by Jean-Louis Gassée

Once upon a time, the Blackberry was the king of smartphones. After a succession of Psion PDAs and Palm devices, I loved my Blackberry, it was the perfect PIM (Personal Information Manager). Email, contacts and calendar functions worked well together -- and Exchange integration was the killer Enterprise feature. It even made phone calls! On Verizon, that is.
Year after year, RIM kept improving its product and expanding its worldwide distribution. The Blackberry became de rigueur, addictive, justifiably earning its Crackberry nickname.
Shareholders weren’t disappointed either. Between February 1999 and June 2008, RIM stock gained $143/share, a rise of 7,793%:



But, on the same chart, we see RIM lost 11.23% of its value in one session, this past Friday March 25th.

Why?

As often, the answer is a combination: underlying trends + a trigger event.

The trigger event was RIM’s release of its latest quarterly numbers. On the surface, the results looked reasonable. 14.9 million units shipped versus 14.2 million in the spring, $5.5B in revenue and $934 million in net income, up 32%.
The bad news start with unit growth, it is out of sync with the rest of the industry where percentages are more in the 50% to 100% range. For reference, Apple’s iPhone unit sales grew by 93% from 2009 to 2010. More recent Android devices grew even faster.
Then, RIM’s guidance (Wall Street argot for forecasting games) for the following quarter is weak: revenue flat or dropping, between $5.2 and $5.6B. Rote explanations follow, from lower average prices, lower gross margins, to investment in the development and launch of new products, and supply-chain disruption stemming from the March 11th earthquake in Northeastern Japan.

Not a word of competition from Android-based handsets or iPhones.

Which gets us to the underlying trend: we now live in an App world.

RIM reigned at a time when your Blackberry came with everything you needed. Suitably placated, the IT gent configured your Exchange connection and off you went. I was one such user when I bought my first iPhone and kept carrying both devices. Remember 2007: Dear Leader telling us we didn’t need native apps, Web 2.0 software was perfectly adequate. But even then, browsing the Web on an iPhone was such a superior experience to what the Blackberry provided.
Then, in 2008, the App Store opened; iPhone Exchange integration became useable and I let go of my Blackberry.
Coincidentally, when you look at the stock chart comparing Apple, Google and RIM, 2008 is also the year when, after reaching its all-time peak, RIM started its descent:



If you look at the worlds of Android and iOS apps, RIM’s achievements look modest by comparison. By November 2010, the Blackberry App World offered about 15,000 apps. This isn’t much compared to the hundreds of thousands claimed by Android and iOS.
I won’t get into details such as which apps work on which Blackberries, how to pay for and how to install those. Suffice it to say, even if you put the number of apps aside, on the sole ease of use criterion, the Blackberry App World isn’t competitive.

Blackberry smartphones were great products, RIM’s management has achieved strong carrier distribution around the world. But competitors now have better devices and better app stores.

As this loss of competitive edge became more apparent, RIM’s management had to explain their plans to increasingly skeptical Wall Street analysts and media.

Things didn’t go well.

In RIM’s case, management consists of two CEOs and three COOs. I checked here, it’s true. Lately, neither CEO hasn’t made much sense when describing RIM’s future.

Interviewed by Bloomberg Businessweek in September 2010, Jim Balsillie says this:

"There's tremendous turbulence in the ecosystem, of course, in mobility. And that's sort of an obvious thing, but also there's tremendous architectural contention at play. And so I'm going to really frame our mobile architectural distinction. We've taken two fundamentally different approaches in their causalness. It's a causal difference, not just nuance. It's not just a causal direction that I'm going to really articulate here—and feel free to go as deep as you want—it's really as fundamental as causalness."


The other CEO, Mike Lazaridis, isn’t doing much better. Last December, he was on stage at the D-Dive Into Mobile conference, interviewed by Walt Mossberg and Kara Swisher. See the video here, and an Endgadget liveblog here. The liveblog should be read from the bottom, as the format dictates: successive entries are pushed at the top. But you can read in any direction, it won’t matter as Lazaridis sounds quite free with logic.

Yes, there’s always the danger of quoting someone out of context, or of catching an individual at a bad time. I know these two executives have built RIM into a worldwide industry leader, they deserve respect for such an achievement. Look at RIM’s history, getting there wan’t easy -- or spotless.

Still, last week, RIM’s other co-CEO kept going. See the earnings call transcript, edited by Business Insider, where Balsillie keeps speaking in tongues:

I'm just not interested in these sort of religious application tonnage issues. I really think we put that issue to bed. And if you think the whole world's going to want to develop for Gingerbread, fine. Do I think that's going to happen? Then why is there a different environment for a tablet? And you know about the performance issues and you know about the app volume issues, cause it's tough. And that's why QNX matters.


