With its share price at almost a third of what it was and a consumer onslaught following its biggest ever outage, will the BlackBerry maker manage to keep its head above water?

2011 has not been kind to Canadian firm Research In Motion (RIM), which has had to weather a series of storms throughout the year.

Now, on the back of what has been a less-than-fruitful year for RIM, it appears the floundering corporation will have to fight hard in order to stay afloat in the highly competitive sea of mobile technology.

Industry professionals and analysts are of the opinion that the BlackBerry name as such is here to stay, but that a serious shake-up in RIM’s management and strategy is imperative should the company wish to salvage its place in the industry.

Its most recent squall came in the second week of October, in the form of an unprecedented and protracted BlackBerry network outage when RIM’s independent infrastructure failed, cutting off millions of BlackBerry users from Web browsing, instant messaging and Internet services, including e-mail.

Europe, the Middle East, India and Africa were subject to the outage for no less than three days, while Latin America and Canada were without services for a day and a half, and the US for one day.
The outage incensed business and social users of the smartphone, who rely on BlackBerry Internet Services (BIS) for fundamental corporate and social communications on a daily, if not hourly, basis.
Cellphone operators haplessly bore much of the brunt from their BlackBerry contingent, which sought answers and updates as to the state of their communications lifeline, and social network sites were dominated by the barbed protests of BlackBerry punters.

PR faux pas

While some media reports asserted that the outage was due to a switch failure at RIM’s Slough data centre, the firm was elusive concerning details.

Initially, entirely mum on the issue, RIM only released a perfunctory apology and vague statement as to the cause of the outage at the end of the barren week. Both BlackBerry loyalists and the media felt this to be a decidedly insufficient gesture.

On the third day of the outage, RIM’s shares closed down 3.46%, at C$24.27, on the Toronto Stock Exchange and were down 2.17%, at $23.88, on the Nasdaq.

Services were restored towards the end of the week, but the incident left a bitter taste in the mouths of many, who felt let down by the telecommunications giant.

RIM subsequently announced that as “an expression of appreciation for [its customers’] patience during the service disruptions”, it would offer its 70 million-odd client base $100 (about R780) worth of premium applications for free.

The token action, however, did little to assuage BlackBerry customers.

While RIM’s stock dropped only modestly in the midst of the outage crisis, its stock value has plummeted by over 50% this year in total. This is a dramatic about-face for a company that once dominated the smartphone market.

In July, the company announced it was slashing 2 000 jobs, 11% of its global workforce. At the time, RIM said the cut was “intended to create greater alignment of the organisation and to streamline operations in order to better position the company for future growth and profitability.” Three months prior, RIM’s tablet offering, the PlayBook, was met with lacklustre sales and reaction. The first product to be based on its QNX software, the PlayBook suffered recalls, poor reviews and hard-line competition following its April launch.

Adding insult to injury is the ever-present competition in the form of iOS, Android and even the emerging Windows Phone 7 mobile operating systems. In light of this, while RIM may see market gains in African and Middle Eastern regions, it is rapidly losing customers in mature markets.

Local line

In February, the 2011 Mobility Study conducted by World Wide Worx showed a relatively positive outlook for RIM in the local mobile market.

At the time, the Mobility brand momentum calculations showed a clear move towards smartphones, BlackBerry in particular, with the number of users expected to increase six-fold. At the time, 24% of the market claimed their next phone would be a BlackBerry. According to the study, the device accounted for 4% of the total mobile market at that stage and only 3% of users said they planned to go with iPhone.

However, according to the results of a mid-year early adopter study by BMI-TechKnowledge SA, which looked at the South African smartphone and tablet market, only one in five BlackBerry owners at the time planned to stick with the brand for their next choice of smartphone.

The research showed 24% of early smartphone adopters in the country owned a BlackBerry handset. While RIM had grown its local market share from 6% previously, the survey revealed that only 20% of respondents wanted a BlackBerry as their next device. On the other hand, 30% of respondents said an iPhone would be their next smartphone of choice.

Moribund, or moving up?

While many view RIM as an infirm entity that will have to bring something spectacular to the table in order to survive, the BlackBerry maker insists there is nothing to worry about.

