Thursday, April 28, 2005

Will the Berries get squished?

Will the Berries get squished?

Blackberries, the mobile email devices made by Research In Motion (RIM), have become immensely popular among business users. In the past year the number of subscribers grew by 50% to almost 3 million. RIM is the leading mobile e-mail provider and has grown to the third largest PDA manufacturer with 18% market share. This success has not gone unnoticed however. As the Wall Street Journal reported on April 25th telecom giants such as Nokia, Motorola and Samsung, and tech behemoth Microsoft are now trying to muscle into the attractive wireless e-mail market. For a while analysts have been warning that RIM may not be able to sustain its position with new competitors entering the market. Now the attack of the BlackBerry killers seems to have started, will the Berries get squished?

In the past RIM has successfully competed with many smaller rivals in a niche market. Now the wireless e-mail market has grown to a substantial size, it enters a new and more competitive stage. Currently mainly business professionals use the technology, but consumers are about to adopt it. Analysts are extremely optimistic about the booming all-in-one handset industry. However, in a market that is the crossroad of mobile phones, camera’s, MP3 players, PDA’s and online services many players battle for dominance and the fight is going to be fierce. Overall, analysts are optimistic about RIM’s future. While analyst James Faucette makes cautious forecasts based on slower replacement expectations, S&P analyst Kenneth Leon is convinced RIM has a solid strategic position. For sure, RIM has reached a turning point where it must adapt its strategy to the changing market structure.

In the last months RIM has already taken several steps to fight competition on different fronts. In response to the e-mail enabled mobile phones from manufacturers like Nokia, Motorola and Samsung and the extended PDA’s like PalmOne’s Treo, RIM has launched new and very competitive phone-email-data handhelds. As for now, RIM seems to stay ahead of the pack. However, as in any other consumer electronics market, the competition for the handheld devices will be very tough and destroy margins.

On the software front, new e-mail and mobile operating software developers like Good Technology and Visto are building device independent software. The acceptance of an open mobile e-mail platform poses a serious threat to the existence of the BlackBerry platform. To counter this threat, RIM has licensed its BlackBerry platform to Nokia and Siemens. However, this license is far from the creation of a standard.

And then there is Microsoft. The industry heavyweight eyes mobile technology as an area of strategic growth. While RIM and Microsoft signed an agreement on April 21st that will enable enterprise instant-messaging applications on the BlackBerry platform, Microsoft had already signed a licensing deal in March with Symbian, a Nokia-backed mobile operating system developer. The goal of the Microsoft-Symbian deal was to combine the mobile operating system with the e-mail software to capture a larger share of the wireless e-mail market. On top of that, Microsoft is expected to release later this year a newer version of its own mobile operating system with extensions for e-mail. The dance with partner Microsoft might become dangerous for many players that want to get into mobile e-mail.

While giants may be entering, BlackBerry is far from gone. RIM has a large customer base with strong recurring revenues that will not easily change providers due to high switching costs. With an installed base of over 40.000 BlackBerry servers at business customers, RIM has locked in organizations that cannot switch overnight or afford huge service disruptions. As a consequence current users will only consider devices compatible with their existing infrastructure and unless the incumbents offer more value than a phone-email-PDA BlackBerry, there is no incentive to switch.

Additionally, RIM has teamed up with many carriers across the globe. The carriers sell the BlackBerry products and services, creating growth for both the carrier and RIM. These alliances remain indispensable in the growth strategy for mobile e-mail as the sale of the device comes with a subscription to a carrier’s data network service. To strengthen its position RIM has recently announced several partnerships with some of the largest international phone companies including StarHub in Singapore, Turkcell in Turkey and Radiomovil in Mexico. On top of its partnerships, RIM has the expertise of running the network, a capability CEO Mike Lazaridis considers a competitive advantage.

RIM is also looking to further differentiate its products by customization and partnerships with Internet and content providers. RIM partnered with EarthLink to enable enhanced HTML wireless browsing in an attempt add EarthLink customers to its base and increase customer retention through “sticky” applications. For business users RIM enables access to CRM applications.

BlackBerry has a firm strategic position with a solid and locked-in customer base, strong partnerships, innovating products and very good financial results. The mobile e-mail market is still only in its early stages of growth and there is a lot to change. RIM now faces a classic technology-industry problem where young companies that launch popular products may not be the long-term winners. As often seen with new technologies, eventually only one standard dominates. The key to RIM’s success is the ability to outline or quickly adopt the industry standard for mobile e-mail, in which ‘partner’ Microsoft will lead the dance. If RIM’s management proves to be a good dancer, the Berries won’t be squished.

Coulembier, Grony and Iyer

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