The Real Reason for Blackberry’s Decline

31Jan12

I read a number of tech blogs and web magazines every day, and for Research in Motion (RIM), the Canadian company that makes the Blackberry smartphone, the news just keeps getting worse. Market share for the iconic handset is eroding fast, shareholders are up in arms, and the company’s co-CEOs have finally resigned over their failure to mount a suitable defense against the likes of Apple’s IOS and the hundreds of Google Android-powered phones that have flooded the market.

RIM famously dismissed Apple’s iPhone when it debuted in 2007, confident that their position as the favorite of business executives and corporate IT departments was unassailable. Things have changed—devices powered by IOS and Android make up over 75% of the overall smartphone market, with Blackberry getting around 15%. RIM is doing even worse on recent smartphone sales (Oct-Dec 2011), where they sit at 5% while IOS and Android have 80%. RIM is betting everything on an entirely new operating system for the next generation of Blackberry phones, but these may not arrive soon enough to turn things around.

This story has been rehashed by the tech blogosphere for some time, but I think they’re missing an important point. Indeed, RIM has lost market share in high-end smartphones. The iPhone and Android devices redefined the concept of what a smartphone is with their large touchscreen displays and the availability of thousands of “apps” that can further the handset’s versatility. These new devices are really more like mini tablet computers that can make phone calls than any sort of handset that came before.

But I think RIM has been fighting a two-front war. The Blackberry rose to prominence as a phone with a usable mechanical QWERTY keyboard that excelled at messaging and email. The secure messaging system operated by RIM made the phone particularly valued by corporations wanting to keep their information secret, while their “push” email capabilities made it a godsend for the executive on the go.

Any successful product fosters competition, and long before Apple and Google got into the game, other handset makers were producing devices that, while not having RIM’s special secure messaging servers, could do many of the things associated with the Blackberry.

Look at the picture below. One of these phones is a real Blackberry, the others are all what the market refers to as feature phones, not quite a smartphone, but capable of doing email, text messaging, some rudimentary web surfing and running simple apps. It would seem that imitation really is the sincerest form of flattery. In fact, lots of people would probably say that the phones pictured are all “blackberries,” the name becoming synonymous with any sort of keyboard-equipped messaging phone.

Can you spot the real Blackberry?

The tech press tends to ignore feature phones (some call them dumbphones) to concentrate on the more interesting upmarket devices running IOS and Android. But there are far more of these mid-level messaging phones out there than smartphones (70% of the total phone market in 2011), and cellular carriers either give them away for free or at very low prices to get customers to sign mobile service contracts. Recent articles indicate that these mid-level phones are actually more profitable than most smartphones, which means we’ll be seeing more and more of them.

This has been a disaster for RIM. With more people using cloud-based services such as Gmail, these inexpensive phones offer much of the functionality of the Blackberry products at a lower price, often without the usual two-year contract. My current phone is a prepaid QWERTY handset which I have configured to access my Yahoo Mail and Gmail accounts. When I got it, I referred to it as a “poor man’s Blackberry.” Lots of other folks are doing the same. If people ready to jump to a “rich man’s” smartphone are making the move to IOS or Android, it leaves RIM in the middle, battling with products on the high and low end of the market with a dwindling niche for itself. We’ll see if the company that once defined what a smartphone was can weather this two-front war in 2012.

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