Written on August 21, 2011
By: Anwar Alvi, Brian Kocisky, Jacquelyn Henderson, Ilaha Eli Omar and Scott Yuska
After one of mobile industries most significant mergers between Google and Motorola, Research in Motion (RIM) is more vulnerable than even their shrinking customer base and profits indicated. Industry investors and consumers alike are speculating on the fate of RIM’s future. It seems clear that if RIM is to weather this latest industry shift they must seek a strategic partner who can provide software experience, extensive resources and a solid reputation. Microsoft stands out as a potent choice if RIM wants to regain a presence as a mobile device leader.
RIM has gone from smart phone market leader to trailing in both prestige and market share behind both Apple iOS and Android based phones. RIM and their smart phone Blackberry has predominately focused on business users, security, and email/messaging services. Although this created an initial competitive advantage, RIM’s inability to understand drivers to future consumer needs has seen them lag behind the competition in both overall demand and market share. This almost tide wave of new slick operating systems, touch screen phones with the same perceived email and messaging capabilities has only left RIM and the Blackberry clinging to the IT community and the security features that lead to their initial meteoric rise. The term “crackberry” was synonymous with the addictive nature and the popularity that RIMM held. This term seems to be somewhat out of style as the Blackberry is no longer a preferred phone choice. What are the causes that have led to RIM’s current down fall. The days where IT departments wielded the decision making power and corporate email functionality was a difficult code to crack are now over. The shift in power is now with the device users, like you and me. We carry the enough power and there are enough of us to force IT departments to adapt us. This newly acquired power is one of the biggest problems that face RIM today. Their competitive advantage has vanished because it is no longer as important as it once was. They lack the ability to appeal to the users of the phones, but rather to the IT departments that service them. In the world of app stores and multifunctioning devices that easily enable a phone to be the center of one’s multimedia interconnected world, RIM and the Blackberry seem to fall both a bit short and late. There couldn’t be a more glaring example than RIM’s “QNX” operating system. Comparatively to Apples iOS and Google’s Android operating systems the first device with QNX isn’t set to be released in Q1 of 2012, where both Apple and Google will have both released their 5th and 3rd versions, respectively. So where does RIM go from here? And how can they use their business and security based IP to offer devices that people can get excited about?
While it may seem obvious that RIM needs considerable help from a seasoned software company to keep it afloat in the smartphone industry, it may not be as apparent why a partnership with RIM is advantageous. However, there are many factors that helped RIM become a leader in smart phone sales, factors which still keep RIM with healthy, though shrinking profits.
IT departments notoriously favor RIM’s secure server and email application offerings to that of competitor’s. Many companies have already invested in RIM’s BlackBerry and are hesitant to move to a competitor with less robust security at additional cost. Though there is a push from employees to move to more away from BlackBerry’s to Apple or Android devices, a software partner could capitalize on RIM’s existing relationships while providing consumers a better smartphone experience. Additionally, the next frontier in mobile communications seems to be Near-Field Communications (NFC). Integration of NFC into smart phones would allow a mobile device to act as a credit card or a transit pass . A software partner could make these applications a home-run utilizing RIM’s high-security server – a huge advantage when transferring sensitive data.
BlackBerry messaging is extremely popular overseas, with 39 million users . This is an instant customer base for any new potential partner. The overseas markets are increasingly attractive for expanding smart phone companies and existing BlackBerry hardware is priced well for these markets. Utilizing these existing phone offerings is advantageous for a software partner looking to make their mark in emerging markets.
RIM has a huge portfolio of patents that are a definite advantage to a strategic partner. There have been several instances in the industry of lawsuits evolving from patent infringement: smart phone displays, touch screen responses and data processing to name a few. RIM’s bevy of patents will help protect a potential partner from future litigations while allowing them to capitalize on the use of RIM’s existing intellectual property to provide smartphone users with the best possible experience.
RIM is already taking advantage of Microsoft’s strengths by partnering with them on cloud offerings. According to Alec Taylor, Vice President for Software, Services and Enterprise Market, “Cloud has always been core to their business ”. The specific deal between the two companies centers around the implementation of Microsoft’s Office 365, a subscription based model that will keep BlackBerry users current on the latest versions of Office, SharePoint and Exchange. RIM themselves are using this new technology with new apps like BlackBerry Protect and BlackBerry Management Center, both cloud based systems for security and administration.
