ThoughtPiece: RIM’s Business Model

12 Comments

Research in MotionThe astute BlackBerry Cool reader knows Thought — he’s the guy that makes about four comments on every post and once won a contest by rewriting War and Peace. Well, we dig his style so much that we asked him to write a guest article for us. Read on to see why Thought thinks RIM can beat Microsoft… by imitating them.

Those of us who are gadget fans love to focus on product models, analyzing every minute detail and making endless comparisons. Yet there is one model that we often overlook, and that is the business model. Indeed, a superior business model will often trump a superior product model. One very obvious example of this is the competition between Apple and Microsoft.

I believe it is instructive to consider the various business models used by the competitors in the smartphone market. As a beginning point, let’s look at RIM and contrast their business model to that of Microsoft, which right now I believe to be their main competition. It’s interesting that RIM’s major competitor would be a software company, rather a hardware manufacturer.

I summarize the business models of Microsoft and RIM as such:

Microsoft: brute force approach: flood the market with as many models and variations as possible; leverage the power of Microsoft dominance in the desktop PC environment, as well as in the Office suite of software.

RIM: perfectionist approach: emphasize usability, stability, security; obsess over every detail to get it right; manufacture both hardware and software to ensure optimal integration and user experience.

apple logoRIM’s focus on usability, stability and security in many ways mirrors Apple’s focus on these features. Also, like Apple, RIM manufactures both the hardware and software, and thus produces a very well integrated product. It’s no surprise that Blackberries enjoy a loyal fan following, like Apple products do.

However, there is one huge difference in the market evolution of RIM vs. Apple. Apple emphasized the consumer market while Microsoft gained an almost unapproachable dominance in the enterprise segment. While Apple created cool devices that delighted the consumer, Microsoft (obviously, with the aid of numerous hardware manufactures) sold millions and millions of dull beige boxes to businesses all over the world and became entrenched in corporate networks. Microsoft, in essence, gobbled up the business market very early on, and used that presence as a leverage point to outmuscle Apple in the consumer market. Apple enjoys a very well respected and lucrative niche in the market, but it is nevertheless a relatively small percentage of the total PC market.

In contrast, RIM has established itself first in the enterprise segment, and is the solution that is entrenched most in corporate and government networks. Microsoft is the one left trying to play catch-up.

This position is a huge advantage for RIM. To dominate the enterprise market is an enormous prize, and I don’t believe that Microsoft will have so easy a time dislodging RIM from its leadership position in that market. It is far more difficult to get corporations and government agencies to change than individual consumers. I also believe it is far easier to go from leadership in the enterprise segment into a position of strength in the consumer market, rather than the other way around.

I’ll discuss why in a future post.

  • GG

    MSFT is nowhere NEAR being the biggest competitor for RIM. Good Technology has been eroding RIM’s marketshare for years, recently truly having an impact. MSFT is limited to only the new devices running WM5, of which the hottest phone on the market right now, the Motorola Q, does not even support. MSFT does not support the established Treo install base, the upcoming Nokia E62 nor the over 50 million Lotus Notes mailboxes out there. Very limited addressable market.

    The comparision to Apple, however, is dead on. The comparison should be to Apple’s PC marketshare, which at one time was over 80%. Closed, proprietary systems killed that market share. See the correlation? There has never been a long-term success story from a company that did the hardware, software and operating system. Wang? Gone. IBM’s MicroChannel Architecture? Gone. Create the space, dominate that space until viable competition comes to bear, lose that dominance. It is already starting to show with RIM with the recent report of their loss of market share. The hardware vendors are definitely the competition to RIM with over 70% of RIM’s revenue coming from hardware. Margins are eroding as the big boys (Motorola, Noka and the like) bring devices to market that support applications, i.e. Good, that provide the exact same fucntionality as Blackberry on a much more diverse, powerful and functional device.

  • GG

    MSFT is nowhere NEAR being the biggest competitor for RIM. Good Technology has been eroding RIM’s marketshare for years, recently truly having an impact. MSFT is limited to only the new devices running WM5, of which the hottest phone on the market right now, the Motorola Q, does not even support. MSFT does not support the established Treo install base, the upcoming Nokia E62 nor the over 50 million Lotus Notes mailboxes out there. Very limited addressable market.

    The comparision to Apple, however, is dead on. The comparison should be to Apple’s PC marketshare, which at one time was over 80%. Closed, proprietary systems killed that market share. See the correlation? There has never been a long-term success story from a company that did the hardware, software and operating system. Wang? Gone. IBM’s MicroChannel Architecture? Gone. Create the space, dominate that space until viable competition comes to bear, lose that dominance. It is already starting to show with RIM with the recent report of their loss of market share. The hardware vendors are definitely the competition to RIM with over 70% of RIM’s revenue coming from hardware. Margins are eroding as the big boys (Motorola, Noka and the like) bring devices to market that support applications, i.e. Good, that provide the exact same fucntionality as Blackberry on a much more diverse, powerful and functional device.

