Un-intelligent investing, Forbes again clueless about smartphones: wrong about RIM

I didn't intend this blog to become an anti-Forbes blog, but they have again published utter rubbish about smartphones. What is it with Forbes, and how clueless are they?

On October 1, 2009, on the column "Intelligent Investing" (sic), Darcy Travlos wrote about RIM (Blackberry) under the headline "Don't buy the RIM drip". Darcy lists four reasons why Blackberries are a risky play in smartphones for the near term. The four reasons are 1) when enterprises start top rehire, this will not necessarily mean they buy Blackberries to their new hires; 2) the employees want another smartphone, specifically the iPhone; as part of that second reason, Darcy argues that the applications on Apple's Apps Store will trump RIM's lock on enterprise customers who need the instant emails on their "Crakberries"; Third, Darcy says RIM is not innovating on the hardware side (and suggests Apple's iPhone or Palm's smartphones are innovative); and fourth, that RIM's strategy of pursuing lower cost smartphone customers leads to a price war that hurts margins. Oh, and then the conclusion is that RIM is headed for a Motorola-style destruction of its own market.

Fine. This is Darcy clueless Travlos's column and Forbes calls this "intelligent Investing". It is not founded on facts or any expert opinions by those who know the smartphone market. We are left to laugh at Darcy Travlos and Forbes. Cannot be good for their reputations.

Facts. Last year RIM/Blackberry had 16% market share in smartphones globally. They have grown that to 20% in the first half of 2009. They did this by increasing total revenues, increasing average sales prices, and increasing profits. All in a market where total mobile handset sales declined dramatically. Darcy Travlos is living in quite a fantasy land, if RIM is somehow failing in a market where they are number 2 and growing strong.

Facts. The original smartphone market worldwide was for enterprise/corporate ie business customers. RIM Blackberry is the gold standard for enterprise/business/corporate customers; in its own stratosphere, far far above number 2, Nokia E-Series and number 3, Windows Mobile based business/enterprise smartphones. Palm is a toy by comparison and Apple does not register in the enterprise/corporate market. Does NOT register. Not one percent of global enterprise/corporate smartphone subscribers. That market is owned by RIM, and its only viable rival today is Nokia E-Series smartphones, now with Windows Mobile in a tailspin.

Facts. The smartphone market has shifted away from enterprise/corporate/business oriented smartphones to consumer smartphones. That shift was not created by the iPhone, it was originated by Nokia years before we even heard of an iPhone. But today consumer-oriented smartphones form about two thirds of all smartphone sales. There the market leader is Nokia clearly, and the iPhone can only compete in this market segment. What has RIM done in the past 2 years? they expanded from one smartphone model to eight. Eight different smartphones! And of Darcy Travlos's personal opinion that this strategy has somehow backfired? Three of the 5 bestselling phones - not smartphones, phones - in the Christmas quarter of 2008 in the USA, were Blackberry models, including the number 1 bestselling phone. That Darcy Travlos happens to not like some Blackberry model as much as Darcy clearly loves the iPhone, does not reflect the reality of the market. Blackberries outsell iPhones by 50% worldwide now, in 2009, even with the uber-iPhone, the 3GS, and Apple's aggressive price cuts to its product line.

But let me address Darcy's four points directly. 1) when enterprises start top rehire, this will not necessarily mean they buy Blackberries to their new hires. First, if this is true, then it obviously hits all who hope to sell to the enterprise/corporate market including Noia E-Series, Windows Mobile and yes, if Darcy envisions iPhones somehow grabbing business/corporate/enterprise customers from iPhone. It is not a Blackberry-exclusive "problem". But to the degree that Blackberry has shifted to consumer-oriented phones, this is already addressed by RIM, prior to the economic crisis. So even if you buy Darcy's argument, it won't directly hurt RIM any more than any other makers.

