Over the past couple weeks, we’ve read a number of bedtimes stories about RIM’s next move. They all start with the same trope: Once upon a time, late last century, Apple was on the edge of the precipice and still managed to come back — and how! Today, RIM’s situation isn’t nearly as dire as Apple’s was then. Unlike Apple, it doesn’t need a cash transfusion and, in the words of Thorsten Heins, RIM’s new CEO: “If you look at the platform it’s still growing, if you look at the devices we’ve got a single phone that’s sold 45 million units.” RIM will pull off an Apple-like rebound and live happily ever after.
Equating RIM 2012 with Apple 1997 is, in so many respects, delusional. Let me count the ways.
First, the context, the marketplace. In its dark days, Apple faced PC clones running Windows. With Microsoft’s 95% market share, it wasn’t even a two-platform race. Microsoft came to Apple’s rescue with a $150M investment and a commitment to continue writing apps for the Macintosh. This was enlightened self-interest on Microsoft’s part: Discreetly tucked into the agreement was the settlement of a brewing IP suit. And by keeping their highly visible (if economically unthreatening) competitor alive, Microsoft hoped to score a few goodwill points in the face of the DOJ’s antitrust investigations.
Fifteen years later, there’s no looming smartphone monopoly. We have a genuine two-horse race between Android and iOS, and a third horse, Microsoft, circling in the paddock. This is a very different world, a much rougher one with bruisers such as Apple, Samsung, Huawei, and ZTE…with this many players, there’s no rationale for investing in a fallen player.
Second, ecosystems. In Stephen Elop’s ringing (if infelicitously timed) words, yesterday’s platform struggles have become all-out ecosystem wars. To claw back into the race, let alone to return to its former CrackBerry glory, RIM must build an array of content and services that can equal or better those that will be offered by the dominant players in 2013.
This isn’t just about app stores — a challenge unto itself when developers ask why they should commit to a troubled player. Smartphone and tablet users expect entertainment, navigation, synchronization between their devices and other Cloud services.
In the Daily Telegraph interview quoted earlier, Thorsten Heins boasts that BB10, the upcoming BlackBerry 10 OS, will have “true multitasking, … potentially running a car’s navigation, entertainment and gaming systems for the whole family“. Elsewhere, he refers to a new world of applications in which your Blackberry will connect to “the embedded systems that run constantly in the background of everyday life – from parking meters and car computers to credit card machines and ticket counters“. (Home automation can’t be very far off.) Even more majestically, Heins tells us that RIM’s mission is “to build a new mobile computing platform to empower a people in a way they didn’t think possible“.
This all sounds like a noble and worthy goal…but it’s a bit vague. How will RIM’s approach be different from — or better than — the competing ecosystems?
This leads us to our third point: The engineering team (or, “it’s simply a matter of implementation”). When Steve Jobs reverse-acquired Apple in 1997, he brought with him the creators of NextStep, the likes of Avie Tevanian, Bertrand Serlet, and Scott Forstall. They led a team of talented, like-minded computer scientists whose goal was clear: Replace the decrepit Mac OS with a truly modern foundation. It took them the better part of five years to produce what we know as OS X.
RIM acquired QNX, the foundation for BB10, a mere two years ago. After a quick bow to the work ethic and technical manhood of RIM’s engineers, one must ask if they’re in the same league as the team Jobs brought to Apple 2.0, if they can accomplish everything they need to do by early 2013. Weren’t most of these engineers already onboard when RIM fell asleep at the switch?
Fourth and last, leadership. Using Apple 1997 as the model for turning around a once-great company invites challenging comparisons. Or, more accurately, a single comparison: Is Thorsten Heins made of the same unobtainium as Steve Jobs? This isn’t a question of IQ, of neo-cortex, but of Mind, of being sufficiently agitated, of having the right animal inside.
The prodigal Jobs returned to Apple having known stellar business success with Pixar, and just-as-stellar lack thereof at NeXT (despite the company’s technical prowess). Heins, by contrast, is an insider. He’s been part of RIM’s problem since 2007.
But enough of this fantasy. Let’s turn to the latest story: RIM’s CEO has conceded that the company might have to license its platform:
To deliver BB10 we may need to look at licensing it to someone who can do this at a way better cost proposition than I can do it.
Dumbfoundingly, the licensing idea (which, presumably, will include BlackBerry Messenger), has been met with approval: ”RIM is in trouble and is seemingly finally listening to reason“.
This gambit doesn’t work. It didn’t work for Palm (twice!), nor for Nokia with Symbian. And it really didn’t work for Apple when it licensed the Mac OS to PowerComputing and Motorola in 1995. The Mac clones quickly underpriced the original products and siphoned profits out of Apple’s income statement. Jobs reversed that decision in 1997, and, after much initial criticism, was ultimately vindicated.
With these examples, what drives Heins to think that the BlackBerry 10 clones won’t underprice RIM’s own devices and empty the cash register? BlackBerry Messenger may be well-liked, but it’s also under attack by free, multi-device services such as iMessage.
So, where does this leave RIM? The use of “Private” in this note’s title isn’t a facile pun. It points to a possible avenue for the BlackBerry maker. If it decides to license the software layer of its (formerly) proprietary platform, RIM will indisputably see hardware dollars disappear much faster than software licenses can be signed. RIM will forego a known source of revenue in order to grow a new income stream that, given enough time, might be strong enough to keep the company solvent.
For a publicly-traded company, switching business models in this way is a factual impossibility, it defies business gravity. Shareholders might applaud the long-term strategy but when the cheering stops, they’ll dump the stock.
If RIM wants to do something bold, such as focusing on software and services, they might consider taking the company private. As I write this, RIM has a market cap that’s less than $4B and more than $2B in apparently unencumbered cash. Management and the Board could work with a Private Equity fund, a KKR-type organization, and buy the company from the shareholders.
The ink dries, the curtains close. Backstage, in private, the company performs painful surgery, sheds the groups and businesses that are no longer required by the new, tighter focus. This may be hard on employees, but it’s unavoidable either way: Lose some of the company now, or the entire thing soon enough.
In theory, the company re-emerges smaller but stronger, with a highly profitable software and services business model.
Will this work for RIM? I don’t think so. Given the company’s low market cap and the availability of private capital, if this were an attractive move, it would have been attempted already. Cold-hearted investors looking at the risk involved must have already asked themselves the burning question: How do you compete with free? How do you sell licenses when Android hands them out, gratis (even if licensees have to pay for a few Microsoft patents)?
Sadly for former BlackBerry fans like yours truly — or for current ones who appreciate its core functionality — there aren’t many moves left for RIM on the smartphone chessboard.
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