In spite of the challenges it faces, RIM remains confident that it will continue to enjoy support from BlackBerry customers and that a promising future lies in store.

MD for Benelux at RIM, Robert Bose, says competition is just part of the game and that as it stands, RIM is in good stead to handle it. “The global smartphone market is very competitive. As this market continues to mature, market share will ebb and flow over time.”

Bose says RIM has almost $3 billion in cash, with no debt. “We grew our revenues 33% last year and currently have more than 70 million BlackBerry subscribers. We continue to grow, especially internationally. In fact, we retain the number one position in many international markets and have seen our sales increase consistently strongly in consecutive quarters. We have grown to over 625 global carriers and distribution partners in more than 175 countries around the world.”

He adds that the BlackBerry brand has achieved a number of accolades within the context of the South African market. “[We] will continue to focus on building the BlackBerry brand in South Africa.”

Fault-finding mission

With regard to the recent outage, the largest the company has seen to date, Bose says RIM is still analysing associated costs and the financial impact on RIM’s results.

He says the company is currently focused on “getting things right with [the company’s] BlackBerry customers and regaining their trust”. Regaining that trust, says Bose, entails immediate and aggressive action.

Bose adds that, prior to the service issue in October, BlackBerry operated at 99.97%.

The exact details as to the core fault that caused the outage are still sketchy, but RIM says it is looking into the matter. “We’ve asked David Yach, CTO of software, to lead the audit of RIM’s existing infrastructure and the root cause analysis of the service outage. David will work closely with Robin Bienfait, our CIO, on this. We will leave no stone unturned.”

RIM is the only brand that diverts all Internet and e-mail data from its devices via its own infrastructure, a fact that some say could be one of the company’s fundamental weaknesses, as one major fault at any of its data centres would lead to a global blackout.

On the contrary, Bose says RIM’s global infrastructure is a core advantage for the business and an integral part of RIM’s ability to deliver push services, security, manageability and spectral efficiency.
“The BlackBerry infrastructure processes approximately 22 petabytes of data in traffic in a month. [For example] one petabyte of data is equivalent to 13.3 years of HD video.”

Saving grace?

In what some say could be a saving grace for the company, RIM outlined its new operating system, a next-generation platform known as BBX, at a developers conference in San Francisco on 18 October. “We’re taking our platform into the future. Just like we revolutionised wireless e-mail, we’re transforming the tablet experience. We’re redefining the value of the tablet, and taking the success of BlackBerry into the future.”

BBX, says RIM, is the new single, unified software platform for BlackBerry pads and smartphones, as well as automotive, embedded and other solutions that QNX was already used in
“The whole company is aligning behind one single platform, one single vision. We’re taking the power of QNX, open standards and the best of BlackBerry, and building a powerful development platform.”

The recent DevCon Americas 2011 also saw RIM introducing BlackBerry WebWorks, which Bose says will enable developers who want to support both existing smartphones and BlackBerry PlayBook tablets to monetise apps on both platforms.

The Developer Beta version of the PlayBook OS 2.0, which includes the BlackBerry Runtime for Android apps and the BlackBerry Plug-In for Android Development Tools (ADT) was also among the artillery RIM presented at the conference.

Meanwhile, the rumour mill has been turning as to the future of RIM and its BlackBerry creations and industry professionals are of the opinion that the BlackBerry name will be able to weather the storms, as long as the company implements certain fundamental changes in strategy and management structure.

Shake up to keep up

MD of World Wide Worx Arthur Goldstuck says he believes the BlackBerry brand will survive, but has doubts about RIM itself, due to the many structural weaknesses that were highlighted by the recent crisis.

“These [weaknesses] were already known, but they were painted over by RIM’s success and this year has seen a watershed in their history, notwithstanding the outage.

“For the first time RIM has not seen market share or profit growth. It has maintained sales and seen growth in the developing world, but its portions have turned and share prices have been hammered as a result. Investors don’t enjoy seeing shares fall while competitors’ burgeon. This counts against the current management.” He says RIM will have to come up with a better strategy as far as apps go if it’s to compete in the fast-paced, constantly changing market.

“It is clear that RIM is losing market share, because it can’t compete in an apps-driven market. There has to be a far clearer management vision on how it will embrace the world of apps.”

