Great Analysis by Michael Mace, yet is Completely Not Relevant to RIM ie Blackberry

(oops, looks like this week is the debate week for me, yesterday we did a friendly give-and-take with Robert Scoble, today I am picking a fight with Michael Mace, who is next, tomorrow haha..)

Yes, regularly read the Mobile Opportunity blog where Michael Mace keeps his home. And a few days ago he had a great article with tremendous insights he has gained, over the years, in how platforms die. He applied that analysis to RIM (maker of the Blackberry) and came to the conclusion that RIM was in deep trouble. His methodology is sound, his evidence is compelling. And his article is truly worth reading, just to gain new insights into what to look for when platforms we see around us, do begin to die (including many operating systems for smartphones, I am certain they will follow the patterns Michael illustrates in his detailed blog article).

The problem is, that Michael is doing analysis on an incomplete view to RIM and the smartphone market, from an obsolete market view - yes, you guessed it, from a laggard-market US focus. He applies his thinking on the basis, that the US market today is reflective of how RIM is doing globally, and how RIM will do in the near future worldwide. That could be plausible, were the evidence of the non-US performance of RIM not so drastically different - and against all the evidence Michael provides too!

GOTTA UNDERSTAND WHERE WE CAME FROM

Here is the relevant history. RIM launched its inconic email smartphone, the Blackberry in 2001. It strugged to make any sales, as it focused on the enterprise market where the sales cycles are very long. They slowly convinced customers in North America that the 'crackberry' was the most efficient management emailing tool, and built a loyal user base. Still in 2006, the prevailing Blackberry models were using black-and-white screens and didn't have in-built cameras. They were typical North American smartphones of modest cost (compared to far more advanced consumer-oriented smartphones in Europe) and typically the Blackberry of the time was not on 3G, did not have WiFi, did not have a color screen, did not have bluetooth, a media player, etc. Meanwhile a top Nokia phone in 2006, like the N93, had a 3 megapixel cameraphone, and the second forward-facing camera for video calls, recorded near-DVD quality video, had TV-out, 3G, WiFi, bluetooth, etc. And where the Blackberry's real cost was about 300 US dollars (if sold without contract) the Nokia N93 cost 1,200 dollars without contract.. This was obviously before the iPhone.

The US market for smartphones was for all practical purposes in 2006, a market for enterprise/business phones, and most US based analysts were certain that Americans would not be willing to buy 500 dollar or more expensive smartphones (like Europeans were buying) for consumer use. And the US carriers further insisted that any European smartphones brought to the US shores, had their WiFi and bluetooth etc connectivity blocked by the manufacturer, else the carriers would not sell the devices. Which is why most Nokia premium consumer smartphones of the time were never introduced to the US market.

The Blackberry strategy at the time was sound. They were building a loyal customer base - among enterprise/corporate buyers - with their super-secure servers and their remote control of any lost Blackberries, which could be de-activated at a distance, by the IT departments fearing any intrusions to the IT systems by outsiders. But enterprise/corporate business phone buyers - those who buy thousands of phones at one go, any given year, for the Fortune 500 sized companies - did not want to give toys to their executives, by subsidising expensive digital cameras, MP3 players, etc on their employee phones (at the time). So RIM was not in a hurry to install consumer items to their business phones. It wasn't until around 2006, that RIM started with their first cameras, color screens and media players. The full line wasn't 'modern' and media-oriented until 2008.

While RIM was eager to expand abroad, they found it very difficult to sell Blacberries as business phones in any other international markets except Latin America.

But a funny thing happened on the way to the Blackberry bush. Indonesia. Suddenly the gossip was, that in Indonesia, Blackberry's best market outside of the Americas, the Blackberry was a sudden hit sensation. And then, when RIM execs went over to study why, they found that the youth of Indonesia was adopting the Berry. So much so, that there were already 'Chinaberries' in Indonesia, knock-off cheap Blackberry clones, from China. It was not that the business enterprise/corporate users in Indonesia had fallen for the Blackberry. It was that consumers, specifically texting-mad youth, had taken to the Blackberry. Note, that this could not have been possible, if the Blackberry had still been the typical enterprise-oriented monochrome screen non-cameraphone non-media player business-only emailing smartphone. The Blackberries selling in Indonesia were all the new consumer-oriented QWERTY phones that Blackberry had introduced.