But that is not the reality. We have evidence the world over, that users of smartphones are abandoning the use of laptops, and using only smartphones. Not by a majority of uses, but an ever increasing minority of PC users. As smartphones get ever better, and the netbooks ever smaller, thus the difference between the two also shrinks, the users increasingly prefer smartphones. Then we get corporate/enterprise cost equations. It is FAR cheaper to acquire, manage, maintain and secure a smartphone than a laptop. This is before we factor in such gains in productivity as users of PC based email expect a reply in 24 hours but users of phone based messaging expect a reply in 5 minutes. The productivity gains of smartphones are considerable and well known. What corporate/enterprise IT departments will be wanting to do, is to get rid of personal computers, in favor of smartphones. The gain will be MORE Blackberries sold, not less. Sorry Darcy, you do not understand the market you write about, in "intelligent investing".

2) the employees want another smartphone, specifically the iPhone. Haha, totally meaningless point. Darcy you are illustrating to all of yoru readers how ignorant you are of enterprise/corporate smartphones. It does not matter at all what some employees want. The typical corporate/enterprise customer who buys thousands of smartphones annually to its mid-managers, has a process for what phones (and their platforms, ie operating systems, and what approved applications) are approved for employees. They cannot go and pick and choose. Some senior VPs can do so, of course, but that is less than a percent of all who qualify for a company phone. No, the vast majority of employees get to select from a few handset models, on at best two operating systems neither of which is Apple OS/X, and one of which is in practically every case, Blackberry. The IT departments cannot accept the risk of disruption to the total company IT syste of unauthorized new systems, like an Apple OS/X on an iPhone, or say the Android system by Google. That is why corporate/enterprise sales is such a long process. Even with the world's best, most secure and enterprise/corporate (and highest level government) secure wireless system by Blackberry, it took them 5 years to reach a million users. This with by far, by FAR the most secure system, so secure that even President Obama - and institutions such as Nato - have been approved to use the Blackberry. No, it matters not one iota, if some employee loves some fashionable smartphone of this year. The IT departments will not accept the disruption. This second scenario will not matter one percent of all sales to enterprise/corporate custoemrs.

And the related part of that second reason, Darcy argues that the applications on Apple's Apps Store will trump RIM's lock on enterprise customers who need the instant emails on their "Crakberries". Again total misunderstanding. 70% of all iPhone apps are games. What business/enterprise corporate buyers do not want, is to buy a gaming platform for their employees. The Apps store may be a cool thing for tech writers to drool about, but enterprise/corporate customers will not be impressed with tens of thousands of games. Now, what Darcy Travlos seems to ignore, is that RIM has its own apps store, and a vast army of developers. Long before an apps store by anyone, RIM had applications to the Blackberry. Guess what, Darcy, those apps for the Blackberry? they tend to be predominantly business-oriented apps! f you think apps stores will matter in this decision, then it is RIM's apps store whcih will rule over Apple's when it comes to business/enterprise customers. You really don't know what you wrte about, do you Darcy? But don't you have enough professional training and ethics, to at least research your story?

And 3) Darcy says RIM is not innovating on the hardware side (and suggests Apple's iPhone or Palm's smartphones are innovative). Apple was truly innovative once, with its design, in 2007. Since then, Apple has been the copy-cat on the hardware side, copying ideas from for example Nokia. Now, has RIM been innovative? Yes, for example RIM has done what so many smartphone experts have been pleading Apple to do - to expand its product line (where is the iPhone Nano?). Apple did not invent the touch screen, and obviously if a touch screen is credited for Apple as an innovation then the touch screen on the Blackberry must also be an innovation, and yes, obviously, Apple's touch screen is better. That was not the point, it was who is innovative, not who was more effective in deploying some technology. But RIM was in fact very innovative, even more this year than last. For example they have released a set of services and apps pre-installed to the Blackberry devices to serve social networking needs, all the way from the PIM Blackberry messenger service to now a portfolio of pre-installed social networking services. Blackberry was the first smartphone maker to focus in this area, certainly an innovation. What it has resulted in, is that in countries as far apart as Venezuela and Indonesia, Blackberries are the bestselling smartphones for the youth market. The youth market! Apple did innovate in 2007. What have you done for me lately? But RIM has been innnovating in the smartphone space since 2001, and still doing so in 2009. Sorry, Darcy, you are plainly wrong on this count.

