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Stratagem
 
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RESEARCH IN MOTION
‘Heins’ian economics at work...
Ever since moving into the corner office of the Waterloo based smartphone maker, Thorsten Heins has been struggling to undo the damage RIM suffered over the past few years. However, his two pronged strategy of consolidating the enterprise segment and leveraging emerging economies will take time to deliver results
Issue Date - 30/05/2012
 
It often happens that the ascent of most CEOs to the top is marked by public scrutiny, appreciation and sometimes outburst. However, Thorsten Heins, President & CEO, Research In Motion (RIM) has had a relatively subtle career as far as his media presence is concerned. When he was promoted to the top job in January 2012, analysts pointed out that “he’s not a well-known quantity.” A masters in science and physics from the University of Hannover in Germany, Heins started his career in 1984 straight out of college with Siemens AG where he was chief executive of various divisions including R&D, customer service, sales and product management. His last stint at the Munich-based multinational was that of Chief Technology Officer (CTO) before RIM recruited him as Senior Vice President of the handheld business unit in 2007. He quickly rose through the ranks and was made the Chief Operating Officer of Product and Sales in July 2011.

But ever since moving into the corner office of the Waterloo-based smartphone maker, Heins has undertaken an extensive strategic review of the business. And what he’s probably realised by now is that he has an awful lot on his plate. A case in point is RIM’s dwindling financial performance. From a high of $145 in 2008, RIM’s stock has tumbled down to $14 (a 90% fall). In 2011 alone, the stock lost around 80% of its value. What’s more – as per statistics compiled by IDC, BlackBerry devices held just 8.2% share of the global smartphone market at the end of Q4 2012 compared to 14% during the same quarter last year. In fact, despite the launch of multiple new BlackBerry 7 smartphone models, RIM’s revenue for Q4 2012 was $4.2 billion, down 19% from $5.2 billion in the previous quarter and down 25% from $5.6 billion in the same quarter of 2011.

Their problems are evident. Behind this heartbreaking free fall lies a blunder by RIM’s cofounders who despite launching great products failed to predict how the smartphone market would pan out in times to come. A look at RIM’s revenue pie makes it clear that the company’s business is divided into two major segments – enterprise solution and devices (smartphones and tablets). The enterprise segment makes up for 22% of the company’s revenue. The rest comes from smartphones and tablets. Given that RIM’s USP was its network infrastructure which made its enterprise solutions so lucrative to corporations, the company continued developing the kind of phones that would appeal to these clients. However, what they didn’t realise (or probably did but preferred to ignore) was that the sudden surge in sales of BlackBerry smartphones was not caused by companies signing up but because the mass market had started purchasing them. These were the consumers who were not looking for security but for appealing devices. The strategy worked well initially as there were hardly any smartphones in the market except RIM’s. But as soon as Apple’s iPhone and Google’s Android operating system were launched in 2007, RIM’s devices started losing sheen. And before the company could realise what had happened, sales went for a toss.

 
The promoters who made these assumptions have left the company. And fortunately, Heins knows what went wrong. Therefore he now plans to bring back the company’s focus on the enterprise segment. During his first conference call, as CEO, with analysts last month, Heins said, “We believe BlackBerry cannot succeed if we try to be everybody’s darling and all things to all people.” At the end of 2011, over 90% of Fortune 500 companies had deployed the BlackBerry solution, with approximately 80% of these having an installed base of 500 or more devices. In concurrence with this strategy, RIM recently released the BlackBerry Mobile Fusion – an expanded version of its server software which will now support phones made by competitors as well. In an exclusive conversation with B&E, Michael Holt, a Senior Stock Analyst with Morningstar, expresses his confidence on RIM’s hold on the enterprise segment. “The BlackBerry is still the gold standard in certain corporate markets where premium security is valued. We expect it to retain that position for some time,” says Holt. So, is this a bad strategy? Depends on how you look at it. While on one hand this might indicate further shrinkage of BlackBerry devices in offices, but on the other it gives RIM an opportunity to pursue smartphones as an independent business.

Saying that this would be an overwhelming task is an understatement at best. In a world where smartphones promise a superior computing experience in the palm of your hand, BlackBerry has really missed the application bandwagon. RIM failed to entice developers to create new and appealing apps for its OS which for the most part looks outdated when compared to Apple’s iOS and Google’s Android. In fact, a fortnight ago, a popular app maker YouMail announced that it would stop developing for BlackBerry. This sends across a very strong message because BlackBerry was the platform which gave this app its first million registered users putting it effectively on the map as a company. Although it is featured in the ‘Top 10 productivity apps’ category on the BlackBerry App World, the user base has collapsed. This is not the only case. A lot of popular apps like Instagram (which Facebook recently acquired for $1.1 billion) do not develop for RIM. According to the results of a survey undertaken by Appcelerator and IDC this year, 89% of developers were “very interested” in writing software for the iPhone and 79% for Android. However, only 16% of developers said the same about BlackBerry.

But that doesn’t mean nothing can be done about it. In fact, there are a lot of factors which BlackBerry can use to its advantage. For instance, BlackBerry smartphones are still the #1 prepaid smartphone in several countries including the Netherlands, Indonesia and the UK, where RIM is the dominant player with a 40% market share. While BlackBerry Messenger experienced a 500% increase in usage in 2010 and currently has over 55 million users worldwide, the App World (which has been downloaded on 35 million smartphones till date) currently has 70,000 applications. As a matter of fact, 177 million apps are downloaded per month, which makes it roughly six million apps per day.

          

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