Globally there was a dramatic shift going on, that started well before the iPhone came along, of smartphones shifting from enterprise/corporate use, to the far bigger consumer market. Blackberry had introduced the right phone at the right time. But its secret sauce was not the QWERTY keypad which any cheap handset maker could copy - Blackberry's magic is the Blackberry messenger. The users of the Blackberries could send free messages between Blackberry users (on any networks, in any country even).

I have been reporting on this site the same trend in a bizarre array of random countries of the world. Blackberry is the most popular phone, not smartphone, any phone, in Venezuela. Its the most popular smartphone - in Nokia's backyard of Africa - the most popular smartphone of South Africa. Its the most popular smartphone in Thailand, in Botswana, in the Philippines. Its a runaway hit in India (also with many Blackberry clone QWERTY phones). In Europe it has passed the iPhone in the youth segment as the most desired phone, and today British youth have a name for their Blackberry "BB" texting habit - they call it 'feeding the BeeBee' (or others say, 'feeding the Baby').

BACK HOME IN NORTH AMERICA

While this was going on, the US market discovered smartphones for consumers, thanks to the iPhone in 2007. Then all major smartphone makers either rapidly shifted from enterprise phones to consumers phones (like Motorola) or died (like Palm). The analysts did not get this, and the analysts were for example encouraging Motorola to launch enterprise-oriented smartphone the Android system, or encouraging Microsoft to emphasize Phone 7 to be enterprise-oriented (both would have been disasterous mistakes of obsolete thinking). Meanwhile, in their home press, RIM was regularly ridiculed for 'having missed the boat' in not launching touch screen Blackberries fast enough, because the US analysts mistakenly felt that QWERTY keypads were the old and vanishing form factor, and touch screens the inevitable future form factor (when still today more QWERTY phones sell than touch screens). Then, when RIM finally did launch a touch device, their Blackberry Torch was next ridiculed for being a supremely bad smartphone. Inspite of that, the Blackberry has been the best-selling smartphone every quarter for most of the decade in the USA, up to now, the Q3 of 2010, when Apple's iPhone finally passed Blackberry sales in the USA. Even for that quarter, Blackberry still grew sales in the USA (but this being Apple's best quarter, they leapfrogged RIM in Q3)

What almost all analysts fail to mention when discussing Blackberry or RIM, is that it has shifted its primary customer base beyond enterprise/corporate users, and today sell the majority of Blackberry devices to consumers - and that simultaneously RIM has shifted its market focus away from the USA, and today sells 6 out of every 10 Blackberries outside of the USA.

And look at RIM's innovations! Apart from their visible migration to touch screens, did you notice that RIM is connecting to all sorts of social networks on their smartphones. That they pre-install rock music on selected phones. That they have created a social network for their users even. This is all lost under the horizon, by those who obsess about touch screens. Silly. There are more than one acceptable form factor for phones and I have told you before, if you can text blindly with your phone in your pocket, it can save your life. I challenge most iPhone users to do that! But I reported on the middle-aged lady in Mexico who did that with her Blackberry last year in that airline hijacking incident.

That brings us to today. American analysts are obsessed with a diminishing minor segment of smartphones, because only in North America anymore, are enterprise-corporate-business oriented smartphones a significant slice of the pie. Globally the consumer segment is more than twice as big. Outside of the USA its nearly 3 times as big. But in North America, still nearly half of all smartphones are sold as employee phones.

