RIM’s history may be divided into two periods: the time from its entry into the smartphone market until the end of 2010, when virtually every quarter brought growth in shipments and revenues, and the period since, which has seen significant declines in both. The question RIM faces at this point in its history is whether the most recent trends are destined to continue, or whether it can recapture its former glory.
BlackBerry 10 (BB10) is the company’s attempt to get back on track, and will launch in early 2013. However, we believe that the software, and the new devices that run it, will appeal largely to existing customers, and fail to win converts from other platforms. As such, we believe RIM will see a brief bump in its results during 2013, but that the overall trajectory the company is on will continue its downward slope after that. In other words, BB10 will provide a temporary boost in performance but no salvation for RIM.
Preaching to the choir
Two major factors have worked against RIM in the past two years: companies are no longer buying the majority of smartphones sold today, and individuals overwhelmingly choose devices other than BlackBerries when they make buying decisions. Both of these have depressed sales for RIM’s devices, and neither is going away. The first of these phenomena is unstoppable, and we expect a significant increase in employee-led rather than IT department-led smartphone buying. Our recent surveys suggest that even when employees aren’t choosing the device, they expect the replacement for their current BlackBerry to be an iPhone or an Android device. The second trend could be stopped in theory, but RIM does not seem to be focusing on this approach in BB10.
As part of our research for a newly published profile on RIM’s smart device strategy, it became clear to us that RIM’s intention for BlackBerry 10 is to be “the best BlackBerry for BlackBerry users” rather than something that will necessarily win converts from other platforms. The points of differentiation RIM has focused on in teasers for the new platform confirm this – better multitasking, productivity, email, contacts and calendar applications and so on, rather than a better gaming, content consumption or social networking experience.
We can’t fault RIM for wanting to hold onto its 80 million existing subscribers. While exact figures aren’t available, our analysis suggests that RIM has always sold about half its devices to new customers and half to existing customers upgrading to a better phone. For much of the last two years, the portion bought by upgrading customers has significantly outweighed the portion bought by converts, and this makes it all the more important for RIM to retain existing subscribers.
We believe that much of the installed base in mature markets has delayed upgrading while BlackBerry 10 is pending, something that has unfortunately dragged on for far too long, thus lengthening the upgrade cycle and depressing results in the interim. If BB10 delivers, it should produce a nice fillip in RIM’s results in the first two quarters of 2013 at least as this pent up demand finally meets supply.