Is Research in Motion (NSDQ: RIMM) turning into Palm (NSDQ: PALM), the next big prize in the mobile industry’s consolidation?
Two of the most important companies in the prehistoric era of the mobile computer (late 90s to mid 2000s) were Palm, inventor of the Palm Pilot and nurturer of the Treo, and RIM, which introduced a generation of business professionals to the value (and burden) of constant access to the office through the BlackBerry. But then came the iPhone, and Android. After a pretty hard fall and then a solid-but-unsustainable comeback with the Pre and WebOS, Palm was rescued by Hewlett-Packard (NYSE: HPQ) at the expense of a storied brand. RIM’s efforts to do something similar–bet the farm on a new operating system as well as a new form factor–are being treated with the worst of all reactions: indifference.
Two and a half weeks before RIM is scheduled to unveil the Playbook, its first tablet computer, it disappointed investors with its latest earnings report. Even more tellingly, it admitted that in order to achieve what co-CEO Jim Balsillie called demand for a “tonnage of apps” that RIM will support applications from a competing platform, Android. While the prospect of weaker profits and revenue over the next few months caused investors to flee RIM’s stock in droves on Friday, the bigger problem is long term: despite the face it still a huge player in the lucrative U.S. market, carriers, developers and investors are wary about betting on RIM.
–Rotten berries:A week’s worth of conversations with various members of the mobile industry at the CTIA Wireless conference produced little evidence of enthusiasm for either the Playbook or RIM development in general. Apple’s iOS and Google’s Android are both well-designed modern operating systems, but what has really helped them succeed is the overwhelming support of application developers, who know that they must be on both platforms to be seen as relevant.
Hardly anyone feels the same way about the BlackBerry OS, now an aging platform that’s almost in the same situation Palm found itself in a few years ago with the nearly-defunct Palm OS. Even Microsoft’s Windows Phone 7, with just months on the market and not even close to as much market share as RIM, is seen as a more intriguing platform.
The Playbook runs a new operating system built by QNX, a company RIM acquired in 2010. But developer support for that new operating system has also been rocky. One prospective RIM developer named Jamie Murai railed against the company’s difficult Playbook development process a month ago, writing “You have succeeded in your quest of driving away a perfectly willing developer from your platform.”
And the way RIM is going to add support for Android apps could be counterproductive. Android apps will need a special “app player” in order to run correctly on Playbooks, and the Playbook will only support apps written for Android 2.3; not the Android 3.0 version designed specifically for tablets. That means the apps may not run very well and may look funny on the much-larger screen used by the tablet compared to the smartphone screens for which they were designed. And should that happen, Playbook users will direct their ire at both RIM and app developers.
–Mistakes were made: What has happened to RIM, a company whose flagship product just a few years ago was good-naturedly compared to one of the most addictive drugs known to man? Any number of fingers can be pointed at factors like NTP, which distracted RIM’s upper management for years with a bitter patent suit that eventually cost the company over $600 million and untold legal fees. Maybe it was RIM’s conservative base of IT managers and corporations, which didn’t push the company to develop the Web browsing and application-development features that consumers gravitated toward once Apple (NSDQ: AAPL), and then Google (NSDQ: GOOG), showed them what could be possible. The company’s continued focus on hardware over software as its differentiating factor, when the industry was tacking the other way, certainly didn’t help.
It’s impossible to completely write off a company that still has sizable market share and profits, as well as a recognizable brand. But it’s also impossible to argue that RIM is on the cusp of turning its fortunes around: the Playbook is simply not compelling enough compared to either the iPad 2 or even the Xoom to be recognized in the mass market, and developers aren’t willing to help make up the difference. Meanwhile, RIM’s smartphones look increasingly pedestrian against iPhone and Android models, not to mention Windows Phone 7.
Curious statements from the company’s leaders certainly don’t help. Mike Lazaridis, RIM’s other co-CEO, wasn’t quite as clueless as some made him out to be in an appearance at the D: Dive Into Mobile conference in December, but he did speak in the type of jargon and vague syntax that only a management consultant could love, rather than addressing concerns about RIM’s strategies head-on. On Thursday’s conference call, Balsillie said anticipated demand for the Playbook was strong, citing several companies wanting to order “tens of thousands of units.” He must know that even the most conservative estimates for iPad 2 sales so far, after just two weeks of sales, are in the 5-million-unit range, and most are quite higher.
–Lead, Follow, Merge: What does RIM need to do to get back on track? The only nice thing about a slow decline is that it gives RIM’s management some time to figure how to get its groove back. But RIM is in need of a breakthrough: it’s the same kind of problem faced by those trying to chase Google in Web search. They can’t just try to match Google blow for blow, they have to come up with something truly different and compelling to shift user behavior.
RIM hasn’t come up with a product like that in years. And it seems pretty clear that Android support or not, few outside the company think the Playbook will change anything. Could it be time for drastic action?
HP bought Palm as part of an attempt by an old-school PC company to get in on a new generation of computing. We’ve known for a long time that consolidation of the five surviving mobile operating systems is inevitable, and perhaps the old-school PC company, Microsoft (NSDQ: MSFT), is finally ready to make an honest man or woman out of all the rumormongers predicting a Microsoft-RIM merger for years. With a market cap of only $29.5 billion following Friday’s sell-off, and an enterprise-oriented customer base already friendly with Microsoft, there might be no time like the present.