Is the iPhone killing RIM?

The BlackBerry is under attack and RIM’s giving the fight everything it’s got

Is the iPhone killing RIM?Last month, a posting appeared on the popular Business Insider blog that no doubt filled some Research In Motion executives with a sense of dread. Under the heading “How I Ended My Affair With BlackBerry And Eloped With The iPhone,” former tech analyst Henry Blodget described how he somewhat reluctantly went out and bought Apple’s latest “it” phone, the new iPhone 3G S, after 12 years of loyal BlackBerry service. Business users have long been skeptical of the sleek iPhone and its touchscreen display, which can make emailing and typing a chore, but Blodget wasn’t disappointed with his switch. “It’s nice here in Apple world,” he concluded.

Research in Motion (RIM) is still a smartphone juggernaut, but the defection of influential business leaders like Blodget sends a chilling signal to the Waterloo, Ont.-based company. More than half of its 28.5 million subscribers are business users, and while they haven’t been dropping their BlackBerries en masse, momentum is quickly building behind the iPhone. While RIM reported a decline in the number of new subscribers in its latest quarterly results, Apple saw iPhone sales jump sevenfold. And when the new iPhone 3G S launched this summer, U.S. buyers snapped up one million of them in just three days. If the trend continues, and iPhone sales continue to rocket up, it’s easy to see who will come out on top. Analysts say that Apple’s rise out of nowhere to become a legitimate rival to the BlackBerry is something that RIM is now going to extraordinary lengths to guard against.

Just how far will RIM go? All the way to Parliament Hill, for starters. Last week, an emergency parliamentary hearing was held to look at the fairness of a recent auctioning off of some of Nortel’s wireless assets. RIM had complained vehemently that it was unfairly shut out of the auction, which was eventually won by the Swedish firm Ericsson. “RIM is extremely disappointed that Nortel’s world-leading technology, the development of which has been funded in part by Canadian taxpayers, seems destined to leave Canada,” said RIM co-CEO Jim Balsillie. In a statement, the company sought to stoke the nationalist fires by adding that the move could “significantly, adversely affect national interests, with potential national security implications.”

The squabble over the leftovers of a bankrupt company might appear to have little to do with iPhones (let alone national security). But observers say that RIM’s gambit to grab a piece of Nortel is very much a part of a bigger strategy to protect its place as the go-to smartphone maker in a wireless market that is becoming increasingly crowded. Competitors such as Apple are grabbing more attention as Internet-based smartphones begin to outshine RIM’s often clunkier, suit-and-tie set BlackBerries, and among the Nortel assets, analysts say RIM sees some key pieces of technology that could help turn the tide back in its favour.

At the parliamentary hearing, RIM co-CEO Mike Lazaridis said that RIM “almost had a deal” with Nortel to buy some of its wireless technology. He confirmed what analysts already suspected—that RIM is primarily after the patents on a new wireless broadband standard called Long Term Evolution, or LTE. LTE has emerged as the technology most likely to form the backbone of the next generation wireless systems over the next few years—systems that will allow smartphones to connect to the Internet far faster than they do now, and handle the kind of data-heavy services that are just beginning to appear on cellphones, like video-on-demand and video conferencing.

That’s what makes RIM’s interest in Nortel so revealing, say analysts. This kind of technology is normally the concern of companies that build wireless networks, not those that make handsets. But if RIM were to control these LTE patents and employ the engineers developing them, it would be at a huge competitive advantage. RIM wouldn’t just be a cellphone maker, but a one-stop, wireless powerhouse. It could, for instance, negotiate much cheaper access or even exclusive rights to the wireless networks it operates on, says Joe Compeau, a professor at the Richard Ivey School of Business, who has been following the company. It could also license the technology to other cell phone makers—a potentially profitable side business. RIM would become “the kid who owns the ball in the playground,” says Carmi Levy, an independent technology analyst.

RIM knows better than anyone the risks of not controlling patents vital to its future. It has paid almost a billion dollars to settle two major patent disputes, including a US$267-million payment just last month. Those disputes threatened the very survival of the company. Nevertheless, a bid to control the underpinnings of a wireless system is an unprecedented move. Apple, for instance, has shown no interest in dirtying its hands in this side of the business. “It is not normal that a handset vendor would get that deeply involved in its supply chain. Handset vendors typically stick to handsets and partner with telecom vendors like Nortel or Ericsson,” says Levy.