That's why people are saying, Is this stuff going to go more in the browser and HTML 5 and more native? These are going to be strong trends. But if you want these app players for different VMs -- and don't forget we have 25,000 BlackBerry 6 apps. So, at the end of the day, we believe this is going to be about performance. It's going to be about enterprise greatness. Things like multi-threaded capability, symmetric multiprocessing. We believe it's about an uncompromised web. We believe it's about enterprise security. True multitasking, not with suspension -- and that matters because you're going to want to run these things in the background.


But I'm out of the religious war on tonnage, which I'm delighted.


... (Lots of repetition.)


I think it's very important to understand that this idea of "no compromise" matters. And this idea that you can pick whichever one you want.


RIM is scrambling to gate a tablet to market “before it’s too late’’.

First, for its tablet, the PlayBook, the company needs an OS. Luckily, RIM lives close to one of the great Canadian universities with strong Computer Science and Mathematics programs: the University of Waterloo. QNX was invented there, a very good operating system for embedded applications. Last year, RIM buys QNX from Harman Industries.
Next, hardware. Multi-core ARM SOCs are aplenty and Asian suppliers are at the ready to build hardware to your specs.
Now, we need apps. And for apps we need a development system, specifically one running on QNX.
This is where the madness really starts: the Native SDK, meaning the programming tools required to write high-performance QNX apps in C or C++, isn’t ready for the coming April 19th launch. According to Mobile Beat, “The company has a limited version of its BlackBerry Tablet OS Native Development Kit that will be in open beta by this summer.”

As an interim measure, RIM offers a number of other solutions, called ‘‘app players’’. These are emulators or, if you will, a kind of virtual machine. The app players run existing applications, and new ones can be developed using the tools from the emulated platforms.
So, you have app players for games, for HTML5 apps, Adobe Air and for Blackberry Java used on the company’s smartphones. This is complicated and not developer-friendly, leading Jamie Murai, an experienced app developer, to write RIM a strongly worded open letter. To the company’s credit, the head of Developer Relations, Tyler Lessard, responded quickly and honestly. But Lessard couldn’t really solve the basic problem: as Murai explained in great and vivid detail, developing for the PlayBook can’t compare favorably to the competition, to Android or iOS.

But wait, there’s more.

You’ve noted the curious “application tonnage” phrase in Balsillie’s utterance above. Justifiably, RIM is worried about getting enough applications on the PlayBook. No apps, no sale, as Robert Scoble succinctly explains.
Where do we turn to?
Apple is out of question, but Android is open. Let’s go Android and make their 200,000 apps run on the PlayBook. Problem solved, we have “tonnage”.
This is serious madness, in two ways.
If Android apps do run on the PlayBook, why bother writing for QNX? The PlayBook becomes an Android tablet and QNX no longer matters, right?
In response, Balsillie treats us to more contorted language:


And if you think the whole world's going to want to develop for Gingerbread [a version of Android], fine. Do I think that's going to happen? Then why is there a different environment for a tablet? And you know about the performance issues and you know about the app volume issues, cause it's tough. And that's why QNX matters.


Android apps will run slowly, [so far inexistent] QNX native apps will be faster.
Why?
Because the Android apps are running inside another app player, another emulator. As a result, performance will suffer. This could be a useful stopgap measure: you buy a PlayBook and go to the Android Market for your app needs. Killer QNX apps will arrive later -- assuming developers are committing to the ecosystem.
But, no.
We now move to the second part of the madness: the “going to the Android Market” part is false. It is a deliberate attempt to mislead.
The Android apps won’t work directly into the app player. The developer, not the user, will need to “quickly and easily” port their apps to run on the tablet OS, according to RIM. The same developer will also need to repackage, code sign and submit their apps to the Blackberry App World for approval.
There is more: the PlayBook app player will only run Android 2.3 (Gingerbread) apps. These apps are designed for smartphones, not tablets. According to Google, for tablets you need Android 3.0 (Honeycomb).

RIM succeeded because word of mouth, not advertising, sold the Blackberry. Proud users begat more proud users. What will happen when users “share” the true value of the “running Android apps” claim?
No one could fault RIM for the “iPad surprise”. After decades of misbegotten tablets, no one was prepared for the rise of the new genre.
Reacting quickly, not wanting Apple to gain too much of a market stronghold makes business sense. But launching what is clearly an immature product and trying to compensate for a dearth of applications with a misleading claim of compatibility with the wrong version of Android is insane.

Those whom the gods would destroy, they first render mad…

JLG@mondaynote.com

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