How Platforms Die: What’s really wrong with BlackBerry

  • Posted: 12 December 2010 09:08 AM

    What’s really wrong with BlackBerry (and what to do about it)

    http://mobileopportunity.blogspot.com/2010/10/whats-really-wrong-with-blackberry-and.html

    This article specifically focuses on RIM, but it’s general focus is on why platforms die and how to avoid the death spiral. It’s an very long article, but it is well worth the read. Here are some snippets:

    I’ve been getting very tired of the criticisms of RIM, because most of them seem superficial and some are petty.

    In my opinion, RIM is indeed in danger, probably a lot more danger than its executives realize. But I don’t agree on the reasons most people are giving for why RIM is in trouble, and I think most of the solutions that are being proposed would make the situation worse, not better.

    When I worked at Apple, I spent a lot of time studying failed computer platforms. I thought that if we understood the failures, we might be able to prevent the same thing from happening to us.

    I looked at everything from videogame companies to the early PC pioneers (companies like Commodore and Atari), and I found an interesting pattern in their financial results. The early symptoms of decline in a computing platform were very subtle, and easy for a business executive to rationalize away. By the time the symptoms became obvious, it was usually too late to do anything about them.

    The symptoms to watch closely are small declines in two metrics: the rate of growth of sales, and gross profit per unit sold (gross margins). Here’s why:

    Until you get close to the end, your revenue keeps rising, enabling you to tell yourself that the business is still in good shape. But eventually you reach the dregs of the market, and sales will flatten out, or maybe even start to drop. You cut prices again, but this time they don’t increase demand because there are no latent customers left. All the cuts do is reduce further the revenue you get from selling upgrades to your installed base. The combination of price cuts and declining sales produces a surprisingly rapid drop in revenue and profits. If you want to make a profit (which your investors demand), your only choice is to make massive cuts in expenses. Those cuts usually end up eliminating the risky new product ideas that are your only hope of re-igniting demand.

    At Apple I called this the platform “death spiral” because once you get into it, the expense cuts and sales declines reinforce each other. It’s almost impossible to reverse the process, unless you’re Steve Jobs and you get very lucky.

    Until a year ago, the rate of growth of BlackBerry subscribers was itself increasing every quarter. In other words, RIM added more new subscribers each quarter than it had added in the previous quarter. But for the last four quarters, RIM’s subscriber growth has plateaued at around 4.7 million net new subscribers a quarter. The company’s still growing, but it looks like the rate of growth may be flattening. That might imply the beginning of saturation.

    This one’s a little disquieting as well. Five years ago, RIM was getting .7 new subscribers for every BlackBerry sold. In other words, most of its sales were to new users. Today, RIM is getting .37 more subscribers per BlackBerry sold, and that figure is at an all-time low. To put it another way, RIM now has to sell more than two and a half devices to get one more subscriber. Either RIM is selling most of its units to its installed base, or it is having to bring in a lot of new customers to replace those who are leaving for other devices. My guess is it’s a mix of both.

    There’s much more in the full article, here.

         
  • Posted: 12 December 2010 10:43 AM #1

    This was my favorite part.

    Quarterly R&D Spending of Apple and RIM

    R&D spending in most recent four quarters. Dollars in millions.

    Although Apple has about three times the revenue, RIM’s R&D spending is about two-thirds of Apple’s. With just a third more money, Apple produces the Macintosh, iPod, iPhone, iPad, Apple TV, iTunes, App Store, custom microprocessors, and a suite of mobile services. RIM is producing a bunch of minute variations on a family of phones, an e-mail server, a new OS, and a suite of mobile services that also has to be individually interfaced to each operator. RIM puts much of its effort into infrastructure that has little or no impact on features that users can see and value.

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  • Posted: 12 December 2010 01:27 PM #2

    BillH - 12 December 2010 02:43 PM

    This was my favorite part.

    Although Apple has about three times the revenue, RIM’s R&D spending is about two-thirds of Apple’s.

    Great observation.

