This is part 4 in the Form Book of the smartphone battles of 2012. I am proceeding in order starting from the biggest and have done so far Samsung, Apple and Nokia. Today we look at the 4th largest smartphone maker: RIM the maker of the Blackberry. And the word for RIM in 2012 is.. Deathwatch.
I do love Blackberry. Regular readers of this blog know that I am a passionate user of SMS and am notorious for massive Twitterfloods and do all sorts of online activity from my smartphones including blogging. So I love my QWERTY keyboards. And I have cheered the Blackberry on, on this blog and elsewhere. But somehow last year the wheels came off the Blackberry train. Now the Canadian brand is on dire straights.
Lets first clear something. A myth. And for this we have to go back just a little bit. The conventional wisdom - repeated ad nauseum by most so-called 'experts' is that the Blackberry was killed by the iPhone. That sounds very reasonable. The Blackberry was big and growing. Then along came the iPhone and now the Blackberry is on its deathbed. Yep. That sounds reasonable, until you examine the facts just a little bit more closely.
The iPhone launched in the summer of 2007. I pointed out in my Apple Form Book article that the iPhone has had two stages in its four-year life span. The first two years to 2009 the iPhone grew dramatically, setting a world record in fact in how fast a new smartphone brand was gobbling up market share. Then since 2009 the iPhone market share stalled and has essentially plateau'ed. So far so good. Now, if the iPhone killed the Blackberry, we should see a big decline in RIM's market share from 2007 to 2009, right? Lets go to the evidence. In 2006 before there was an iPhone, Blackberry had 7% market share in smartphones globally. That GREW in 2007 and GREW in 2008 and GREW in 2009 up to 20% market share. So while iPhone grew market share - so did Blackberry! And then when Apple stopped growing market share, THAT is when Blackberry started to fall in 2010 to 15% and now for 2011 RIM will have something like 11% for the full year.
It was not the iPhone that killed Blackberry, it was something else. And how could the iPhone kill the Blackberry - the Blackberry was a business-oriented smartphone while the iPhone was a consumer-oriented smartphone. The Blackberry had a QWERTY keyboard with on touch screen and the iPhone had a touch screen with no QWERTY keyboard. The iPhone was ultra cool and sexy, the Blackberry was about as ugly as a phone could be. The iPhone was a design classic and object of desire. The Blackberry was an utilitarian tool. The iPhone worked with pre-installed apps (remember early on there was no App Store) while the Blackberry required access to Blackberry's secure messaging server. If the iPhone was from Venus, the Blackberry was from Mars. No, it was not the iPhone that killed the Blackberry.
What happened in 2010? Android is what happened in 2010. HTC and Samsung and Motorola and LG and SonyEricsson etc etc etc came with smartphones - very many of those with QWERTY slider keyboards too. Android killed the Blackberry (just like it was Android that stalled the growth of the iPhone market share).
So please do not write that Tomi, its obvious that the iPhone killed the Blackberry, that is why Blackberry cannot survive unless it copies Apple blah-blah-blah.
WHAT IS THE MATTER
A few years ago, it seemed that the Blackberry was truly immune to any kind of assault from any smartphone rival. A survey as late as 2009 by Ostermann found that 75% of US business/enterprise users with smartphones had Blackberries. As the enterprise type of customer would need to do IT integration and would typically be concerned about security matters, once you have your platform installed at one company, it is not easily replaced. That customer base was very 'safe' for Blackberry. Most companies did not want to introduce risks from un-approved smartphones so the IT departments would insist that only approved smartphones were used - and especially in the USA that meant Blackberries. TBI research also in 2009 found that 80% of US business/enterprise customers insisted on using only one smartphone platform - again this was by a wide margin Blackberry.
The nice thing about business/enterprise customers is, that you don't need to sell to them every quarter as the fashions change. The negotiations might happen once per year, more likely only once every few years. So this was a particularly steady, reliable stream of business for RIM.
But the smartphone market was shifting away from business/enterprise type of smartphones to consumer-oriented smarpthones (a trend started by Nokia and its N-Series, but exemplified especially in the severely lagging USA smartphone market, by the iPhone). RIM could hold onto a reliable repeat customer base but wasn't able to capture the growth that was now happening on the consumer side.