  • Awesome-O

    ah GoodGuy, how you amuse us! :)

    please be sure to share whatever you’ve been snorting with the rest of the class. seriously, it must be ‘good’ stuff :)

  • Awesome-O

    ah GoodGuy, how you amuse us! :)

    please be sure to share whatever you’ve been snorting with the rest of the class. seriously, it must be ‘good’ stuff :)

  • Awesome-O

    ah GoodGuy, how you amuse us! :)

    please be sure to share whatever you’ve been snorting with the rest of the class. seriously, it must be ‘good’ stuff :)

  • Awesome-O

    ah GoodGuy, how you amuse us! :)

    please be sure to share whatever you’ve been snorting with the rest of the class. seriously, it must be ‘good’ stuff :)

  • Thought

    First, I’d like to thank both GG and Awesome-O. It’s always an honor to have someone take their valuable time and consider one’s thoughts.

    As for Good Technology, I consider them to be more of a niche player right now in this market. I just don’t see this company as having nearly the same market heft or resources as Microsoft.

    As for Apple, you are correct in that Apple’s unwillingness to license their operating system to outside hardware vendors crippled their efforts and allowed Microsoft to assume dominance. When I mention Microsoft taking over the enterprise segment early in the game, I am referring to one of the outcomes of that decision.

    However, I believe that RIM has a very effective safety valve to prevent this type of lockout in the market, and that is their Blackberry Connect solution. I will discuss BB Connect and its implications in a future post.

    As an aside, I will say that Apple’s end-to-end model has made something of a comeback, and some think that in this “post-PC” era that this is the winning model. Quoting Walt Mossberg in the Wall Street Journal:
    “I think the end-to-end model can prevail this time, both for Apple and other companies. Consumers want choice and low prices. But they also crave the kind of simplicity and integration that the end-to-end model delivers best.” Mossberg’s article is a good introduction to this hypothesis…you can read it here.

  • Thought

    First, I’d like to thank both GG and Awesome-O. It’s always an honor to have someone take their valuable time and consider one’s thoughts.

    As for Good Technology, I consider them to be more of a niche player right now in this market. I just don’t see this company as having nearly the same market heft or resources as Microsoft.

    As for Apple, you are correct in that Apple’s unwillingness to license their operating system to outside hardware vendors crippled their efforts and allowed Microsoft to assume dominance. When I mention Microsoft taking over the enterprise segment early in the game, I am referring to one of the outcomes of that decision.

    However, I believe that RIM has a very effective safety valve to prevent this type of lockout in the market, and that is their Blackberry Connect solution. I will discuss BB Connect and its implications in a future post.

    As an aside, I will say that Apple’s end-to-end model has made something of a comeback, and some think that in this “post-PC” era that this is the winning model. Quoting Walt Mossberg in the Wall Street Journal:
    “I think the end-to-end model can prevail this time, both for Apple and other companies. Consumers want choice and low prices. But they also crave the kind of simplicity and integration that the end-to-end model delivers best.” Mossberg’s article is a good introduction to this hypothesis…you can read it here.

  • Awesome -O

    no, thank you Thought for your very intelligent and insightful analysis!

    very encouraging to see someone who understands what’s really going on in this space.

  • Awesome -O

    no, thank you Thought for your very intelligent and insightful analysis!

    very encouraging to see someone who understands what’s really going on in this space.

  • GG

    Not snorting anything, awesome. RIM is losing market share (up to 5% in the first half of this year) now. Granted, they are still the market leader. Being first to market can do that for an organization. There is a reason for this: competition. Competition from the hardware vendors like Motorola, Nokia, etc., as well as the software folks like Good and MSFT. If you consider the enterprise a ‘niche’, then Good is a ‘niche player’. However, Good has not seen the need to give away free servers, ie, BES Express, to maintain share. The end-to-end suppliers may work in the consumer, MP3 player space, but it will not in the enterprise. Never has. As for BB Connect, why has no American carrier announced support for this product that was announced over 3 years ago?

  • GG

    Not snorting anything, awesome. RIM is losing market share (up to 5% in the first half of this year) now. Granted, they are still the market leader. Being first to market can do that for an organization. There is a reason for this: competition. Competition from the hardware vendors like Motorola, Nokia, etc., as well as the software folks like Good and MSFT. If you consider the enterprise a ‘niche’, then Good is a ‘niche player’. However, Good has not seen the need to give away free servers, ie, BES Express, to maintain share. The end-to-end suppliers may work in the consumer, MP3 player space, but it will not in the enterprise. Never has. As for BB Connect, why has no American carrier announced support for this product that was announced over 3 years ago?