed user base (as mentioned earlier, usually tied to multi-year public sector deals), and alongside its rich patent portfolio is perhaps the only reason why its share price remains as high as it is – especially when compared to fellow luminary Nokia, which hovers around $2.

The sad thing is, even if BlackBerry 10 launched a few weeks from now, its not entirely clear what market segment it would fill. Certainly the era of the dedicated business smartphone is over – Apple and Google have seen to that.

Consumerisation, or ‘bring your own device’ means that BlackBerry has spent the last 24 months as the ‘other’ phone – the one carried around in a jacket pocket for business, while the iPhone sat in the executive’s other breast pocket.

But would BB10’s feature set have enough to it to entice consumers? Could it straddle that divide and leave an executive with a single phone in his pocket, as they did in RIM’s heyday of the mid 2000s? It’s doubtful.

There aren’t enough apps for the device. There won’t be at its (now) hypothetical launch in 2013. App developers choose Apple first, Android second (with some alternation between the two) and will now look to Windows Phone 8 as a third option (if even that).

If there is any market left for a ‘business first’ smartphone, Microsoft will get it. They will certainly have a good 6 month lead time on RIM, and a decent eco-system (not to mention a tie-in to the wider Microsoft product portfolio).

For those that maintain that BB7 tied to government contracts alongside high third world sales (and UK youth) will tide the company over until the BB10 launch – the market has already spoken.

RIM aren’t just selling less of their available devices (just 7.8 million in a quarter – Android sells one million a day) they’re making less from each sale. Its quarterly results showed a gross margin fall from 44% last year to just 28% today. I expect this to fall even further over the next year – RIM will need to position the device as a budget alternative – this generaton of technology is 2 years old. None of the BB7 devices hold a bar to even rudimentary Androids or the iPhone 3GS.

RIM has admitted it is effectively now operating its business from its cash reserves.

Thorsten Heins is now seen as a caretaker CEO before the company is split up and its assets sold. The layoff of 5000 staff, or 30% of the workforce, is more than likely to get the overheads down to make a sale more appealing to its many bidders.

Its handsets business is all but worthless, and will presumably be picked up for its patents.

Some analysts are maintaining that programs such as the popular data based messaging platform BlackBerry messenger might be able to be licensed out successfully. This is false. BlackBerry Messenger works because its tied to the physical keyboard on BB7s, within a closed eco-system.

iMessage on iPhone has already ripped this off for iPhones, as have third party apps such as WhatsApp. The same has happened on Android. That ship has sailed.

The BlackBerry Enterprise Server is also mooted as a high quality encryption service and a security standard for the industry. Again, the company has attempted to roll this out in some form with BlackBerry Mobile Fusion. But this is little more than a Mobile Device Management (MDM) platform, it doesn’t incorporate the BES. Apple won’t play ball. Neither will Google or Microsoft here. It is quite simply not in their interests to support a rival MDM.

In fact, you could argue that we have moved past the physical inhouse server based model altogether. Consumerisation will now be driven through the cloud, through MDM platforms based on software and existing in virtual networks, with software based encryption and security measures. No need to do it with onsite hardware.

RIM has no real presence in any of these cloud based areas. Much like its handset businesses, it is too far behind to catch up.

In a world where mobile operating systems are updated almost monthly, where the big players have bi-annual major hardware announcements, vicious cost cutting and huge competition, the BlackBerry brand is all but absent from any analyst’s future-speak.

Its only hope remains a buyout by a rival, which would presumably phase out the BlackBerry name in favour of its own branding and standards; i.e. Samsung or Microsoft – and apparently Amazon and Facebook have had a look. There’s a reason there aren’t any Alcatel, NEC or Siemens branded phones around anymore.

If RIM remains relying on large scale, multi-year public sector contracts, it will be lucky to survive. However, I would go so far as to say that any CIO or ICT buyer that is considering a RIM contract renewal, or long term contract proposal is borderline negligent.

This company may not exist in 18 months time.

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