Goldstuck says the bottom line is that BlackBerry remains a powerful mail and messaging platform, but is lacking in foresight by RIM executives. “Android and iPhone haven’t come up with better mail and messaging solutions and this means BlackBerry has a powerful weapon with which to go to the market, but it lacks the ecosystem that the other platforms offer, largely as a result of a lack of vision from its executives.”

He concludes that the recent crisis will hopefully be a big enough wake-up call for a Road to Damascus change in the company’s thinking.

Telecoms analyst from Africa Analysis, Chris Ngwenyama, says RIM will not be able to avoid the restructuring of its management, as “it has been evident that the dual-CEO structure is not working”.
Ngwenyama says RIM needs to introduce consumer-focused services with a rich entertainment content ecosystem such as music, videos, and games.

“RIM needs to realise that its BBM service is now faced with stiff competition from similar services such as WhatsApp and iPhone-based iMessage. Therefore, to remain relevant in the instant messaging game, it has to open up the BBM service to other platforms for ease of accessibility by not only its BlackBerry handsets users.

Ryan Smit, digital consumer unit head at BMI-TechKnowledge, says he sees RIM facing a challenging future in the consumer space as the company has not been able to keep up with other manufacturers in terms of hardware and software operating systems.

“They need to improve their software, and they are planning to do so with the introduction of QNX, but they also need to keep up in terms of hardware as the rate of improvements to smartphones in terms of hardware is accelerating.”

Stiff competition

Ngwenyama predicts that RIM’s market share will continue to decline in countries like the US and the UK, as more and more people gravitate towards Android and iOS-powered devices.

“RIM will, however, still have users in the developing markets where Internet penetration is low, largely due to its BIS offered at a flat rate subscription fee. However, the big corporate organisations and government are highly likely to migrate to other platforms – Android and iOS particularly – since they also guarantee quality, reliability and security, which has thus far been BlackBerry’s value proposition in capturing this market segment.”

Smit says he does not expect RIM will be able to compete successfully with Google and Android in the consumer market in the short term. “[RIM has] fallen too far behind in terms of its application ecosystem, and unless it makes a drastic turnaround, it will continue to see its market share fall.”

He adds that if RIM’s future will rest on the desirability of its new operating system and that, if it wants to regain much of the market share it continues to lose, RIM will have to come out with “something truly compelling”.

“From an enterprise put on view, they still offer a compelling value proposition with their BES services, but with the emergence of Windows Phone Series 7, they will soon have more competition in that arena.”

QNX merit

The new QNX, otherwise known as the BBX operating system, says Ngwenyama, could be a significant step forward for RIM, since it will unite its range of BlackBerry handsets with its tables while providing it with compatibility.

“[This will enable] customers to access services such as apps from other platforms such as Android OS. It further has the potential to grow RIM’s consumer market segment with its entertainment oriented content offering, something that RIM has been lacking thus far.”

Smit says RIM will hope that the introduction of its QNX-enabled handsets will be a turning point, but “at the moment we can only speculate as to how successful it will be.”

Goldstuck says the recent BBX announcement is a step in the right direction and one that, for all intents and purposes, could rescue RIM in the medium term with its Android compatibility.

Outage aftermath

Analysts agree that, as far as the recent global BlackBerry outage goes, RIM has undeniably taken a knock, but they do not foresee a complete loss of support, particularly from its customers on the local front.

Ngwenyama says: “It will be difficult to maintain the support they had from the corporate as the brand’s association with quality and reliability has been damaged by these outages. Notwithstanding the outage, RIM can still maintain support from the consumers in countries with low Internet penetration and where owning a BlackBerry handset is still regarded as a status symbol.”

Goldstuck says the outage and PR blunder was a massive blow to RIM’s credibility. “Even though users will carry on as usual, you will certainly find that the demand at retail level will fall, which will subsequently translate into long-term market share loss.”

He says RIM’s attempt to compensate its customers was paltry. “The apology and efforts RIM has made to regain customers’ trust is not good enough. At face value, the apps worth $100 may look good, but it is really not worth much at all. They are going to have to come up with a more convincing compensation. When you throw something like that at users who are calling for recompense, it is just rubbing salt in the wound.”