RIM BlackBerry Smartphone Forecast: Grim, With Hope on the Horizon

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Mike Lazarus, a Sydney-based software design consultant, relies on his RIM BlackBerry daily to manage his contacts database, store important documents, and keep his information secure. "I use my mobile phone essentially as a mobile office," he says. "Nearly, everything I need to do in the office, I can do from my phone."

Lazarus is one of millions of users of Research in Motion products worldwide who have remained loyal to the BlackBerry brand--despite the growing popularity of Apple's iPhone and of handsets powered by Google's Android OS.

How popular are RIM products? The company has 67 million subscribers worldwide, and its user base is growing explosively overseas in regions such as Western Europe, the Middle East, Africa, India, and South East Asia. In the company's most recent quarter, it posted year-over-year growth of 16 percent.

Things sound bright for the Canadian smartphone maker, right?

The Sound of the Other Shoe Dropping

But RIM's successes are only part of the story. In the United States, RIM's popularity is waning; and critics believe that serious challenges lie ahead for the company. In February 2010, RIM's BlackBerry devices dominated the U.S. market claiming just over 42 percent of U.S. smartphone users, well ahead of Apple, Microsoft, and Google, according to data from metrics firm comScore.

Just 17 months later, RIM's market share has fallen off a cliff. The Nielsen Company, which studies market trends, recently reported that RIM's market share at the end of July 2011 was down to 19 percent in the United States. That drop in market share has occurred at a time when the American smartphone market is growing fast. In 2009, about 16 percent of American mobile device subscribers had a smartphone; the number has climbed to 40 percent as of July 2011, Nielsen says.

On the other hand, RIM's international business grew by 67 percent between March and May of this year. BlackBerry's international popularity is due in part to a demand for powerful smartphones, and RIM's aggressive carrier distribution strategy. Regional trends such as prepaid device offerings and tiered pricing plans have also helped to put more BlackBerrys in more hands.

RIM's shrinking U.S. market share is attributable in part to strong competition from Apple and Google. "Even though RIM's share was dropping, its volumes were growing, but not growing as quickly as iOS and leading Android vendors," says Ross Rubin executive director of analysis for consumer technology at market research firm NPD Group. "But that cannot be sustained indefinitely. Overall, RIM in the U.S. handset market is exhibiting flat to negative units."

RIM's prospects may worsen in coming months. In June the company lowered its earnings expectations for its next quarterly report, which is due out in mid-September. RIM also announced a round of layoffs to streamline the company's operations. Meanwhile, consumers contemplating their next smartphone purchase are looking increasingly at Android handsets, the iPhone, and even Microsoft's newcomer Windows Phone 7 before considering a BlackBerry, according to a recent NPD survey.

All About Touch

RIM BlackBerry Torch 9850
RIM BlackBerry Torch 9850
BlackBerry devices are competing against an ever-expanding pool of innovative touchscreen handsets that users seem to like. A new iPhone is expected out this fall, and Android devices sporting high-resolution touchscreens of 4 inches or more and dual-core processors are already available.

In August, in an effort to counter its rivals, RIM launched three new phones: the Bold 9900, Torch 9850 and Torch 9810. All three run BlackBerry 7, RIM's latest mobile OS refresh, and offer features such as an improved browser with HTML 5 support, tweaked JavaScript performance, near-field communication support, and better graphics. BlackBerry 7 also improves the brand's touchscreen capabilities.

"RIM has done a fairly decent job of taking advantage of the user interface with touch in BlackBerry 7," says Mike Abramsky, an analyst for RBC Capital Markets. "It's by no means groundbreaking in the way the iPhone was, but it certainly provides parity."

It's too early to say how successful BlackBerry 7 handsets will be among smartphone shoppers, but preliminary reports suggest the new OS should at least satisfy RIM's fan base. Early checks by RBC with U.S. carriers found that the majority of BlackBerry 7 buyers so far are upgrading from older RIM devices.

Expanding the Base

But what about winning over new fans? Critics say that while the latest BlackBerry phones may be well designed, the new handsets are not that different from what RIM has been producing for years. The Bold 9900 is a typical keyboard-based RIM smartphone designed for business users and comes with a high, carrier-subsidized price tag of $250 to $300.

The Torch 9850 is a touchscreen phone meant to appeal to everyday users, but it lacks many features that make competing devices desirable, such as a multitude of third-party apps to choose from and an operating system specifically designed for touch.

"RIM has never been good at touchscreens," says Gartner market research analyst Ken Dulaney. "The company has been trying to upgrade its keyboard operating system for touch-based devices. That's very difficult to do. With a keyboard operating system, you can be much more precise and pack things together on the screen. But you put the human finger in there, and things become much more inexact."

Soon after it launched in 2007, Apple's iPhone dramatically reshaped consumer expectations about smartphones. Instead of seeking a stodgy, email-centric handset with a keyboard, consumers wanted phones that could play music, surf the Web, and snap photos--all via a fluid, touchscreen interface.

RIM's physical keyboard devices became less desirable to users new to smartphones as touchscreen handsets flooded the market from vendors such as HTC, Motorola, and Samsung.

In the past, RIM has tried to answer the iPhone and Android with touch devices such as the Storm and Storm 2. But those devices failed to achieve mass popularity, in part due to odd decisions like RIM's SurePress technology, which tried to give virtual buttons a clicking feel for users accustomed to pressing physical keys. "RIM is still the king of keyboards, but that's not what people want anymore," Dulaney says. "The company has got to get better at touchscreen devices."

Next: Playing Catch-Up, RIM Refresh, The App Gap, and Enterprise Holding Strong

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