So I can fully understand that Michael Mace did his analysis, and like I said, his analysis is sound, and his data is sound. Except that he ignored the majority of RIM's current market and all of its growth market. Its like doing a survey of pregnant ladies, and finding that they are not a good market for whisky sales (even if some have been drinking whisky before they got pregnant) - when the majority of whisky sales is men - who cannot ever even get pregnant. So yes, Michael, I loved your analysis, but its pointless to the analysis of RIM today. The conclusions Michael draws, are not sound.

My analysis of the new smartphones sold for the full year 2009 in the US domestic market, had the market split like this: in the enteprise/corpoate/business phone market, RIM had 64%. Of the consumer/residential market, RIM had 38%. While that has changed a lot now in 2010, due to the rapid growth of Android smartphones, that basic split is important to understand. In North America, and North America alone, RIM is equivalent to 'business phone' and similarly 'business phone' is equivalent to 'Blackberry' as Changewave reported that RIM had 74% of all business smartphones in the USA, in 2009.

BLACKBERRY NOT AS POPULAR AS iPHONE OR ANDROID

This is a completely 'duh' type of a finding by Nielsen rankings. Most Blackberries in use in the USA, were not selected or bought by their users. They were given as corporate/enterprise/business 'employee' phones. Therefore, some like them and some do not. Almost no industry gives iPhones or Androids as free company phones (yes yes, some ad agencies do, but almost no other Fortune 500 companies have an iPhone as a standard employee phone given to employees, if they allow iPhones, it has to be the employee's own phone). So essentially all iPhones in use in the USA, were personally selected by the phone owner. There is actually a scarsity of iPhones in America, as its not available on 3 of the 4 big networks, so you have to go through some degree of hassle to get one (only available on AT&T). Of course the user satisfaction is going to be far better for an iPhone that you wanted and bought and perhaps had to go to a rival network to get, than the 'tool' you get from work, that your boss pushes work at you over the weekends and on business trips.

I completely agree that the Nielsen finding is valid. For the average sample of US consumers who happen to have a smartphone, the Blackberry will score very poorly, because many who have a Blackberry did not select that phone for themselves. And the reverse is true of the iPhone. No problem here.

The interesting part is, what of those who did select the Blackberry. Where do we have studies of that? Would Michael think differently of the chances, if he remembered the Canadian university study, by which of university students in Canada, 90% have a Blackberry - and yes only 1 out of 10 university students has any other brand or type of phone, smart or dumb. This is in line with UK youth addiction to Blackberry or Indonesia or South Africa or Venezuela. The Motorola study earlier this year, which said that a third of total consumers will not consider a smartphone that doesn't have a QWERTY keypad! A third! For all the love he has of the platform of the iPhone or Android taking over the world supposedly, and Blackberry being in trouble - well, the iPhone cannot touch that third of the population who want a QWERTY. Its a safe market where RIM gets to split with only selected pure-QWERTY or hybrid-QWERTY+Touch ie slider/folder QWERTY smartphones. It kind of changes the equation, doesn't it Michael?

YOUTH AND MESSAGING

Here is the point. Studies the world over now prove that all youth, when they hit about age 15-16-17, will take to SMS text messaging with a vengeance. They average over 100 SMS per day (yes, American youth included). Then comes the QWERTY- the Blackberry is the easiest phone to type messages fast and blindly, single-handedly. Then comes Blackberry's secret sauce, the instant messenger. The cool kids get Blackberries. Suddenly they start to optimize their messaging traffic away from SMS to Blackberry messenger between the other cool kids. If you want to hang around with the cool gang, you have to get a Blackberry, else you will be digitally excluded! Digi-dissed. You've gotta have your BFF on the BB.

Now, is this sustainable? Youth are fickle. Others will try to steal this market too. There are tons of low-cost QWERTY phones (and for some bizarre reason, Microsoft, who had the perfect tool for this market segment, the Kin phones, abandoned it even before trying). And there are many free messenger services for phones. But today, Michael, if you look at the growth of RIM, they are indeed losing some sales of enterprise/corporate/business users in North America - but the stats prove, that RIM is more than making up for that loss, with new, consumer customers abroad! Vastly bigger market, and often utterly devoid of competitors. In the near term, I would say RIM is very safe. If you are the 'must have' phone (and service) for the youth of 2010, you may well have their loyalty well into the middle of the decade - a time when a random iPhone 8 or Nokia N12 or Samsung Galaxy Z or whatever may not be the hottest phone of the day. If the youth are addicted not to the device - but the circle of friends, all using their exclusive messenger service, that is a stronger level of loyalty than a Nielsen survey.