For now, BlackBerries remain big sellers, though it’s easy to see why RIM is looking to alternate strategies for the future. “They’re still the device of choice for businesses and they’re gaining space in the consumer market,” says Compeau. RIM sold almost eight million of them in its latest quarter (though analysts caution that was helped by a buy one get one free offer from Verizon Wireless in the U.S.), and its Curve model outsold the iPhone in the first quarter of this year, according to the NPD Group.

But while RIM still holds a sizable 41 per cent of the global market, Apple has managed to snatch away 25 per cent of the market in just two years, according to a report by ChangeWave Investing. Now, rather than calling the shots, it’s BlackBerry that’s struggling to appear hip in the age of the iPhone. It is sponsoring U2’s latest concert tour and has been running slick commercials featuring the band and the slogan, “BlackBerry Loves U2.” That might help (Apple once sold a U2-branded iPod), but what RIM really needs is a knockout new product, one with a top-notch touchscreen that betters the iPhone. Its first effort at a touchscreen phone, the Storm, was a flop with critics (although RIM said early sales were “stronger than anticipated”), and a newer version is due out in the coming months.

Perhaps most worrying of all for RIM is the potential erosion in sales among members of the next generation. According to a survey of future smartphone buyers, 44 per cent now say they are planning to buy an iPhone, while just 23 per cent say they would buy a BlackBerry, according to ChangeWave. Those numbers may partly be a result of the timing of the survey, which was done at the same time Apple released its new iPhone 3G S, but the threat from Apple is growing quickly as it slashes prices (you can now get iPhones for $99 with a three-year contract), adds new carriers, and improves the look and functionality of its phones. “Truth be told, the real darling is the iPhone hardware design. Nothing can touch it,” says Levy.

Apple is also beating out RIM in the emerging market of third-party smartphone applications. It has been just a year since Apple launched its online App Store, but there are already over 50,000 applications and counting, and the site boasts more than a billion downloads. The variety of applications has made the iPhone more appealing to consumers, and Apple has demonstrated that smartphones are about a whole lot more than just emailing and browsing the Internet. RIM has launched its own app store (which has a few thousand apps), but analysts say that Apple’s lead in this area may simply be insurmountable.

RIM’s best bet may indeed be to focus on research into new wireless network technology, but so far it’s not going all that well. Most observers say the odds of the government intervening in the Nortel sale to award the patents to RIM at this late stage are small. After all, the LTE patents are simply being leased—not sold—to Ericsson. However, it’s conceivable that RIM could pursue its strategy through other means. Nortel isn’t the only company developing LTE, and RIM still has plenty of cash on hand for acquisitions. Of late, RIM has been buying patents and intellectual property at a great rate; it has spent $1.3 billion on patents over the past two years, according to a report by Genuity Capital Markets analyst Deepak Chopra.

But will that be enough? Most observers expect that over the coming years Apple will continue to pick away at RIM’s business market, leveraging its sleek looks and status to win over the suits. “It’s still a two-horse race,” says Levy, but just like there’s only room for one Coke, there may only be room for one true smartphone leader with a brand and design strong enough to make consumers swoon. Right now, it looks like that brand will be the iPhone.

A few weeks ago, Blodget wrote an update about his breakup with the BlackBerry. Despite a few frustrations, he said, “I’m still happy I bought the iPhone.” There’s no getting away from the fact that people who use the iPhone just seem to like it better. Experiences like that will be pretty tough for RIM to overcome.




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Is the iPhone killing RIM?

  1. Very interesting. Good analysis.

  2. With business obstacles like these on the horizon, why would Balsille want to throw money away on a hockey franchise?

    Bettman is no friend of Big Jim, but he is probably doing him a favour by squeezing him out.

  3. With business obstacles like these on the horizon, why would Balsille want to throw money away on a hockey franchise?

    Bettman is no friend of Big Jim, but he is probably doing him a favour by sqeezing him out.

  4. The big threat to RIM is if access to corporate email becomes "just another app". This is RIM's bread and butter.

    Not only would that open up things to more consumer appealing handsets but also be a major threat to the RIM infrastructure, which allows them to get a monthly fee out of the carriers for each subscriber.

    They are in the fight of their lives, as they have been from the day they got started. Beat palm, beat Microsoft, beat Nokia and host of smaller players.

    At the end of the day they need to make great phones that people will want, like what Apple does. They do great things, they make great radios, nobody is better than them at making the battery life as long as it can be.

    They will be throwing everything at it because they need to and they know it.