And then something wonderful happened on the way to Waterloo. The SMS-crazed youth discovered the Blackberry. Some probably received older Blackberry models as hand-me-downs from parents who had them from work, and because of the QWERTY keyboard, the Blackberry found instant affection. The utility trumped any worry about the outwardly appearance being 'uncool' and like a boring businessman's phone. Then came the discovery of BBM. Most teens struggle with their calls and messages allowances. But using Blackberry Messenger, any short messages between any two Blackberries were completely free. That seemed like free SMS.
The perfect answer to the budget problem of a youth's telephone bill. And when the cool kids in class got Blackberries, of course they formed a messaging clique that only sent BBM messages between each other. If you wanted the cool kids to communicate with you, you could not ask them to pay for messages and send you SMS texts. You had to beg your parents to get you a Blackberry, so that you too could have use BBM.
Blackberry caught a youth wave of smartphones. Its no surprise that a Canadian survey of university students in 2008 found that 95% of them had a Blackberry, that being RIM's home country. Perhaps more surprising was a 2010 survey by Phones for U that 75% of all UK youths between ages 16 to 24 had a Blackberry! Similar data is coming in from all over. I was just in South Africa last month and we had a youth panel at the conference. When the youth panel was asked what they think of an iPhone, they said its nice, they could consider it as the second phone, but its quite expensive. Obviously for all the primary phone was a Blackberry.
What more could you ask for? You own the corporate/enterprise customers on long-term locked contracts of fleets of phones, and you have captured the vast majority of the youth segment - the key to long-term business. If the global average for replacing smartphones is 11.5 months now, for the youth its far less than that. Ideal!
And there is a third wave in mobile. The shift to the Emerging World markets. China has just taken over from the USA as the biggest single country market for smartphones and in 2011 for the first time more smartphones were sold in the Emerging World countries than in the Industrialized World countries. The markets of China, India, Indonesia, Brazil, Mexico, Russia, Pakistan, Egypt, Vietnam etc are all craving for more mobile phones and increasingly those are smartphones. And the astonishing facts are from very many of them that the Blackberry is one of the bestselling smarpthone brands, in many of those countries like Indonesia and India - the preferred smartphone brand totally dominating the iPhone or Androids, rivalled only by (now obsolescent) Nokia Symbian smartphones (often also with QWERTY keyboards).
It seems like RIM has caught the right waves. Why is it then, that their sales are cratering? First, the economic downturn hit Blackberries. When the business enterprises had to cut costs, they would postpone purchases of not vital technology. If you already had a smartphone, and normally they might replace it in 2 years, now because of the global economic crisis, that was postponed perhaps to 3 years (or until you lost your phone or it broke). Replacing phones with newer models was not mission-critical for most business users.
Then along came the App Store. Suddenly all sorts of apps started to appear especially on the iPhone, especially in English (USA being Blackberry's strongest business/enterprise market) and soon offering similar functionality to the very expensive business apps that existed for the Blackberry. As the Marketing Departments started to insist on iPhones, the dam was broken that many IT departments held that 'only one smartphone platform' would be tolerated. Many brought their personal phones to work and used them even without the knowledge of the bosses.
Meanwhile Facebook happened, YouTube happened, Twitter happened and Angry Birds happened and there were plenty of reasons why employees really wanted to have modern touch-screen and large-screen smartphones, rather than the Blackberry. And many companies started to make the rules less strict about what smartphones were allowed. This eroded further new sales of Blackberries to the enterprise market.
The far worse phenomenon was BBM. The Blackberry Messenger service was the 'killer app' for the youth to want to have a Blackberry. It very soon became the 'must have' device. But BBM works on any old Blackberry. As the Blackberry was not usually cutting edge on most other features from screen size and touch screen to camera resolution etc - where the youth would often have two phones, they would make their 'other' phone the one with all the hot tech. The old Blackberry was just fine for BBM (and SMS with those people who didn't have a Blackberry). And thus the youth could buy iPhones and Androids but hold onto older Blackberries. RIM could not capitalize on the rapid replacement cycle of their passionate customers, in fact, the youth would delay replacing Blackberries.