And 4), that RIM's strategy of pursuing lower cost smartphone customers leads to a price war that hurts margins. First, that the market shifting from high-end smartphones to lower cost smartphones, is not caused by RIM nor fuelled by RIM. That is a global trend reflecting the overall handset market, and is aggressively pursued by Nokia, whose smartphone sales monthly exceed Apple and RIM put together, by a wide margin. Either RIM reacts to the market, or misses it. The global market is inevitably moving in that direction. But again, Darcy, why do you not obseve the facts? What happened to the global handset market, the average selling prices of mobile phones from 2008 to today? the prices fell. What happend to the average prices of smartphones? They too fell.What happened to RIM average prices, from last year to now? They have gone up! While RIM has expanded sales, grabbed market share, on an annual basis, they have also grown their average prices, slightly. That goes totally against the trend. Darcy do you not read the numbers? Besides, if price cuts are a bad strategy, why do you glamorize the iPhone, Darcy Travlos? The original iPhone cost 600 dollars in its subsidised price in the USA, today the older iPhoen model sells for a hundred bucks subsidised? You cannot love the iPhone if price slashing is a suicide move leading the player to mimick Motorola?

So you conclude that this may be RIM following Motorola to total ruin.I beg to differ. I argue it is you, Darcy Travlos, with so sloppy reporting with such flimsy analysis and lack of studying even the simplest of the facts, that yoru career is following the disaster that is Motorola. But RIM? I cannot promise readers that Blackberry can continue to grow, and I cannot forecast if they are able to execute the shift in their focus from enterrpise/corporate to consumer markets in smartphones, and what the effects will be of given rivals to this market. One could do a serious analysis of what RIM is up to, and make an argument for or against. But your four "reasons" why RIM is now in trouble, Darcy, those four reasons are plainly wrong. The enterprise customers do want smartphones because they provide employee productivity gains far superior to those of using a laptop; enterprise custoemrs will not shift to the iPhone; apps stores of games will not trump RIM's own apps store of business applications; and where there is a shfit to lower cost smartphones, RIM is executing that transition even better than global market leader Nokia. No, Darcy, your four reasons are bogus. Your article is bogus. You are bogus.

Comments

[Phil Hodgen]

@Tomi,

I am not exactly clear on your opinion here. Could you amplify your thoughts? :-)

(He said, having driven home from soccer practice last night with two middle-school girls hunched over their Blackberry Curves, which are seen as a sign of cool in their circle.)

@philiphodgen

[Phil Hodgen]

Quick followup here which may be interesting to you. I remember you posted a while ago about the Nokia Communicator and its adoption among teenagers.

The same thing is happening with the two girls I took home last night. My daughter had my old Curve, and her friend had her mother's old Curve. That's what I see among the teenage set. Yes, they all want iPhones too. But they like the Curves.

Same adoption path for Blackberry that you noted in Nokia's case? Maybe.

[Jason Bowers]

You're still addressing the software issue with blinders on. Where's the robust SDK for Blackberry? Where's the API for external devices? It is ridiculous to say the iPhone hasn't innovated since 2007. It's on the third version of the OS, which works on all models released thus far... Software is innovation, it is a difference maker and as long as you keep pretending it's not you're going to be keeping your head in the sand. Don't forget mindshare/momentum. (Watch using percentages Tomi, 30% of 85,000 is over 25,000 non-game applications...significantly more than are available to Blackberry users.)

[Jason Bowers]

You're right about the Forbes article, pure drivel.

[Tomi Ahonen]

Hi Phil and Jason

Great comments, thanks. Will reply to both, and your two comments each, individually here.

Phil, first comment - haha.. not clear enough haha?

