Surving Competitive Landscape-RIM Scenairo Analysis

8/9/2019 Surving Competitive Landscape-RIM Scenairo Analysis

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March 24th 2010

Surviving competitive

landscapeBlackberry – Scenario Analysis

Professor:RemziGozubuyuk DeepakAgarwal AnoudHusseinAlotaibi

GustavoAndresAlvarado

CarolEid

MuraliErraguntala

RafaelGomez

BingVanDerLande



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Contents

RIM................................................................................................................................................. 3

Description of Company ............................................................................................................ 3

Blackberry .................................................................................................................................. 3

BlackBerry Enterprise Server..................................................................................................... 3

Blue Ocean Strategy................................................................................................................... 4

SWOT Analysis.......................................................................................................................... 5

Focus of the document .................................................................................................................... 5

Smartphone ..................................................................................................................................... 5

Introduction ................................................................................................................................ 5

Industry Analysis – Porter’s 5 Forces ........................................................................................ 5

Scenario Analysis............................................................................................................................ 7

Stakeholders ............................................................................................................................... 7

Basic Trends............................................................................................................................... 7

Uncertainties............................................................................................................................. 10

Scenario Framework ................................................................................................................ 11

Conclusion .................................................................................................................................... 14



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RIM

Description of Company1

Research In Motion (RIM) is a leader in the worldwide mobile communications market and the

company behind the award-winning BlackBerry® solution. The innovative and award-winningBlackBerry product line includes best-in-class smartphones, as well as software for bothenterprises and small businesses.The integration of BlackBerry smartphones and software provides mobile access to email,applications and more. It also allows virtual real-time communication, so you can stay in touchand up-to-date with the people and things that matter most.

Blackberry1

Blackberry is a wireless handheld device introduced in 1999 by the Canadian company Researchin Motion (RIM); it delivers information over the wireless data networks of mobile phone servicecompanies.

Figure 1 Blackberry Architecture

BlackBerry Enterprise Server

BlackBerry enterprise server software is the link between BlackBerry smartphones, enterpriseapplications and wireless networks that extends communications and corporate data to your mobile users. With BlackBerry® Enterprise Server software, your employees can access their Microsoft® Exchange, IBM® Lotus® Domino® or Novell® GroupWise® email on-the-go ona BlackBerry smartphone. They’ll also have access to calendar, contacts, tasks, notes, instantmessaging, web-based and enterprise applications.

1 www.rim.net



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2Figure 2: Blackberry Enterprise Server

Blue Ocean Strategy

RIM's BlackBerry launch was a Blue Ocean strategic move because the company not onlycreated technology innovation but also created superior buyer value innovation as well. Breakingaway from traditional cell phone and pager competition, Blackberry offered a new type of

wireless handheld solution for companies. It created a new market space focused on deliveringsecure company email access to roaming employees. Blackberries facilitated employees to sendand receive emails practically anywhere and anytime without physical presence in the office. SoCompanies that adopted Blackberries saved time and money. Also, there was no need to installremote client software because RIM offered a turnkey, centralized enterprise server and softwaresolution. Since Blackberries were easy to use and had simple user interfaces and a limitednumber of contextualized options to choose from, companies also saved training and supportcosts.Most importantly, the Blackberry created a highly secure offering for companies because allemails and their contents could be protected behind their corporate firewalls. If a single devicewas lost or stolen, the company could easily disable it from its central control server.

Finally through Blackberry and blue ocean strategy, RIM entered a niche market and continuedits dominance until now.

2 Source: RIM



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SWOT Analysis Strengths

• RIM’s unique offering and strategy• RIM’s software is well designed• RIM’s brand is now very powerful•

RIM’s offering is carrier-friendly

Weakness

• Scalability and global coverage• The blackberry architecture• High total cost of ownership•

RIM’s business model is not carrier-friendlyOpportunities

• Differentiated offerings• Extend third party applications

Threats

• Tougher competition• New technology

There is a bit or irony in the SWOT analysis with regard to blackberry’s architecture. It is both a boon and bane to RIM. Blackberry enterprise service is the USP of RIM and it facilitates RIM tooffer unique services, however it also adds cost. Operators are happy that they are able toleverage the architecture of blackberry to offer additional services, while they are also worriedthat the architecture of blackberry is increasing the bargaining power of RIM.