  5. Whatever, Blackberries are much better

  6. iPods die young
    I'll bet iPhones do too
    uber cool products but ….
    business values reliability above all for this product/service
    RIM will do just fine

  7. While it seems touch screens are still all the rage in the smartphone segment, am I the only one who has noticed that it has waned in the "dumbphone" in favour of the QWERTY keyboard?

    Aside from the fact that the iPhone IS a really great consumer market phone, I think the big reasons that it's the darling of the mobile world lately are:

    a) Apple has already convinced the masses (and tech geeks) that it's cool

    b) It's established itself as the platform of choice for mobile developers.

    I think those are two things that RIM has to consider, and to their credit I think they know that. It is also worth noting that Apple has even stumbled on part B of that equation with the whole Google Voice brouhaha. It's the vibrant developer community that really makes the iPhone what it is, so Apple really needs to careful with that, before developer start moving to Android or Palm's WebOS en masse.

    • Rim's OS is also beginning to show it's age and with push API's becoming the norm it's not hard to see Blackberry losing their edge.

      The only thing they have going for them is the great set of IT tools thank make it easy to manage large scale deployments, once others catch on I think RIM will be in serious trouble.

  8. It's seems that only the consumers wil win in this area. Now it's time for the provider (Telus,Rogers, Bell) to drop the price of the package that is huge compare to the US user!

  9. I love my Blackberry but it not very compatible with my Mac. There is a third party software for syncing but it works only some of the time. Develop software for Macs and make Backberry's WORK with a Mac. Then I won't be so tempted to jump ship.

  10. I did my due diligence and decided to get a Storm over an iPhone recently. I couldn't give Rogers my money. I'd heard enough stories about the gouging of the iPhone charges, perhaps unfounded. Still, for my purposes (minimal need for phone calls, some texting, some surfing, not a ton of usage each month, more for an emergency), I decided the BBerry was the way to go. I do have a Mac and an iTouch, though. Just didn't go that route for the phone.

  11. The author of this article obviously lacks any meaningful understanding of the telecom industry or RIM's products or business. Plus, RIM has been knocking it out of the park for 10+ years and plenty of articles like this (predicting RIM's demise) were written during every one of those years. Apple has done well, but the reality is that Apple has done well at the expense of Microsoft, Nokia, Palm, Samsung, LG and others. And RIM has actually done better every year since Apple arrived. Don't let this kind of thin "journalism" taint your view. In the real world of business, you would kill to have RIM's position and momentum. And a two horse race in a growing market is a beautiful thing for both horses. The author has been either blinded by hype or simply believes that naysaying will appeal to the inferiority complex lying deep within the Canadian psyche (which is a false and archaic theory by the way). Either way. This article completely misses the mark and appears to have been formulated by simply stringing together a handful of facts and opinions without an actual understanding of the industry (something I used to do when writing papers in school). Macleans should do better.

    • Bill, your points are valid if the target market segments are growing at the same rates as the "10+ years". And as products mature, there tends to be convergence – ie little to differentiate competitors.

      I haven't looked into the business-industry/consumer goods segments specifically, but I suspect the penetration rates for cell phone/smart phones are pretty high.

      Got any data to support your critique?

  12. Penetration for cell phones is high, but the penetration of smart phones is still pretty low, relatively speaking. I agree with Bill. I don't have the data handy, but it seems to be a widely held belief that there is a lot of room left for growth in the smart phone maket, and to be fair – I don't see any data in this story either that would back up its overall theory or its weird title. If RIM is being "killed", then kill me now. Bill is right. I would love for my business to be as successful as RIM's. They are growing and the market is growing and they are still really profitable. I guess I just don't understand why RIM and Apple won't both be successful for at least the next 5 years.

  13. The funny thing about this article is that it comes out at the EXACT MOMENT that (American magazine) Fortune Magazine names RIM the FASTEST GROWING COMPANY IN THE WORLD. Sorry for the caps, but sometimes I get annoyed by Macleans taking an anti-Canadian spin on a story. Think about it — the fastest growing company in the world, and Macleans response to this astonishing success story is… doom and gloom.

    Is this the typical Conservative I-hate-everything-about-Canada crap or what?

    • I suspect you read the same article as I did in today's G&M ROB, pg B5: RIM's growth snags global recognition..
      http://www.theglobeandmail.com/report-on-business

      Ironically, on page B1 there was a complementary article: iPhone hard to find? Sorry, there's no app for that.
      http://www.theglobeandmail.com/report-on-business

      Frankly, I think you're being unfairly harsh on Macleans. The title asked a rhetorical question: "Is the iPhone killing RIM?". I don't see anywhere in the article where it claimed it was, but gave a good description of the highly competitive smart phone market, and explained the reasons for some of RIM's recent moves.