Do not be surprised that RIM will report solid smartphone sales growth later this week, and again in the first quarter of 2011, and in the second quarter of 2011, and so forth. I am monitoring this smartphones bloodbath, and the giant player who has the safest path to growth is - and continues to be - Blackberry, because of their focus on the youth segment who are getting their first smartphones (in mostly the Emerging World markets where all the big growth is in telecoms).

Sorry, Michael. Good analysis on how platforms die, but not relevant to RIM today.

UPDATE 1 - RIM is going to do quarterly results this week, I will of course analyze those. For those who want instant Tomi commentary, my Twitter feed is of course @tomiahonen

UPDATE 2 - I have just on Wednesday released my 10th book. The 340 page book is entitled 'The Insider's Guide to Mobile' and the best part is, that you can read it now. Its the first time one of my books is made totally free, as an eBook download. For more see link Tomi 10th book.

Comments

[Yuri]

Great article, Tomi! I enjoyed reading Michael's story about the BlackBerry Torch (not buying one :-), but your analysis is an eye-opener.

[Jason Bowers]

Could you address some of the data about units per new subscriber? Average selling price? Is you're position they're good for the next 3 years on the developing world business? I read both his piece and your response, but you don't really address his analysis. I was half expecting you to bring up the amazing success of mobile advertising for snow tires again.

[Bob Shaw]

The divergent reasons for success of a product in different geographies presents a big challenge to business analyst. As smart phone incorporates more and more features, it increasingly becomes a convergent device that is able to perform multiple functions that are at present either separately performed by many devices or not performed at all. The business analyst will have to develop a good understanding of what jobs people are trying to get done with a purchase of a smart phone in different geographies as part of their assessment of the product or company.

[Hantu13]

"The business analyst will have to develop a good understanding of what jobs people are trying to get done with a purchase of a smart phone in different geographies as part of their assessment of the product or company."

True. However, disruptive technologies like modern, true web-enabled smartphones (think iPhone, Android or high end Nokia device) fundamentally alter user behavior and create new patterns. The ripples from the iphone pebble are still spreading.

I think it's a mistake to think that users will continue to value the ability to text very quickly above other features like- a true, fast web browser or the ability to load apps or an excellent media player.

SMS established itself when users had no other universal, ubiquitous communication system other than voice, which was expensive and intrusive. It has to compete with all of the web technologies as the smartphone market continues to grow. This is simply not the same battle.

Focusing on super-texting phones will force RIM to compete in a high volume, low margin space that the company is simply not set up for and cannot win. In order to stay a high-margin, high growth company, RIM must compete with Apple and the Android makers at the top of the market, and the signs here are ominous as Mace points out.

Tomi is right that most people don't select Blackberries, they are given them or forced to buy them by corporate IT. However, many large Fortune 500 companies are starting to get out of the business of providing handsets (Standard Chartered Bank, Credit Suisse, Bank of America- 3 of the largest banks in the world and 3 huge customers for RIM announced this recently) and will allow users to select their own.

RIM is in trouble, and their CEO's performance at the Wall St. Journal's conference isn't confidence inspiring. http://kara.allthingsd.com/20101213/d-dive-into-mobile-the-full-interview-video-of-rims-mike-lazaridis/

[belstaff jacets]

good post and thanks for share with us

[kevin]

Tomi, I'm afraid you're gonna be shown to be wrong again, maybe not in the next quarter but in the next year. RIM could most certainly dominate the physical keyboard messaging phone segment, but the ASP and thus, margins, for those phones is dropping fast. RIM's touchscreen phones, which started with the Storm, not the Touch, still are below smartphone average even with BB6, and selling below average even with BOGO free, or just outright get-it-for-free-with-contract promotions.