Focus of the documentThe focus of the document is to use scenario analysis to identify possible threats to dominant position of Blackberry and also devise strategies for RIM to counteract those threats. Since this isa fast changing industry, we are looking for a time frame of 3-5 years. Various scenarios will beidentified to construct the scenario framework after thoroughly evaluating the uncertaintiessurrounding smartphone industry. Uncertainties are ascertained after careful examination of allthe macro economic factors such as political, economical, social, technological, environmentaland legal.

Smartphone Introduction3

A smartphone is a mobile phone offering advanced capabilities, often with PC-likefunctionality. There is no industry standard definition of a smartphone. For some, a smartphoneis a phone that runs complete operating system software providing a standardized interface and platform for application developers. For others, a smartphone is simply a phone with advancedfeatures like e-mail, Internet and e-book reader capabilities, and/or a built-in full keyboard or external USB keyboard and VGA connector.

Industry Analysis – Porter’s 5 Forces Porter’s 5 forces analysis is done to understand the industry attractiveness of the smartphoneindustry.

i.

Threat of Entry - Low• Huge capital requirements: High manufacturing cost, high R & D cost. Constant push

to innovate and launch new products.

• Economies of scale: Fixed cost is high, so economies of scale has to be achieved toincrease profit margins

3 Source: http://en.wikipedia.org/wiki/Smartphone



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• Product differentiation: Smartphone will become a commodity unless they aredifferentiated from its competitors. Moreover the bargaining power of the buyer ishigh, so product differentiation is an ideal way to add value to the buyer.

• Distribution channel: In most of the countries, smartphones are sold through mobileoperators and hence they exert more bargaining power. Alliance with mobile

operators is an essential factor for product success in smartphones segment.• Governmental and legal barriers: Mobile industry is heavily regulated.• Retaliation: All leading players are fighting a fierce battle to gain more market share,

so there will be a heavy retaliation against any new entry. Existing players havesufficient financial clout to block new players.

• Brand: Strong brand recognition is required to sell smartphones.

ii. Supplier Power - Moderate

• Software provider: There are so many open sources mobile operating system providers, options are plenty and hence the bargaining power of software providers ismoderate.

• Hardware provider: There are too many suppliers for hardware components(Qualcomm, TI & Intel) and hence the bargaining power of hardware providers isalso moderate

iii. Substitutes - Moderate

• The power of substitutes is moderate and it actually depends on the impact of substitute products.

• Smart phones do wide variety of functions, so any product that specializes in one of those individual functions can also be termed as a substitute. Other formidablesubstitute products are notebooks (with smaller screens), PDAs, tablet PCs.

iv. Buyer power - High

Buyers bargaining power is high because of the following reasons:• More choice of products and very limited differentiation of those products.

• Elastic demand –Demand is highly sensitive to economy.• Less asymmetric information – Buyers have all the required information.• Less switching costs: This depends on the country and type of mobile plans provided

by the service provider.

v. Rivalry - High

• Rivalry is intense among existing players.• There is not much differentiation in the product features; however players

differentiate their products in terms of applications and services offered.• Exit barriers have to be evaluated in correlation with value chain analysis. Exit

barriers are low for manufacturers that occupy only part of the value chain against themanufacturer that occupy most of the value chain.

vi. Complements - ModerateComplements are critical for product differentiation and they have a huge bargaining power. However the power of few complementary products (Applications) will besubsidized with increasing network externalities.



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Some complements include:• Email• Maps & GPS• Applications Music & other media related applications

Utility applications Internet based etc.