    A slight tangential point. I haven’t methodically categorized this, but I’ve been thinking for quite some time that Apple is literally maxed out right now. They have a ton of balls in the air. Apple has four of Time magazine’s top ten tech gadget’s of the year. Off the top of my head, I know that Apple introduced the iPad, the iPhone 4, a new series of iPods, and the MacBook Air. Their developers had to revise iOS to work with the iPad and update the existing iOS to implement multi-tasking and other features in the iPhone. Their developers were so over tasked that it took them until the end of November to unify the iPad and iPhone OS’ and they appear to have been unable to fully implement the promised AirPlay and AirPrint features. Of course Lion is coming out in the summer of 2011 and the subset of features required to power the Mac App store is coming out even sooner, in January 2011.

    Maybe I don’t want to look behind the curtain and see the chaos that is actually occurring at Apple, but from my point of view, the Wizards at Apple are really hitting their stride. As an analogy*, RIM is traveling 50 miles on 100 gallons of gasoline. Apple is traveling 100 miles on 10 gallons. They’re just running on all cylinders and their cylinders are running at peak effeciency.

    *Don’t get hung up on real world mileage numbers. It’s just an analogy.

         
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    Posted: 12 December 2010 02:15 PM #3

    RIM’s problems I think, largely come from a legacy system, and a stubborn belief that their’s is the only way to go.  I blame this on iupper management, Lazaridis (the smartest guy in the room) and Ballsillie.  They have indicated recently by their actions that they might just be waking up to some of their shortcomings, I.e., they have gone outside to acquire OS expertise in touchscreens and apps that they clearly lack.

    Insiders will readily tell you that RIM’s touchscreen interface is simply awful.  None of the engineers there would buy one for their own use. 

    One other thing the article mentioned briefly, that I know from experience to be true.  they rely on the university of Waterloo for a lot of their talent, however a lot of talent really doesn’t want to live and work in Waterloo.  The companies loyalty to this upper Canadian backwater may ultimately hurt more than help.

    I don’t think they’re dead, however I see them in a somewhat similar situation that Apple was in when they went out and bought NeXT and brought back Steve.  They’ve acknowledged they need to acquire technology that they can’t build themselves.  The open question is who is the visionary who will turn this thing around?  I don’t have faith that the current co-CEOs can do it.  Ultimately the inability to discard the past, and infighting amongst various technologies inside may just muddy the way forward and doom them to a niche.  However we know that niche products with a loyal base can survive quite a long time.

    [ Edited: 12 December 2010 02:19 PM by jimlongo ]
         
  • Posted: 12 December 2010 02:43 PM #4

    jimlongo - 12 December 2010 06:15 PM

    I don’t think they’re dead, however I see them in a somewhat similar situation that Apple was in when they went out and bought NeXT and brought back Steve.

    I disagree because of this:

    jimlongo - 12 December 2010 06:15 PM

    They’ve acknowledged they need to acquire technology that they can’t build themselves.  The open question is who is the visionary who will turn this thing around?

    I agree that RIM has finally woken up and targeted the areas where they are weak. I just think they’re very late to the game and I don’t see an inkling of the kind of leadership that has the willpower to cut the technology that needs to be cut and the focus to pick the winners that will carry them into the future.

         
  • Posted: 12 December 2010 05:21 PM #5

    Nice catch, Kirk.

    Note to those who do check out the link:  Several of the comments are high quality.

         
  • Posted: 12 December 2010 07:05 PM #6

    capablanca - 12 December 2010 09:21 PM

    Nice catch, Kirk.

    Note to those who do check out the link:  Several of the comments are high quality.

    Thank you for your comment and thank you for re-referring me to the articles’ associated comments. You were so right about the quality of the comments. Lots of intriguing analysis going on there.

         
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    Posted: 12 December 2010 10:56 PM #7

    The author’s not 100% right about Apple’s rebuilding from Macintosh (which isn’t really a big deal, because the article isn’t about Apple), but his analysis on RIM is excellent. 

    Does anyone you know who’s new to the non-basic phone market actually want a BlackBerry?  They probably won’t care about e-mail whatever unless Corporate IT at their job demands BB use, so must will go for an Android something or iPhone.  The longer BlackBerry continues to flounder around, the more the existing base will be tempted to pick up and leave for another platform.  RIM has a very short time to turn things around, while things still look good on paper.

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  • Posted: 12 December 2010 11:29 PM #8

    There’s an important issue here in that the smartphone market is growing on a global scale at a frenetic pace. In this stage of a market cycle, deliberate price cuts to stimulate unit sales shouldn’t be necessary. At this stage in the global market cycle innovation should be driving unit sales.

