After Another Loss, Will RIM Ever Recover?

As reported in an article by Reuters yesterday, RIM will be forced to cut their Blackberry carrier fees (fees that corporate clients pay by using Blackberry servers for their mobile communication). Last year the revenue generated from the sale of and service fees from these servers accounted for 20% of their total sales. However, RIM lost another U.S. government client (the ATF) because the Blackberry servers which they supplied to the ATF were too slow and inflexible. 2,400 ATF employees will switch from Blackberrys to iPhones, while another 1,400 will continue to use Blackberrys, but on servers provided by AirWatch, which is currently $2 cheaper per user per month than Blackberry servers and would allow employees to use their own phones. Blackberry servers are compatible only with Blackberry mobile devices. Additionally, Halliburton has announced that it plans to switch its 4,500 employees from Blackberrys to iPhones.

To state the obvious, this is not the only bad report about RIM in the past year. RIM, once the be-all-end-all of the smartphone market with its signature Blackberry, has lost a huge part of its market share in the smartphone market to the iPhone and various Android-supported phones. Co-CEO's Mike Lazaridis and Jim Balsillie were fired in favor of Thorsten Heins in late January of this year. Two weeks prior to this change in upper management, it was reported that RIM hired Goldman Sachs to help entertain buyout offers. So the question is, why is the once-dominant RIM collapsing? There appear to be two main reasons underneath everything else.

Major Blackberry evolution from 1998-2008

The first of these reasons is complacency. At the beginning of their reign as the dominant smartphone maker, RIM was making major innovations almost every year. In 1998, the first Blackberry was a high-tech pager. Two years later is was a mobile email, internet, messaging device. By 2002, Blackberrys were officially smartphones, supporting messaging, internet, and phone calls. In 2003, Blackberrys were reinvented aesthetically, adding a sleek design and a color screen. Since then, Blackberrys have constantly changed their appearance, but functionally remain the same for the most part. Today, just as almost a decade ago, Blackberrys have email, messaging, and internet capabilities (albeit these features operate much faster today). RIM has done little to nothing in the last decade to functionally reinvent the Blackberry in order to compete with what new smartphones (namely the iPhone and Android phones) offer.

In the mid 2000's the lack of innovation did not affect RIM, as there was no real competitor to the Blackberry and RIM's corporate and governmental clients were extremely loyal. The Blackberry was a highly functional, highly reliable smartphone that was easy to use. It was the perfect phone for businesses to issue to their employees because Blackberrys did everything necessary to operate on the go (at the time), most importantly supporting mobile email. These corporate clients were happy to pay RIM to use RIM's ultra-secure Blackberry servers to operate their Blackberrys on because no server was faster or more secure, and there was no other smartphone that would need to be supported by the servers other than Blackberrys. At this point, RIM likely felt as though there was no reason for major innovations to the Blackberry. The smartphone did what its users wanted, and no other phone did it as well as the Blackberry. Instead of striving to continually reinvent the smartphone market (as Apple currently does with the iPhone), RIM became satisfied with its dominant position in the smartphone and mobile communication service markets, as well as its seemingly undying corporate customer loyalty. RIM failed to anticipate competitors entering the market and stealing market share away from the Blackberry and Blackberry servers. RIM saw no reason to change a product that was selling at tremendous levels. Yet, once the iPhone and Android phones hit the market, Blackberrys were immediately less advanced functionally. This arrogance and subsequent failure to continually improve the functionality of Blackberrys and Blackberry servers is a great example of Jim Collins' first stage of decline.

The second underlying reason that RIM is spiraling towards a collapse is that they have lost touch with their customers. Prahalad and Krishnan argue that the "N=1" pillar (delivering value to one customer at a time) is becoming increasingly important in how businesses create value for their customers. The iPhone and Android-supported smartphones address this focus on the individual consumer. Both platforms are highly customizable; almost no two iPhones or Android phones look the same after their users have had a few days to adjust the phones to their own tastes. Both phones offer an endless number of apps that customers can purchase to best suit their needs and wants.

The same cannot be said about Blackberrys. RIM offers a very limited list of apps for Blackberrys, meaning that a Blackberry is a Blackberry; what you see is essentially what you get. There is very little flexibility for a consumer to customize a Blackberry to their specific needs. Blackberrys were so dominant in the smartphone market that RIM believed they knew exactly what their customers wanted; the CVP of Blackberrys has not changed in over a decade. RIM more or less ignored the initial threat of the iPhone and Android phones, thinking that their highly functional, easy-to-use Blackberrys would weather the competition. RIM believed that the majority of their clients were looking for exactly what they were selling in the Blackberry, and that iPhones and Android phones would not appeal to corporate clients who were not concerned with a high degree of phone customization or apps and add-ons for Blackberrys. Needless to say, RIM has been proven incorrect. The N=1 focus was ignored by RIM for so long that just as they are now beginning to recognize the need for a higher degree of customization (namely by introducing more apps), software developers are reluctant to make apps for a platform that isn't selling well. By failing to recognize the need to focus on the individual customer, RIM has put themselves in a position where innovation may no longer even be possible for Blackberrys.

A leaked photo of the Blackberry 10 home screen.

As for their Blackberry servers, RIM is set to introduce Mobile Fusion later this month. Mobile Fusion is a server software component that will allow Blackberry servers to handle rival devices, a feature currently lacking from Blackberry servers. RIM needs Mobile Fusion to be the answer to its services business woes if it is to ever recover.

RIM's stock is down $51.73 (or just under 80%) from one year ago. Its total debt ratio increased 5% from 2010 to 2011. Analysts are predicting that things will not get any better for RIM, even as they are expected to release Blackberry 10 software and smartphones later this year. Some RIM investors are calling for the company to sell its handset business (its unit that produces Blackberrys) and focus on the mobile communication services market. Can RIM ever recover enough of its smartphone market share with the Blackberry, or will RIM eventually have to discontinue producing Blackberrys? Can RIM rediscover itself through innovation and become a tech powerhouse again?