Just when you think you finally have figured out RIM (Research in Motion) and its Blackberry, it goes all belly up again. But at least it's good to see that others, including RIM management, admit to confusion about the iconic smartphone maker.
It was ten years ago that Canadian 'beeper' maker Blackberry launched its first smartphone which had the peculiar shape, the uniquely-shaped QWERTY keyboard and was optimized for email use by busy business executives. Blackberry took the US business world by storm, soon Blackberry users were calling their device the 'crackberry' for its addictive nature. And to show how big a splash the early BB did for the world of mobile - Nokia, which was selling more than 10 times more smartphones at the time - created its own clone, the E-Series and believed so strongly in this type of smartphone use, that it set the E-Series in its own business unit to sell Nokia branded smartphones to enterprise/business and government users.
"WE ARE IMMUNE TO THE IPHONE"
Then in 2007 came the iPhone and changed everything. Yes. But early on, the iPhone was not seen as a valid smartphone for business uses (until the App Store came along, most business type users didn't find much use out of the iPhone if they couldn't install the necessary corporate IT apps). So for the first two years of the rapid growth of the iPhone, both Blackberry and Nokia's E-Series continued strong growth, almost oblivious to the iPhone.
Around that time we also started to hear increasing stories that the Blackberry was a big hit success smartphone in surprising countries, like in Indonesia, in Venezuela and in South Africa. And in those markets, it was consumers - often the youth - who took to the Blackberry. RIM executives were quite open about it, they were baffled and quite surprised. While the QWERTY keyboard certainly played a big part in helping messaging-crazy youth to like the Blackberry, it was actually the Blackberry Instant Messenger (BBM - image on the right dates from 2004.) which was fuelling that success.
BBM seemed very similar to SMS text messaging but had the added virtue that any messages between any Blackberry owners (on any networks, in any country) were free. If you send two or three SMS per day, the economics will never work out. But, if you send 100 SMS every day, the savings add up very rapidly - and by late in the decade of the 2000s, youth the world over from South Korea to England to the USA, were found to have a significant number of teens who average more than 100 SMS per day. A ripe target audience for the 'Berry.
But the Blackberry is in a strange place. It has pretty well saturated its home market and primary target users, the corporate/business (and government) users. A survey of 20,000 US businesses by TNS in January of 2011, found that 81% of large corporations used the Blackberry and 69% of small businesses. And President Obama himself is a Blackberry user, because the first US president who is allowed to have a cellphone by the US secret service, the US president's bodyguards. That is how addicted he is to his Crackberry - in the tech world we like to call Obama the Blackberry President. You can't get much of a better endorsement of security systems and extreme utility, if your brand is the one that the US president insists on using...
But the US enterprise/business/government sector is pretty well saturated by Blackberry, it is more seeing a gradual erosion of its high market share there. The rest of the world is not as keen on selecting the Blackberry platform and in many countries recently we've seen government reaction against Blackberry (for being too secure).
Meanwhile, back when Blackberry came into mobile, almost all smartphones were used by business type users. Today business-oriented smartphones count for less than one fifth of all smartphones sold and used. RIM has clearly hit its peak in this market and as the business/enterprise user base of smartphones is not growing strongly, even if RIM achieves any growth in that sector will mean a loss in market share where the bigger consumer side of smartphones is growing much faster.
What of the success of Blackberry in India, in Brazil, in Botswana and Saudi Arabia? That is mostly consumers, and it surely reflects the right direction for Blackberry. From 2009, RIM has sold more Blackberries to consumers than business users and today Blackberries are sold more outside of North America than within it. That all should bode well for Blackberry.
We do see that the youth love the Blackberry, in many countries to absurd levels of adoption. In Canada (home market) a survey of university students found that 95% of them had a Blackberry. But let's go to the UK. A survey by Phones 4 U (UK's second biggest independent handset reseller, a competitor to Carphone Warehouse) in March of this year found that two thirds of British youth between ages 16 and 24 - have a Blackberry in their pocket. The UK youth have taken to calling sending messages on the Blackberry as 'feeding the BeeBee' (or 'feeding the baby').