Phil, second comment - yeah, very good observation and I am seeing that repeating all around the world. There are the hand-me-down Blackberries that are being snapped up by teenager kids of their parents, and the Blackberry is becoming the phone they ask for by name. Used to be that the weird form factor, extra-wide Blackberry style, was undesirable. Now its the new cool and because it is that good at text entry, it is the preferred phone for Generation C ie Community Generation...

Jason - good points and note, that I was not writing about the future of smartphones, I was answering the faulty reporting or faulty analysis actually, of Forbes. i did not select the topic nor the items to cover, it was Forbes, and they strongly focused on the hardware issues. I have promised my next blog story about smartphone realities, and will get it done some day when I have a bit of time haha, but I do not forget the software side. However, today and next year 2010, for any smartphone maker, they will get the vast majority of their income from hardware (handset) sales, not from software/services sales, not even Nokia, which leads in monetizing apps and services, is going to be anywhere near half point by end of next year, in a shift from smartphones to software - but all handset makers are in that journey, definitely. I agree with you on it.

On Apple non-game apps vs Blackberry. Here is a giant difference. The vast majority of Blackberry apps are business-focused, "vertical" apps as needed in enterprise/corporate segment - ie the healthcare industry has very different needs from the banking industry or government or retail or shipping etc. Apple has very few verticals, and where they do, these tend to be those who are Apple/Macintosh -obsessed ie advertising and media industries. Almost all Apple iPhone non-game apps are mass market consumer apps, not business/enterprise/corporate or government-oriented apps... But Blackberry for understandable reasons, nearly twice the installed base and vast predominance in enterprise/corporate customer base, their majority of apps are focused for these vertical needs.

Jason - second comment, haha, thanks.

Thank you for writing

Tomi Ahonen :-)

[ounkeo]

Great article as always Tomi.

On the apps front as commented by Jason. You know I get so impatient with this notion that having 75k or 85k apps is somehow a magic panecea for mobile phones. I picked up the N97 and I spent a month just downloading and installing apps that predominant were not junk... imagine trying to sort and sift through 75k apps. At a certain point it becomes unusable and becomes a complete turn off. The vast majority of "apps" for the iphone are complete and utter junk covered with pretty UI.

Do the applications for your device serve your needs? Are there enough to cover the weak spots on your device? are there enough to push your device beyond its out of box state? If the answer is yes, then the difference between 1000 apps and 75,000 apps is meaningless. My E71 only ever needed about 10 apps that keeps it competitive. Havign 1000 apps for it becomes meaningless. My N97 needs double the apps to keep it competitive and in many ways, with far fewer apps selections, can be pushed and be more usable than the iPhone with its 75k apps.

The US media tends to get so caught up by large numerics (all just marketing)that this simple fact completely eludes them and they somehow think that having 1000cents is more robust than having $100 because 1000cents has more zeros. And along with that lack of perspective, their reporting also suffers complete tunnel vision.

[pk de cville]

85,000 apps appears to be 'impressive' but misleading.....

Not if you talk to developers. 1000s of developers say this:

Developing for the iPhone is incredibly easier, cheaper, and more profitable than any other mobile.

How do we know this to be true? 85,000 apps say it's true.

Want custom vertical apps in the enterprise? Let's check out custom development in say, a year. There will be 1000s of custom iPhone verticals shipped by then. Reports of low development costs and high quality apps will get around.

It's Apple's game to win; The others are playing catch up defense.

[kevin]

If we all were alike, then yeah 1000 apps would be more than enough. And the other 85000 would be meaningless. But thank God, we aren't all the same ...

And the fact that there are 86000 iPhone apps with many apps covering the same functionality, means that there are developers out there who are trying to do better than what is already there. That's how innovations take hold. In your scenario, we'd all be "locked-in" to the same 1000 apps because there's no one out there trying to radically improve on them.