Even as BBs are still selling well, it's growth rate is now significantly lower than the overall smartphone growth rate. (Somehow in your thinking, that was going to be disastrous for Apple even though it was seasonal, but not for RIM or Nokia, even though it clearly isn't seasonal.)

I'm not sure if you have other indicators you're looking at that you're not talking about. RIM is in trouble; RIM knows it. The problems are deep, and changes are coming, but it's more likely that RIM will shrink into a smaller niche-manufacturer than be the #2 that it has been.

[nutiblogi]

hi, Tomi! this post in my blog, what you notice was for estonian readers, who mainly doesnt believe at all symbian future.
also i notice, that you somehow forget, that smartphone-only RIM and apple already have bigger volumes, than dumb/smartphone motorola, sony-ericsson and fast-growing zte and also not much about smartphonish htc, who is yet bigger, than zte

[kdt]

@Piot

While I'm not a big supporter of market share as being an indicator of success -- which clearly RIM is losing -- RIM is in even worse shape. They are losing market share and seeing decreasing ASP's. That's a horrible combination. Apple would be fine with only 10-15% of the smart phone market. They make money from iTunes and the iOS market is much bigger than just iPhones. RIM has nothing but phones.

[sharaku]

i agree that bb texting is addictive, but ill tell you whats more addictive, facebook and twitter. they make it much more fun to inter-act with your peers. the kids in indonesia will one day out-grow texting. a platform that integrates tightly with social networking will do better then one which is only good for texting. blacberry is just ace of one thing, a modern phone needs to be jack of all trades. if the price is of concern, they can just buy a nokia c6. blackberry miserably lags behind in media and web capabilities, something you assume modern youths dont care about. as a teen ager from bangladesh, i beg to differ.
sorry for my bad english ^_^

[Tomi Ahonen]

Hi everybody

I will return to respond to all of you, individually. For now, I wanted to point out, that I have done my update of RIM latest quarterly numbers (out a moment ago) and also admitted that my full-year forecast for the Blackberry has been drastically off. Sorry, nobody can get every forecast right. But I will return here to comment to all of you here.

Tomi Ahonen :-)

[Tomi Ahonen]

Ok, will take first 5 comments here now, returning later for more

Hi Yuri, Jason, Bob, Hantu13 and belstaff

Yuri - thank you. Happy to be of service haha..

Jason - On the units per subcriber and average selling price, those are universal phenomena in mobile (and I believe, they were universal also in the PC platform business earlier until that stabilized). So if it applies to everyone (except Apple) then it cannot really be used to justify the argument that somehow RIM is in trouble - if all major makers report a declining average sales prices globally, from Nokia to SonyEricsson to RIM to Motorola to Samsung to the big analyst houses. On my point - yes, you understood correctly, and I have since done an analysis of the regional focus areas for the 3 big smartphone makers (see yesterday's blog) and yes, RIM is strong exactly where the big growth in smartphones will happen, not strong in the markets that have already experienced their biggest smartphone surges (Europe & North America).

Bob - thanks. I am not sure if you mean to suggest that me - the business analyst here at this blog - is not comprehending the regional differences haha. I would love for you to show me any free online source that has more international comparisons and stats than my blog, about mobile haha..

Hantu13 - I agree with your early part, that the iPhone effect has not yet reached its apex, so we will see MORE disruption still due to the iPhone, than what has already happened. That being said, then what you write about SMS is simply not true. We've had fully internet-abled, and fully app-enabled smartphones for a decade. If that was somehow the over-riding need that we want, it would have supplanted SMS long ago. But there are actual studies on addiction and the SMS addiction is akin to cigarette smoking - far more addictive than internet use (Queensland University of Australia study) - so the evidence says the opposite of what you think is true. This may still change - and if so, I will be the first to announce it on this blog if anyone can prove there is something more addictive than mobile phone messaging, but so far, nothing even comes close. The evidence is clear in several comparison studies, of heavily addicted digital youth - their overwhelming 'must have' most desired function is mobile phone messaging, far far far more than anything on the web, including Facebook, instant messengers etc.

belstaff - thanks.

