RIM – Hope springs eternal

RIMM must hold onto hardware if BlackBerry 10 is to have a chance of being a viable ecosystem.

• The big event is next Wednesday (30^th Jan 2013), but already the essence of what will be announced has been leaked.
• The bottom line is that BlackBerry’s new OS 10 is a vast improvement on the old system against which it has been benchmarked, but is it enough to take on Android or Microsoft?
• From looking at the demonstrations and leaks, I think it looks quite promising.
• Developer traction has been far greater than anticipated which combined with a usable user experience will help to stabilise what has become a sinking ship.
• The other burning questions are related to what strategy RIM will follow in its quest to retain some of its former glory.
• I look at things from the ecosystem perspective and in that regard I think RIM has a chance.
• The main reason for this is that this is going to be a massive market where there is room for multiple players.
• Pretty soon there will be 1bn smartphone users and I would guess that any ecosystem with 100m+ active users is probably sustainable.
• RIM still has close to 80m users meaning that if it can hold onto those and win a few more as BlackBerry 10 develops, it could reach the magic threshold quite easily.
• A lot will depend on how easy and fun it is to access ones digital life on BlackBerry 10 and how integrated and easy to set up the system is.
• If BlackBerry 10 can fare reasonably well on these measures then I can see the user haemorrhage slowing and maybe even reversing somewhat.
• RIM is woefully short of many of the assets that will be needed to create a long-lasting ecosystem (maps, cloud storage, content, and so on) but there will be time to fix these issues once the rot has been stopped.
• Also of importance is whether RIMM will dispose of its hardware business and return to its roots.
• Frankly I think this is extremely unlikely.
• If RIMM was to dispose of its hardware business, revenues would fall by 80% overnight and it would fly in the face of the way returns are earned on software in mobile phones.
• In general, returns on software are made by selling the hardware that runs that software.
• The better the software, the higher the price and the gross margin that one can earn on the hardware. (Apple is the prime example).
• If RIMM exits hardware it will be dependent on third parties to get its software ecosystem to market.
• This was exactly the problem back in 2000 and the whole reason why RIMM got into hardware in the first place.
• Hence, if RIMM exits from the hardware business I will be forced to downgrade my expectations from “some chance” to “no chance”.