Put BlackBerry on hold – but not for long

September 25, 2009

Blackberry TourBlackBerry-maker Research In Motion is a victim of its own success. Having dominated the market for corporate e-mail devices for years, it is being forced to seek out growth in consumer markets, where, so far, it has had trouble differentiating its products.

Going mainstream has helped vastly expand its consumer base — which now represents half of all BlackBerry subscribers. Fully 80 percent of its new subscribers now come from outside its traditional corporate base.

But that success is coming at a growing cost to the once lofty average selling price of its phones, the latest quarterly results show. Profits for its second fiscal quarter dipped 3.5 percent, amid weak subscriber growth. Product prices appear under pressure at both ends of its business, both among corporate users and with consumers.

Fixing these issues will take time, several quarters at least, something which investors who have bid the stock up more than 100 percent in the past year were not prepared to hear: they sent RIM stock tumbling 17 percent, to below $70, on Friday.

The trouble is that RIM must develop and introduce new products that can recapture customer attention in increasingly crowded markets. Phone companies must be convinced to sell the new BlackBerrys in their stores. Consumers must get the message. Rivals have to be kept at bay.

And RIM no longer has the luxury of retreating to its corporate base. There has been a proliferation of rival devices from the Apple iPhone to newer phones from HTC and Motorola based on Google’s Android operating system, all of which now offer customers secure access to Microsoft Exchange e-mail and contacts.

The company is desperate for a hot new product to replace its three-year-old Pearl phone, its first device to make a splash in consumer markets. Its standout keyboard for text input is less special than it once was. Rival mobile phone makers offer better cameras, more memory and a wider selection of zippy software for their devices.

But Research In Motion has a plan that involves more than just waiting for the global economy to recover.

A solid step in that direction is the new low-cost Curve, which offers many of the features found in pricier smartphones. It has seen early success in the United States and Europe convincing phone operators to market it to teenagers. This mass-market device is an example of RIM’s land-grab strategy in action. It won’t improve RIM’s finances any time soon, but the goal here appears to be market share.

Rather than trying to always be first to lead with cool new features, RIM’s contrarian theory is that by building products that handle data more efficiently, they are more likely to become the preferred devices sold by network operators. It’s akin to the strategy that made BlackBerry so popular with corporate technology managers.

Another part of its strategy, no doubt egged on by the success of the iPhone, is to improve not just how its phones make use of the Web, but the basic software that defines what users see and do on BlackBerrys, says Ben Wood, a mobile device analyst with UK-based CCS Insight. Toward this end, RIM acquired Torch Mobile, the maker of an innovative Web browser for mobile phones, in August.

The problem is that — in a bid to grab market share from rivals like Apple and Nokia — RIM says it must accept far lower average selling prices on its phones than when it was known mainly as the preferred supplier of secure corporate email.

This strategy will take time — not a few quarters, but years to play out. RIM effectively is asking investors to have faith that it can repeat its miraculous rise in the corporate e-mail market, only this time in fickle consumer ones.

You can read some of Eric’s recent colums here

(Photo credit: Reuters/Mike Cassese)

Comments

Its not all that bad now if you are on verizon. I just got my kid a Tour for 62 bucks after rebate. But I know what you mean because if I hadnt been a customer for over 10 years then the phone would have cost me around $400.

Great post!

 

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