[HCE]

Been lurking for a while but this latest round of Apple-bashing prompted me to post. To say that Apple has not innovated since 2007 is ridiculous. Then you go ahead and list RIM's innovations as introducing more models and bundling social networking software with the phone!! The way I see it, Apple has introduced three game-changing innovations in the mobile space.

1. Multi-touch and the gesture-base UI - This made the phone incredibly easy to use - and ease of use isn't just one innovation. It pretty much gets people to use all your other features. No matter how innovative a feature, people will not use it if it is stuck behind a hard-to-use UI. Now, multi-touch gesture-based interfaces are dime-a-dozen so it is easy to forget that they did not exist until the original iPhone.

2. WebKit - It is true that most of the work on this was done (for the Apple desktop platform) quite a while before the iPhone was released. It is also true that Nokia deserves some credit here for being the first to port WebKit to their mobile platform and that Apple didn't build it from scratch but rather started with the KHTML rendering engine. However Apple took a promising but incomplete piece of software and turned it into what it is today. At this time WebKit is the pre-eminent mobile browser. Nokia, Palm and Android all use it and (with the recent acquisition of Torch Mobile) it is probably only a matter of time before RIM starts using it as well. Once that happens, the only mobile OS that won't use WebKit will be WinMo.

3. The whole App Store model. It has been such a success that pretty much everyone else is copying this model.

The first two innovations listed above were, of course, from 2007 or before. The last was introduced in 2008. The next big thing, IMHO, will be the API for communicating with external devices. Pretty soon, we will see a ton of external hardware devices accessories that pair with the iPhone and iPod touch.

One final nitpick - you may way that Apple is not an innovator because many of the things I listed above were not actually invented by Apple. However, recognizing the potential in some technology and improving it to the point where it actually is usable and useful is, in my opinion, another form of innovation. This is what Apple excels at.

All of that said, I am not going to predict that Apple is going to kill everyone and dominate smartphones. I agree with you that the article is brain-dead. However, you don't need to bash Apple (or any other company) in order to criticize the article.

- HCE

[Tim Harrap]

Who's on the radar?
http://www.google.com/insights/search/#q=iphone%2CBlackBerry&cmpt=q

[arabyana]

Thank you for the great post.

http://arabyana.com
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http://food.fatakat.com

[Pavlo Zahozhenko]

hanks for the article, it was an interesting read!

I think the best RIM can do is to push its devices aggressively to low-end and mid-end smartphone markets around the world. Blackberry OS itself is suited for this task, as it can work fast on relatively weak hardware and offer good battery life. However, to achieve this RIM should either deeply discount BIS for operators or change its email architecture altogether (making it less centralized).
Surely, RIM's main competitor in low-end and mid-end smartphone market will be Nokia with its Symbian OS, maybe Android will join the battle for mid-end market later on.

What I'm unsure of is whether RIM will stay relevant in high-end smartphone market in the long term. This conclusion comes from Blackberry OS architecture: it cannot adapt to new hardware as fast as the competitors, especially those based on Linux kernel, and its application development platform is not on par with modern mobile app dev platform like iPhone SDK, Android SDK, Palm WebOS SDK or upcoming Qt for Maemo and Symbian OS. Thus, RIM should either adopt or develop new OS for its high-end offerings, or it will lose high-end smartphone market share, slowly but steadily. Not that this is that much of a problem, as the lion share of money lies in low- and mid-end markets, but the high-end market is very prestigious, it is what determines company technological excellence and brand recognition, so I'm sure it will be better for RIM to stay in this market as long as possible.

[Tomi Ahonen]

Hi ounkeo, pk, kevin, HCE, Tim, arabyana nand Pavlo

Thank you for the comments. I have been very busily travelling and unable to post much. I will do a major blog posting today at the opposite end of the industry, far far removed from smartphones haha, about the Gambia, I think you all will enjoy the blog article. I will then return here later, hopefully still by tomorrow, to answer. I will of course reply to each comment individually as usual. Thank you for commenting, don't go away haha..

Tomi Ahonen :-)

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