On the death spiral at Research in Motion

By Edward Harrison On Jun 29, 2012

Research in Motion, the Canadian company that makes Blackberry handsets has just turned in an abysmal quarter’s earnings. Across the board, from the top line, to operating earnings, to the bottom line, and to unit sales, results were poor. RIM is in a death spiral. This shouldn’t come as a surprise, of course, since the company has been imploding for the better part of two years.

But here’s the frame to use as I set it two years ago regarding the Coming Apple iOS – Android Wars:

I see a future computing world which is networked and platform independent. And that means gatekeepers of bandwidth and content will be the winners in that world. Over the short-term Microsoft and the telcos will play their part in protecting their legacy franchises in these arenas. But ultimately, people just want to get their content when- and where- ever they can. And that means the organizations which dominate the multi-device interfaces of the future will take on a leading role in technology, perhaps the leading role. Right now that looks to be a battle between Apple and Google because the mobile Internet is in an unprecedented early stage of growth. Mobile phones and mobile devices is where it is at. Research in Motion still has a chance to play a large role as does Palm given recent rumours about an HP hook-up. But Apple and Google will definitely be central in this game.

For the also-rans, given the huge installed base for iOS and Android, it has to be about execution and from what I have seen in the two years since I wrote that piece, none of the other mobile platforms stands a chance except Microsoft’s. And Microsoft only stands a chance because they are a diversified company with a cash cow that allows them to support their loss-making mobile division. Palm is gone. Nokia is dependent on Microsoft. Likely, they won’t make it. RIM is toast too. It will either be sold or go bankrupt.

What’s more is you have to remember that the consumer hardware business is a tough business in technology. Only a few vendors can make significant money from it and only for a few years before competitors catch up and erode margins. This has always been true. In consumer electronics, Sony was the king and was able to keep margins robust due to its brand and premium pricing. But eventually the brand premium eroded and margins along with it. In the PC business, we have had IBM, Compaq and Dell as kings of the hill at one time or another. Every single one of them faded, Compaq selling out to HP and IBM exiting the PC business altogether. Now in mobile, Apple is king, everyone else except Samsung is a commodity manufacturer. There is no money to be made in handsets unless you sell in volume or at a premium price.

What this means is that none of these mobile companies have viable business models except Apple, Samsung, Google and Microsoft. They are commodity hardware manufacturers like HTC and Motorola or they lack scale like Nokia and Research in Motion. In my view, this business will settle around two or three operating systems with either an integrated software/hardware model or a software only model as the most models. That puts Samsung in a unique position since it is consumer hardware company. While Samsung is making a lot of money from handsets now, eventually this business will be commoditized. Could Samsung buy Research in Motion and have handsets in multiple operating systems? It might be a wise move. In my view, RIM has a limited window. It needs a partner with deep pockets and good sales channels. Samsung is the only game in town that I can see.

That’s it. Here are the links.

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