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RIM Is Down but Not Out

With new software, smartphones, and apps, the BlackBerry maker may still have a chance.
January 29, 2013

They used to call it the CrackBerry—owing to users’ addiction to the device. But that was back in 2006, before the iPhone and smartphones running Google’s Android software muscled in on Research In Motion’s turf. The moniker was so popular back then that Webster’s New World College Dictionary dubbed it the word of the year.

Comeback trail: A composite image shows the new BlackBerry 10 operating system on the handset issued to developers.

The smartphone market has grown, and changed, tremendously since then. About 46 percent of the world’s cell phone users now own smartphones, according to data from IHS iSuppli, but the BlackBerry is looking a lot less habit-forming.

On Wednesday, the company will make its pitch to keep existing customers hooked and to snag a new generation of addicts by launching a much-delayed, brand-new operating system, BlackBerry 10, as well as the first two new BlackBerry smartphones that will run it.

Once a market leader prized for its focus on secure e-mail and a stellar physical keyboard, the rise of sophisticated, consumer-focused touch-screen smartphones and the “bring your own device” trend at work has left RIM struggling to keep the BlackBerry in third place behind ubiquitous iPhones and Android smartphones. In its most recent full quarter, RIM lost a million customers while working to finish the refresh to the company’s smartphone software—its first-ever drop in users.

But all is not lost for the Waterloo, Ontario-based company—far from it, in fact. RIM still has roughly 79 million BlackBerry subscribers, many of them enterprise customers who have stuck with the company for a long time, and its devices are popular in emerging markets like Indonesia, where they cost considerably less than high-end smartphones.

Most importantly, its BlackBerry 10 software looks like the real deal—a truly modern, sophisticated smartphone operating system. “I guess Apple has proven that you’re never totally screwed,” says Michael Cusumano, a professor at MIT’s Sloan School of Management, referring to the iPhone maker’s near collapse and subsequent revitalization in the 1990s. “It’s not over until it’s over, as Yogi Berra once said.”

BlackBerry 10 includes features like the BlackBerry Hub, which rounds up all your notifications and messages into one spot and can be accessed with a swipe; BlackBerry Balance, which offers separate profiles for work and personal use, so-called “active frames” that let you see up-to-date info in several minimized, open apps at once; and a smarter virtual keyboard that can adjust to your typing style to increase your speed and accuracy (though one of the new handsets will have a physical QWERTY keyboard). It’s also possible that some more jazzy features have been kept under wraps and will be revealed on Wednesday.

Cusumano thinks a massive campaign, perhaps offering nearly free upgrades to the newest devices, would help RIM keep subscribers. He thinks increasing RIM’s ties to business software makers—by making it as easy as possible for enterprise users to access business software—could aid the smartphone maker, too.

The loyalty of RIM’s existing audience may also help. Kevin Michaluk, the founder and editor in chief of BlackBerry news site, notes some of the extreme things readers have done to win a BlackBerry 10 smartphone from his site recently, including a man who got a BlackBerry 10 tattoo and another who ate “the world’s hottest” hamburger.

If just 20 percent of these folks upgrade to BlackBerry 10 over the next 18 months, that’s still a “tremendous opportunity” for RIM to sell devices, says IDC analyst Kevin Restivo.

RIM is also in a strong position to make the most of smartphone growth abroad. RIM’s products are doing well in a number of emerging markets, in Asia in particular. During the company’s quarterly call with analysts in December, RIM CEO Thorsten Heins said it plans to keep supporting the BlackBerry 7 operating system, and perhaps even roll out a new product based on that software for these markets. The hope is that many of these customers will eventually trade up to BlackBerry 10.

In the long run, though, RIM will need to make its new smartphones as desirable as Apple’s products or devices from Samsung, Motorola, and others running Google’s Android software. The evolution from “dumb” feature phones to smartphones has meant the device has shifted from being used primarily to make calls to being a gadget that people rely on for everything from surfing the Web to tracking exercise. “People need to feel like it’s part of their life; that it’s valuable,” Restivo says.

One problem for RIM will be making sure there are enough apps available for its platform. “Even if it’s a good phone, the lack of applications makes it a less attractive device for the vast majority of users,” says Harvard Business School professor David Yoffie, who is also a board member of Chinese smartphone manufacturer HTC.

The company is trying to beef up its app store, pushing out a revamped BlackBerry App World renamed simply BlackBerry World, for which it has been actively courting developers (including paying them if their apps don’t earn a certain amount).

CEO Heins reportedly told German newspaper Die Welt that the App World will have about 70,000 BlackBerry 10 apps at launch. This is a significant number but still a tiny fraction of the 800,000 apps in Apple’s App Store and more than 700,000 in the Google Play app store, and less than the 120,000 apps that competitor Microsoft offered at the launch of Windows Phone 8 in October.

Yet Michaluk believes that while RIM has struggled in the past to bring in popular apps, it will have enough of the popular ones that users want for BlackBerry 10 (RIM has said it will include Facebook, Twitter, LinkedIn, and Foursquare). Lately, the company seems to be on a tear: during a recent weekend “port-a-thon,” developers brought over 19,000 apps over to the new operating system.

RIM will also need to announce specifics of its deals with carriers; all four major U.S. wireless carriers are reportedly planning to offer BlackBerry 10 smartphones. It could benefit from growing carrier discomfort with having two operating systems dominating the smartphone market. According to IHS iSuppli, 87 percent of smartphones worldwide run on Apple’s or Google’s software (Korean electronics company Samsung is the largest maker of Android smartphones). Concerns that Apple and Google wield too much power may make wireless operators more interested in promoting the BlackBerry as a third option.

At least, with such stiff competition and so much at stake, that’s what the hopeful are banking on.

“RIM can’t screw it up,” Michaluk says. “They’ve got one good shot to do this. But it really seems like everything is coming together.”

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