    RIMM is continuing to grow, but at a slower pace than the overall market. The other issue is the company is a laggard in the emerging app economy.

    I think Microsoft has made a big mistake in the company’s latest effort to jump start its mobile device business. MSFT thrives only on high volume. RIMM would be an attractive fit and give the company some credibility in the market. Ultimately RIMM will need to combine with an equal or larger-sized partner. The question is which partner and when the merger will occur.

         
  • Posted: 13 December 2010 12:33 AM #9

    DawnTreader - 13 December 2010 03:29 AM

    I think Microsoft has made a big mistake in the company’s latest effort to jump start its mobile device business. MSFT thrives only on high volume. RIMM would be an attractive fit and give the company some credibility in the market. Ultimately RIMM will need to combine with an equal or larger-sized partner. The question is which partner and when the merger will occur.

    Microsoft may have made a mistake but it was the only path available.  In other words, at least they’re trying.  RIMM strikes me as the worst of all acquisitions.  It’s only desirable trait is it’s secure servers with their intrinsic security which is what attracted the corporate market.  It’s least desirable trait is it’s secure servers with their intrinsic security which the corporate market seems less and less inclined to pay for.  They’re trap doored unless they find a way out.

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  • Posted: 13 December 2010 09:20 AM #10

    DawnTreader - 13 December 2010 03:29 AM

    I think Microsoft has made a big mistake in the company’s latest effort to jump start its mobile device business. MSFT thrives only on high volume. RIMM would be an attractive fit and give the company some credibility in the market. Ultimately RIMM will need to combine with an equal or larger-sized partner. The question is which partner and when the merger will occur.

    I understand your thinking. Instead of developing Windows Phone 7 from scratch, Microsoft could have acquired RIM and built on their joint expertise in catering to Enterprise.

    But I’m not agreeing with you that it would have been wise for Microsoft to have acquired RIM. They may prove me wrong, but I think RIM is headed for a dead end. The only way for them to become relevant is to take the new OS they are putting in their tablet and move it to their phone. Changing an old hardware and customer base to a new OS on the fly is as difficult as changing horses on the run - doable, but with a high probability that it will end in disaster.

         
  • Posted: 13 December 2010 09:27 AM #11

    I think to a certain extent we might be looking at RIMM through our rose tinted Apple glasses.  Don’t get me wrong, I think RIMM isn’t able to compete against the iPhone and Android (for specific tasks), however, they do still have a number of things going for them:

    - Smartphone market is growing phenomenally quickly - Asymco posted a recent article stating that 30% of the US market is now using smartphones (I would imagine Europe is very similar, with the rest of the world being less than this); that still leaves another 70% to go after.  RIMM will no doubt still gain hugely from future market growth.

    - Pats I believe posted an incredibly detailed synopsis of how people use their mobile devices to communicate - I can’t remember it exactly, however, one thing that I took away from it was that there very much are different tastes when it comes to computing devices.  Some people use them exclusively for consuming content (think surfing the net), some use them completely for communicating (think email/texting/BBM etc) and so forth.  Now arguably (and this is a big assumption) the iphone fulfils the first part much much better than a Blackberry (and I would assume that Androids do the same).  Now Blackberry’s can be argued to fit into the communication’s category of mobile devices.  Qwerty keyboards are emphatically better for typing long emails (this may be a biased opinion, I have both an iphone and BB though) coupled with BBM, it makes for a very powerful communications device.

    I therefore feel that people will likely choose the device that they think best resembles how they use their mobile devices.  Some for instance need to have a qwerty keyboard, and will therefore predominantly choose a Blackberry.  Others will want to surf the net, play with apps etc.  They will choose an Android or iPhone.

    So I think it is too easy to dismiss Blackberry’s out of hand, just because most of us have an iphone and therefore have already fallen into the consumption category of mobile computing.  There are still people out there that are communicators and need the best device for this purpose, which BB is certainly one of (I want to try and avoid an argument over whether a BB is better than an iPhone at communicating for instance, if possible!).

    Just my 2 cents worth - and I may well be wrong…

         
  • Posted: 13 December 2010 11:19 AM #12

    JonathanU - 13 December 2010 01:27 PM

    Qwerty keyboards are emphatically better for typing long emails (this may be a biased opinion, I have both an iphone and BB though) coupled with BBM, it makes for a very powerful communications device.