      What precisely in the Macleans story do you find so offensive?

      • From the second article, B1:

        Apple Inc. is shipping limited supplies of its smart phone to Rogers Communications Inc., the only Canadian wireless operator able to carry the device, as the California company scrambles to try to meet global demand that appears to have exceeded its own forecasts…."If you're in short supply and the smart-phone companies are [fighting] it out in a war, you want to protect your beachhead. You want to be able to fight the battle in the most important areas of the world, and quite frankly that's the United States. You've got to reserve your supply for the biggest battle grounds," Mr. Restivo said. "Rogers can't be thrilled about the supply situation."

      • So, it seems to me, the consumer goods market for smart phones is growing, RIM by moving into the consumer goods market (from predominantly business/gov't/industry) has increased its sales (with lower margins), but at the same time has a wider range of competitors, and it's dominant position in the secure business segment is either holding its own, or it is losing market share. And Apple's share is being constrained by lack of adequate manufacturing capacity.

        • It's possible that I was being unfairly harsh — I had just finished reading columns by A. Coyne and Mark Steyn in sequence, which always set my blood boiling. Canada and Canadian companies are always wrong to them. But this article manages to find a negative slant to one of the most incredible Canadian tech stories of the millennium. Why not explore their incredible contribution to Waterloo, Ontario, or Canada? Instead we get a constant barrage from Coyne about Canadian companies not funding research compared to foreign companies in Canada. Of course, it's a comparison done in bad faith — small Canadian companies, like for instance the Big Bee chain of stores, don't do research and shouldn't be compared to companies like Toyota or Siemans. Compare Canadian multinationals to foreign multinationals and you discover that these Canadian companies do far more R&D in Canada. But that would make Canada look good, which is apparently not an option to some writers. In a similar way, this article finds a negative slant to highlight a problem that might potentially possibly exist. It's sort of like complaining about Gretzky's performance circa 1983.

          • Well, before Coyne wrote his latest blog on RIM and Arrow , I was quite critical of RIM's move to seak intervention before the Parliamentary Committee on one of ITQ's blogs. Yet, I don't downplay the success of RIM and its co-founders.

            See here:

            http://www2.macleans.ca/2009/08/07/itq-committee-

            (you need to open some comment links near the bottom – Wascally Wabbit's)

  14. 3 Cheers to G Betts comment! I just recently bought a 8830 Curve after retiring my HTC Touch, which was a phenomenal phone for web browsing and Apps.

    But what a world of difference on a BB. the functionality is very impressive. I spend hours a week on crackberry.com discovering more uses. The best part is, this is a Canadian company, built in Canada, and is pushing the envelope everyday.

    I have friends with iPhone. In a two horse race, the iPhone is a one trick pony. If you want a glitzy trendy phone, so you can amaze people with it's silly apps, fine buy an iPhone. I hate to say i told you so when you struggle to type on that touch screen keyboard, or the digital screen starts to wear out.
    If you want a serious business phone, you can email, and BBM quickly, not to mention sync with the corporate intranet. Then get the far superior and ever evolving Blackberry

  15. So, let's look further into the G&M stories. From the first, B5:

    RIM holds a 56-per-cent share of the $12-billion (U.S.) – and growing – American smart-phone market, and is expected to see three-year average earnings per share growth of 84 per cent and revenue growth of 77 per cent. Fortune says this is largely on the strength of RIM's foray beyond the corporate world into the highly competitive consumer market.….However, Fortune warns that RIM's competition from the likes of Apple, Acer, Dell and Motorola is "getting increasingly stiff" and RIM will have to work hard to keep up with changing consumer demands.

  16. Oops : seek

  17. I disagree that RIM needs to come out with a better touch screen phone. I think the keyboard is one of their strengths. What I think RIM needs to do is come out with a phone that features a far better browsing experience (and if they can combine that with a truly superior camera and a great MP3 player, all the better). I personally use an iPhone, but I'm not crazy about the touch screen, and I've talked to LOTS of iPhone users who feel the same way. The reason we use the iPhone — and the reason so many people (like my brother, for instance) are switching from Blackberry to iPhone — is the latter's vastly superior, PC-quality web experience. For lots of folks these days, a web browser is a more important feature than the phone itself. Anyway, the first vendor that comes out with a truly superb handheld browser/phone that comes WITH a true QWERTY keyboard will have my business.

  18. Is the iPhone killing RIM?

    Ah well, then. Time for another multi-billion dollar bailout, I guess…

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