January 23, 2012 8:39 pm

Glory days an old memory in RIM’s new world

The decision of Mike Lazaridis, Research In Motion’s founder, and Jim Balsillie, his co-chief executive for 20 years, to step down over the weekend highlights once again how quickly life on the “bleeding edge” of technology can change.

Just three years ago RIM was riding high with surging smartphone sales and a market capitalisation that peaked at more than $80bn.

From the company’s foundation in the 1990s, Mr Lazaridis and Mr Balsillie had built RIM into one of the world’s fastest growing companies and helped define the emerging market for smartphones in the process.

Using Mr Lazaridis’s technical expertise, RIM took what initially was a two-way mobile pager and built the BlackBerry ecosystem. This consisted of RIM’s own private global data network, proprietary enterprise software used by virtually all major multinationals to hook up to their corporate email and other IT systems, and the iconic handsets with their thumb-operated click wheels and trademark mini qwerty keyboard.

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Users loved the rock solid performance of the device, company IT departments loved it because it was easy to manage and secure, and mobile network operators loved it because it was designed to consume the minimum bandwidth and because of the extra revenues BlackBerry owners generated for them.

By the mid-2000s the BlackBerry was not just an essential mobile communications tool for business users, government employees and titans of industry, it was a fashion statement touted by celebrities, musicians and young hipsters to prove they were “cool”.

When President Barack Obama was elected in November 2008, one of his key requirements was that he could continue to use his BlackBerry. Some users became so reliant on these mobile email devices that they became known as “crackberries”.

But those, it turns out, were RIM’s glory days.

Many users still rely on BlackBerry’s wireless email service but – with the exception of teenagers who use the free BlackBerry Messaging service – BlackBerrys are no longer a cool device to be seen with. In business, as elsewhere, defections are on the rise and many of those who still carry a company-issued BlackBerry, also tote an iPhone or Android-based smartphone for personal use.

While the subscriber base outside North America continues to grow, RIM’s share of the smartphone market has been in decline in the key US market which accounts for about 40 per cent of sales. Market researcher NPD Group said RIM’s market share of smartphones in the US declined from 44 per cent in 2009 to 10 per cent in 2011 and its quarterly sales figures have consistently missed its targets, worrying investors.

Meanwhile, RIM shares have fallen from more than $70 in March to under $16.50 this week as a succession of management missteps, product delays and profit warnings have taken their toll.

RIM announced last quarter that it was taking a $485m pre-tax writedown on the value of unsold BlackBerry PlayBook tablets, which it said would mean it misses its already lowered fiscal 2012 profit targets. RIM had already been forced to discount the PlayBook, once touted as an iPad killer, from $499 to $199, although Thorsten Heins, its new chief executive, says he is confident that a long overdue software upgrade due shortly will reinvigorate sales.

RIM also announced a $50m charge against revenues to cover the extended network outage it suffered earlier this autumn, which left millions of BlackBerry users unable to access the smartphone network for days.

The inventory writedown and the charge were the latest in a series of setbacks for RIM. It has faced increased competition from rivals including Apple and makers of smartphones and tablets based on Google’s Android software, which are built around fast processors, speed browsers and easy-to-use touch screens, and has struggled to update its own ageing product portfolio.

These problems, coupled with its delayed response to the iPhone and continuing delays in rolling out next generation products, led investors and analysts to wonder whether RIM’s beleaguered management has lost touch with its user base.

While RIM insists that its outgoing co-chief executives themselves decided to step aside and were not “pushed”, the company has faced a growing chorus of demands from dissident shareholders calling on its management to consider all options for maximising shareholder value, including selling off its patent portfolio or an outright sale of the company.

The appointment of a new chief executive is likely to assuage those who had argued that RIM needed to improve its corporate governance – the co-chief executives were also co-chairmen – but Mr Heins’s comments that there will be “no seismic change in direction” is unlikely to please those who believe a more fundamental change in strategy is needed.

Analysts acknowledge that many of RIM’s problems stem from a difficult transition the company is attempting to make between products based on its old BlackBerry operating system and a new operating system dubbed BB10, which is based on technology acquired 18 months ago from a small company called QNX.

Rather than adopt Google’s Android or Microsoft’s Windows Phone operating systems like many of its competitors have done, RIM is gambling that by maintaining control over BB10 it will, like Apple, be able to differentiate its products, and avoid the price competition and commoditisation now affecting some Android users.

Like his predecessors, Mr Heins is also betting that BB10 is the answer to the limitations of RIM’s existing operating system, but, as analysts point out, devices running BB10 will not be available until late this year – and some fear that could already be too late.

Analysts say that RIM must maintain sales of existing devices and hope that, by boosting marketing spending, it can halt the decline in US sales and maintain the momentum of sales in developing markets such as India and Brazil. Not everyone is convinced that Mr Heins, a RIM insider, or RIM itself can successfully walk this tightrope, or that his protestations that RIM’s problems centre on “misconceptions” are valid.

As Mike Abramsky, an analyst with the Royal Bank of Canada, wrote in a note to investors, “the new CEO appeared upbeat and optimistic about his new role and the company’s prospects, but was less dogmatic regarding the current challenges facing the company.”

Others fear that unless its new management halts subscriber defections quickly, RIM could become be the latest in a succession of technology companies consigned to a footnote in the story of mobile computing because it failed to adapt fast enough to changing markets and consumer tastes.

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