I will return with more replies to the rest, later. Please keep the discussion going.

Tomi Ahonen :-)

[white iphone 4]

Il s'agit d'un blog à puce. Je veux dire. Vous avez tellement de connaissances sur ce problème, et tant de passion. Vous savez aussi comment faire rallier les gens derrière lui, de toute évidence à partir des réponses. Youve a obtenu une conception thats ici pas trop flashy, mais fait une déclaration aussi grand que ce que vous êtes dit. Beau travail, en effet.

[gous]

I don't know if you have seen the latest by Michael Mace at http://mobileopportunity.blogspot.com/2010/12/rims-q3-financials-tale-of-two.html

It appears others had also argued that he missed RIM's strength outside the USA. He acknowledges this but then analyses RIM's latest quarterly earnings in which the company looks increasingly Janus faced. In real trouble in the US but gaining strength elsewhere. 2011 looks like a crunch year for RIM either way.

Any chance of you and Mace having a live chat or blogger debate about RIM?

[nike zoom hyperfuse]

the bigest festival-Christmas day is coming now ,so hurry up to buy the gifts for you love.

[Henry Peise]

According to a previous source of ours, we have been told that Apple in fact has no plans to release the white model iPhone 4. Our source hypothesizes another delay communicated around March leading us into an iPhone 5 release time-frame in June / July.

[white iphone 4]

We love black iphone, and we also love the white Conversion kit iphone. Now you have a chanve to change your iphone 4 white.

[Samir Shah]

One of the truisms of digital age is that, eventually, special purpose gives way to general purpose. For special purpose to thrive it needs to undercut general purpose by a sizable amount which can be anywhere from 1/3 to 2/3 of general purpose prices.

Kindle (WiFi $139 and 3G one) undercuts iPad ($500), almost 1/3rd the price.

Point and Shoot cameras ($150) undercut smartphones that have good enough cameras (>5 Mpx) ($500), again almost 1/3rd the price.

But, at present. Blackberry (at a very low $250, it may be more) only undercuts top level smartphones ($500) by 1/2.

Chinese kits for Android phones are arriving in many regional or a country specific manufacturers (I am in India) and that has already broken the price barrier of $200 for Android phones and may break price barrier of $100 for Android phones by middle of next year.

In that environment, better browsing, better multimedia, good apps, flexible regional language virtual keyboards. ease of touch and relatively bigger screen, so important for browsing and video, will tilt the equation in favor of Android forever.

RIM, initially I was sad about "reset"s because I felt that Microsoft could not sell Windows Phone 7 well after a "reset", but I was pleasantly surprised to see that they sold 1.5 million till now.

So RIM, "reset" with QNX, you CAN survive a "reset", time is running out, global replaces special.

[white iphone 4]

Je lisais quelque chose d'autre à ce sujet sur un autre blog. Intéressant. Votre position sur elle est diamétralement contredit ce que j'ai lu plus t?t. Je suis encore contempler sur les points de vue opposés, mais je suis à bout fortement vers le v?tre. Et peu importe, c'est ce qui est si grande sur la démocratie moderne et le marché de la pensée en ligne.

[red bull hats]

Dear Tomi,
Thanks for your post,and that was a great piece of information., I enjoyed reading it..,

[iphone cases]

Salut, où avez-vous obtenu cette information peut vous s'il vous pla?t appuyer ce avec une certaine preuve ou vous pouvez dire quelques bonnes références que moi et d'autres apprécieront vraiment. Cette information est vraiment bon et je vais dire sera toujours utile si nous essayer sans risques. Donc, si vous pouvez le sauvegarder. Cela nous aidera vraiment à tous. Et cela pourrait apporter un peu de bonne réputation pour vous.