And for the Emerging World market? Apart from China, the other Emerging World countries tend to have very modest or truly tiny smartphone markets (while growing fast). So their cumulative size (apart from China) is not enough to compensate for losses in North American and European sales. And why China is different? Chinese carriers/operators did not like the Blackberry for all sorts of reasons (bypassing SMS revenues as one, Blackberry's extremely powerful security another). So the market share of RIM in China was miniscule.
This was all before we take the Chinaberries, cheap knock-off clones from China that look like Blackberries that are flooding markets from India to Indonesia. Then we have lots of smartphones that are pretty good Blackberry clones from the Nokia E-Series to African brand Mi-Phone which tend to sell at prices well below the Blackberry.
Meanwhile RIM introduced its first touch screen models to considerable market disappointment. RIM is losing in the consumer apps races especially to Android and the iPhone. And it is developing a new OS which is not shipping on its initial schedule but is severely delayed. Meanwhile RIM for some bizarre reason took its eyes off the ball, and went on a silly tech detour to try to sell tablet PCs which cost RIM focus, marketing effort and ended up hurting profitablity. And to try to keep profits in control, RIM then cut vast amounts of staff, unfortunately exactly at the time they were desperately needed to capitalize on the one-time global customer give-away that Nokia gave as a gift to its rivals in 2011, with the Elop Effect. Where Samsung and Apple and SonyEricsson and Motorola etc all benefitted greatly from Nokia's abandoned smartphone customer base, RIM failed miserably in capturing any of them. The sad fact is, that almost any ex-Nokia E-Series user should have naturally gone to Blackberry.
Incidentially the little blessing that RIM had, was that Apple didn't release a QWERTY variant of the iPhone. That would probably have killed off RIM in 2011.
So what do I see for 2012? Its really all bad news. The shift away from single-OS clients at enterprise customers is continuing. Many more enterprise/corporate customers are now implementing 'bring your own phone' policies so that their employees may use their own phones. And the lock that the IT departments had is very widely broken already so Blackberry is getting ever less return business from its primary USA customer base. The consumer users in the USA have long since shifted away from Blackberry.
With the youth, the same holds. The three-year old Blackberry works just fine with BBM. No need to buy a newer, but still under-spec'ed smartphone from RIM when much sexier phones are available from HTC and Samsung and Apple and SonyEricsson etc. And what growth can be found in the Emerging World is so slight in the big picture, that it won't even stabilize the loss from the US and European markets.
That is before we count the numerous countries that challenge RIM's security systems and threaten blocking all Blackberries. So many users and enterprise customers fear that having Blackberries might be a risk of being shut off some day. This is particularly true in countries which are not democratic. And finally, the big global Blackberry shut-down last year for several days, which hurt the trust in Blackberry's 'secure' systems probably irretrievably.
I do think that the new OS for Blackberry will come too late. The Blackberry has high loyalty and satisfaction on business users and apps, and with the youth market but neither of those will replace existing Blackberries with anywhere near global replacement cycle speeds. And now the growth is elsewhere. The businesses and youth already have smarpthones, its more mainstream family users who now are getting smarpthones. And they are not falling in love with the quirky and indeed ugly-looking Blackberries with their tiny screen sizes and modest cameras (and relatively high prices).
That is why I say deathwatch. I am afraid that the news for RIM will continue to be grim all year, the share price will continue to plummet. We already heard that there were several companies that considered buying RIM and as the share price falls, more interested ones will emerge. I do expect that RIM is next to be sold (before Nokia even, because RIM is a simpler company in terms of products, and is smaller and less costly to buy).
Who would buy RIM and why? I could very well see any company that sees its main business in the enterprise/business area of IT to think that Blackberry could be a great fit, so think Dell, Lenovo (and would have been perhaps HP had it not bought Palm). Yes, Microsoft definitely before it jumped into bed with Nokia but equally not now, would be foolish. Perhaps an Intel or someone like that. Could also be some handset maker who wanted the brand and sales organization - perhaps for a ZTE or Huawei etc as a kind of premium brand. I think the prudent buyer values the youth market and Emerging World market far ahead of the enterprise clients but I am afraid it will be sold to some IT company who thinks the synergies with IT for business customers will be worth it (like maybe a Lenovo). That to me is the lesser opportunity in RIM.
But I will truly be surprised if RIM survives this year as an independent company to 2013. Ok, we've done Samsung, Apple, Nokia and RIM. Next up, HTC. Coming later Google, Microsoft, Sony..