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Is RIM looking Grim?

Over the past 10 days I have been sent many articles about the downturn of RIM. The RIM share price seems to be in free-fall.

So what is there to make of them? Are the end days near?

Just like Nokia, RIM has faced a dramatic share loss in the smartphone segment. The result is that the company that helped create the smartphone category less than a decade ago with its first e-mail device must compete in an aggressive market space against Apple and devices that run Google’s Android software.

Their share value drop has resulted in a decline for the company below book value and for the first time in nine years leaves the BlackBerry maker worth less than the net value of its property, patents and other assets.

I do not want to dissect what the world would look like without RIM and their BBM services, rather lets see why they now make a great takeover target. And I am not going to discuss the financial metrics of why it could/would happen, for that head over to WSJ or NYT, rather I want to look at the consumer offering side of why it could make sense for a competitor to buy RIM.



Network Operator linkup

Something that perhaps is not represented in the financials of RIM is the operator relationships and partnerships that they have systematically been setting up for the past few years. In order to offer consumers these unlimited browsing packages with unlimited messaging (e-mail and BBM) even with roaming thrown in free is due to the operational setup. Globally RIM has established working partnerships with operators putting in their own backbone to the operator, and the operator then simply using dedicated APN's for RIM devices and routes the traffic off their network via RIM's own pipes, the net cost for the operator has been the "on network" traffic. This is the reason there is a fixed cost access fee needed for RIM services.

What it has allowed is for RIM to have a fixed cost solution in place, irrespective of volume of messages, and hence the consumer pull..... the perception of free and unlimited.

Not that it would be impossible to replicate this global web the RIM has in place, but I foresee some issues why it would be really hard:

  1. Operators have become increasing wary of getting marginalised in the value chain to simply being a connection point, and where possible are clawing back control of their subscribers. So they would not really be receptive to allowing any new party to set up a similar web.
  2. Time, it would take any new entrant a few years to successfully negotiate and then implement a backbone into the key global operators, let alone the amount that RIM has connected currently.


So why does this matter?

Well, competing ecosystems are looking to retain users within their walls. Apple within the confines of the iTunes/iOS compound, Google within their lockdown on advertising and Microsoft to protect legacy businesses from the two new players.

Apple  have already launched the signal that iMessage is to be their play on unified messaging across their platform. What Apple is wanting, is to integrate different messaging in one place, so that the user experience is seamless, regardless of the applications powering it in the background (Twitter,SMS, Whatsapp, etc etc). Apple want to ring-fence users, the key to their revenue premium relies on this. Plus over a dedicated owned data pipe, Facetime becomes a feature rather than a marketing gimmick.

Google have the absolute desire to serve up more and more contextual marketing to us. Think what a unified Gtalk/Gmail application would be instead of sms. Where e-mail and IM could merge leveraging BBM architecture, all the while serving up Google placed adverts, which would be even more content and location aware.

Microsoft need to stave of fierce competition from Apple and Google which is eroding the previous cash cows of their Office suite and to some degree the desktop OS. With Windows 8 we will see tighter integration across the MS messaging platforms to also unify the user experience. MS could integrate Skype, Lync (previous Communicator), and BBM into one platform and login. Let us also remember they have their fingers in the Facebook (chat) pie as well.

But all of the above three would have one thing in common if they owned RIM, the ability to instantly offer a fixed cost unlimited messaging platforms to consumers globally. And this would also have the effect of bypassing the network operators completely, even more so that RIM had. Given the same landscape I do not see operators signing these types of agreements ever again.

Consumers, however, over time would also find them being migrated onto propriety messaging systems without their knowledge further locking them, and limiting choice.

[Grant Marais]

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