BlackBerry Bold 9900 Touch - A New Old Blackberry for 2011
And we can easily understand why there is a sudden Blackberry surge in the youth markets around the world. It's the cool kids in class. If the cool kids get Blackberries, they will of course shift their messaging traffic away from costly SMS to free BBM. And now the 'other' kids in class, are either 'excluded' from participating in the chat with the cool kids - who of course will not pay SMS to send the other kids messages - or else the uncool kids have to get Blackberries also - just so the cool kids will agree to communicate with them. A very cruel form of class discrimination in a way, sociology and youth culture at play, but that is how kids behave. And if the cool kids suddenly adopt the Blackberry, all others have to follow suit, very rapidly. Meanwhile just today we heard from Ofcom the UK telecoms regulator, out of data from their latest findings of their annual survey, that twice as many teenagers have smartphones than adults. You have the addiction of the most desirable age segment that is also most addicted to your device.
That to me was very strong proof that Blackberry has the future well in their hand. The youth of the world seem to love the Blackberry and if you have 67% market share in the most desirable age bracket, 16-24 age, then isn't the future pretty much belonging to you?
That seems reasonable yes. But why then is Blackberry in decline? It's not just that it was growing less fast than the industry (something from the enterprise/business side of the Blackberry business) as RIM has actually had declining market share from its peak of 21% in third quarter of 2009 - for the first time RIM saw an actual decline in unit sales now from first to second quarter of 2011, when RIM went from 14.5 million down to 13.3 million smartphones sold. So RIM declined 8% in one quarter at the same time when the market itself grew 8%. So the effective loss to RIM of its market position was 16% decline in one quarter. That's pretty catastrophic.
It doesn't make sense. There is no utter failure phone. The corporate/enterprise customers buy on a steady pace, they make long term plans, they use one platform as the TBI survey from 2009 told us - 80% of US businesses insist on only one smartphone platform, obviously most of those will be on Blackberry. So if they bought Blackberries last year, they will be buying them again this year. And don't say iPhone here. Yes, the Marketing Department probably got permission to switch from Blackberries to iPhones but most other departments will continue on the Blackberry.
And if we see enormous growth in so many Emerging World countries, and the youth love the Blackberry at rates of 67% adoption rate in the 16-24 year age segment, why isn't Blackberry growing sales now?
We believe there is an answer to the conundrum. I think it's not the Blackberry which is the answer, it is the Blackberry Messenger, BBM. And lets first go back to the market share in the UK. We just learned in June from Kantar Worldpanel that Blackberry's market share in the UK market had grown from 19% to 22% in the past year. Now if we take the youth age 16-24 (12% of the population) away from that number, i.e. 8 million smartphones, we are left with 5 million to distribute to the rest of UK population. And of that, a vast majority will be corporate users. So while the youth are very loyal to the BeeBee, the rest of the population don't care for the device.
Meanwhile, why isn't 67% penetration in highly mobile-addicted youth segment generating massive repeat sales? Ah, here I think I have had an epiphany. As the solution is BBM, the addiction is not to the handset, it is to the service. And here the kicker: a five-year old monochrome screen Blackberry works just as well as the latest Bold. So while yes, the youth are heavily addicted to smartphones, they don't have a compelling reason to upgrade their Blackberry. One Blackberry is enough, it can easily be a year or two old, no problem, what the youth do - is to replace their OTHER smartphone! So they go buy the newest Samsung or iPhone or HTC or Sony Ericsson and replace that regularly, but they keep the old Blackberry!
CONCLUSION - FAR FROM BEING DONE
So RIM is in a very peculiar pattern, where they have strong loyalty in their two main segments - business users and youth - but neither is growing anywhere near the speed of the industry. And the evidence is pretty clear that once we pass the youth segment, the rest of the population is not in love with the Blackberry, they seem to want almost any other smartphone currently. Hence the overall decline in smartphone sales for RIM.
Again, the Blackberry conundrum is so difficult to get, that this is likely still not the full picture, but yes, expect there to be sudden surges in given countries, when the specific 'cool kids' in the youth discover the Blackberry Messenger, but also, don't think that sudden growth pattern will then repeat across the full population. The Blackberry seems very much destined to be only a niche smartphone maker and seems to have hit its peak and no sign suggests they could recover any kind of growth out of this, no matter what better operating systems or touch screens (or tablets) they were to launch.
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