    Some for instance need to have a qwerty keyboard, and will therefore predominantly choose a Blackberry. 

    So I think it is too easy to dismiss Blackberry’s out of hand, just because most of us have an iphone and therefore have already fallen into the consumption category of mobile computing.  There are still people out there that are communicators and need the best device for this purpose, which BB is certainly one of (I want to try and avoid an argument over whether a BB is better than an iPhone at communicating for instance, if possible!).

    Just my 2 cents worth - and I may well be wrong…

    I believe your premise about physical keyboards is incorrect.  There is a tiny percentage of the market that were historical Blackberry users and are rather skilled at their use.  They will be reluctant to abandon those skills.  Most of what I read anecdotally suggests that the iPhones predictive text makes the iPhone faster to type on than a Blackberry. Categorizing iPhone and Android users as “consumptive” rather than “communicators” is based on surveys of how some were using their phones but failed to take into account that Blackberries were horrible at anything but email so of course their usage tended in that direction.

    I want to try and avoid an argument over whether a BB is better than an iPhone at communicating for instance, if possible!).

    So you make generalizations about a products attributes but don’t want others to comment?  How’s that work?  wink  Besides, in my family we call this discussion.

    (did you mean to say empirically rather than emphatically?)

    [ Edited: 13 December 2010 11:21 AM by BillH ]

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  • Posted: 13 December 2010 11:55 AM #13

    This reminds me of the peak mainframe days. IBM and their competitors were known as Snow White and the Seven Dwarves. IBM spent more on R&D than the combine revenues of their competitors, developing some leading edge technologies. But many of those goodies were never sold to the public. Why? Internal politics led to various departments and divisions defending their turf while ignoring oncoming changes.

    A side note from today: Interesting that the US military budget is more than the combined military budgets of most of the rest of the world while we are actually in decline. Maybe we are observing some general human trait that leads inertia to become stronger than repsonsiveness after success.

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    Posted: 13 December 2010 12:13 PM #14

    A coupe of observations:
    I use a BB. I hate it but it’s what the company gave me. I’ll take a free lousy phone over buying my own. Oddly enough my department is the only one that is still using BBs. Nearly everyone else at the company has gone out and bought their own iPhone.

    The keyboard is tiny. Sure it’s physical but it’s too damn small for my fingers. I end up typing with one index finger and looking over my glasses to read it. So much for a physical keyboard being better for typing.
    The screen is terrible. Too small and ironically the pixels are too big. It looks harsh and grainy. Like the non antialiased screen on my old Mac Classic, but in stunning 8 bit colour.
    The browser is useless. I tried once and never even bothered with it or sonnecting to the internet at all on the device again.
    The track pill is awful. I’m constantly overshooting or clicking on something I don’t want to.

    Yes these are all things that could be solved, but I look at RIMs offerings and I don’t see them solving them. They’re working on a Pad rather than fixing their core product. This I take to be a very bad sign. SJ fixed the MAC before he looked to the iPod/iPhone/iPad. I don’t see RIM doing that.

    I think RIM will start the death spiral soon and eventually will be acquired. At that point the Canadian press will be full of angry letters and editorials about how Canada “let another one get away like the Avro Arrow and Nortel”.

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  • Posted: 13 December 2010 12:30 PM #15

    I think it’s horses for courses to a certain extent though - I hear many people in my age group (20-30) saying how they hate typing emails on iPhone’s and prefer their BB’s.  Similarly,the other day I was having lunch with the head of the firm that I work for (aged 50).  He just got an iPhone, said he hates typing on it and is returning it.  Given he calls the shots, BB’s are likely to be the company phone for the forseeable future. 

    I have both BB and iPhone, one for work, one for personal use.  I use them both differently, and as such, just can’t reconcile how to get the best of both worlds as touch screens will always seem worse at typing (to me), but dramatically better for light content consumption (it truly is a pleasure to use to surf the web!), and vice versa with a BB.

    Perhaps I am being pedantic, and it is probably impossible to quantify how many people in the world who feel the same way as me - but either way, I still don’t think BB is as dead as everyone is making out… there is still time for RIMM to respond to the competition.

    Also - the big elephant in the room that no one has talked about is that the smartphone market is still only 30% at most of total handsets used in the US/Europe - plenty left of the dumb phone market left to gobble up…