Another prominent deal between the two companies involves Microsoft’s search engine Bing. Microsoft’s CEO, Steve Ballmer, recently announced that Bing will become the default option for search and maps on all Blackberries . Also, it wouldn’t be an option for users; it would actually be integrated within the BlackBerry OS. This will help Microsoft capture a more lucrative group of enterprise and executive users because business users phones are typically locked down by their organizations and default settings like search providers are not modifiable. They will have no choice but to use Bing. For RIM, this will provide an easy way for them to compete with Android handsets using Google’s search engine. Partnerships like this could possibly lead to RIM utilizing Windows Phone as their operating system in the future. This would be a big plus for business users because they would have Office embedded within their phones with full support offered by Microsoft.
As computing world has evolved from the desktop to the laptop, it is now evolving from the laptop to the smartphone and tablet. Microsoft has no real market share with those emerging technologies. Acquiring RIM would give them immediate access to those markets and establish a strategic foothold within the industry . The advantages of having an integrated hardware-software platform are also evident with Google’s recent acquisition of Motorola Mobility and its valuable patents. With this purchase, some industry insiders have pushed up the value of RIM’s patent portfolio from $2-3 billion to $4-$6 billion, making it more valuable strategically for a company like Microsoft .
As the smartphone industry progresses quickly towards a mature stage and margins begin to shrink, RIM must find new ways to branch into new hardware platforms in order to sustain profitability. The growing tablet business is an excellent option. However, RIM needs to be faster to market and produce both hardware and software that either meet or exceed industry standards. A cooperation between RIM and Microsoft would help RIM do both. Microsoft would help finance new investments and provide flexibility and opportunity to pursue these strategies. Being the trusted name in corporate software, Microsoft would bring to the table decades of experience and brand loyalty in the development of a Windows operating system to run on BlackBerry devices. Delegating software to Microsoft would allow RIM to specialize in hardware. Pooling resources would free up RIM to leverage BlackBerry brand equity and grow their hardware to the level of Apple and other leading devices in both the Smartphone and tablet categories. The synergies will allow Microsoft and RIM to jointly launch devices in the marketplace faster due to increased specialization amongst the respective business units. Similar business cultures make it all the more fitting that a merger of Microsoft and RIM would produce ideal compliments.RIM stands to gain considerably from a partnership with Microsoft. Currently, both RIM’s hardware and software are lagging behind industry standards. Companies have approached the software-hardware choice differently. Apple leveraged its size for synergies to be able to compete in both under the same brand, while Google – despite its large size – has opted to participate in software alone, forming partnerships with firms like HTC for hardware instead. While RIM does have considerable leads in its proprietary BlackBerry Enterprise Servers and its software patents, a majority of its revenue is still in its handset business and that is where is should look to focus.
While the potential synergies between Microsoft and RIM are substantial, there are several impeding drawbacks. Recently Nokia and Microsoft announcement plans to form a strategic partnership enabling them to create market-leading mobile products and services to consumers and operators. The synergy between Microsoft and Nokia could create direct competition with iPhone and Android and put pressure on RIM to “plug in” to the existing Android apps library . A move like this can increase the number of third-party applications available on the BlackBerry and position a more level playing field. “Android-device users can access about 130,000 third-party apps, including games, while iPhone users can access about 300,000 — the BlackBerry supports about 10,000 apps . This makes RIM a straggler in an area of which determines which smartphone consumers will buy.
Furthermore, the Microsoft-Nokia partnership can take away from the potential synergies of Microsoft-RIM. Nokia is not only a smartphone competitor to RIM; ironically, both companies are in need of the next big product refresh. This being said, RIM has time on its side for creating its blue ocean opportunity before Microsoft and Nokia launch any new products. Despite these issues, RIM should still make a pass at Microsoft, perhaps striking a deal that precludes future contracts with RIM competitor’s.
A RIM-Microsoft deal offers much to both companies, but consumers will be the big winners.