Scenario Analysis

Stakeholders 1. New entrants (OEM players like Dell & HP)2. Smartphone manufacturers like Nokia, RIM, Apple etc3. Government4. Hardware/Software suppliers5. Application developers

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Telecom Companies7. R & D centers of Telcos and Smartphone manufacturers8. Smarthphone Users

Basic Trends Mobile devices have grown in number more significantly in recent years than computers andtelevisions combined. With feature phones being the primary market of recent years,smartphones are emerging as the dominant device in the mobile industry.Key predictable trends of smartphones are

• Feature-rich smartphones will be the driving force behind successful smartphone products, camera/video, wi-fi and location based services will become mandatory.

• Location awareness and augmented reality will lead to several other innovativeapplications.

Mobile Augmented Reality Apps Download4

Year No of App Downloads

2009 1 Million

2014 400 Million

• Number of app stores are increasing at an astronomical rate

Total Application Stores5

Year No of App Stores

Before 2008 3

2008 82009 38

2010 (Until Feb) 48

4 Source: http://techcrunchies.com/?s=augmented+ 5 Source: http://techcrunchies.com/number-of-mobile-app-stores/



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• The iPhone has no doubt revolutionized the mobile phone industry and the app economy.

Spurred by the addition of thousands of new mobile apps everyday to the various app

stores, the mobile application market is booming.

Revenue from Mobile Applications6

Year Revenue (In Billion) No of App Downloads

(In Billion)

2009 $4.23 2.5

2010 $6.77 4.5

2013 $29.47 21.6

• Cloud based mobile applications is a fledgling industry already set to take off – There are

rumors of Apple introducing a cloud based iTunes and Google following suit with a

competitor product. However, the major chunk of growth; nearly 75% is expected to

come from Enterprise customers.

A recent report from Juniper estimated the total value of the market as follows:

Year Market Size

2009 $400 Million

2014 $9.5 billion

This is approximately a growth of 88%.

• Telecom companies are experiencing declining voice ARPU, while data ARPU isincreasing.

ARPU of USA Telecom Comapanies7

Year Voice ARPU Data ARPU

2004 $50 $4.002005 $47 $5.50

2006 $44 $8.00

2007 $41 $10.50

2008 $37 $13.00

2009 $35 $15.00

• Smartphones will make up a large portion of the growth in the overall mobile devicemarket

6 Source: Gartner 7 Source: http://techcrunchies.com/data-arpu-voice/



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8Figure 3: Smartphone Growth Projections

• Symbian and Nokia are expected to continue losing market share to Android and iPhoneOS, and companies like HTC, Samsung and LG who will likely be putting marketingmuscle behind the Android OS and a new line of smartphone products.

• RIM will continue to hold the number 2 spot in the global smartphone market and the topspot in the North American smartphone market.

• Android is expected to grow exponentially through 2014, gaining the 3 rd largest share of the smartphone OS market globally, and the 2nd largest share in the North American

smartphone market.

9Figure 4: North America Smartphone OS Market Share

• Open source is gaining more prominence with Android

8 Source: Morgan Stanley 9 Source: Frost & Sullivan



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Uncertainties 1. Market Players

Because the characteristics of the industry the competition is growing, new entrants withdeep pockets like computer manufacturers such as Acer and Dell are rushing to get into

the market, some others like Apple are already in the battle and while other giant techcompanies such as Google and Microsoft are pouring resources into the smartphonemarket where Research in Motion and Apple currently dominates.Arrival of open source such as Android has led to the emergence of more players insmartphone industry. So there is a larger uncertainty regarding how market will takeshape with so many players. The market uncertainty with respect to players also dependsupon factors like sale of smartphones, degree of convergence, consumers etc.

2. Consumer ExpectationsConsumer’s expectations about Smartphones are evolving rapidly, consumers wantapplications, and some competitor like Apple offer more than 80,000 choices in its App

Store from different prices, by contrast, RIM offers less than 5,000. Whereas RIM led themobile-phone industry into e-mail, it is now a follower in the race to build a dominantecosystem for handheld computing, and it seems that the future is not clear in this fastevolving industry, making it tough for all the players to remain competitive. Consumersare also asking more convergence and it is leading for innovative applications. Nowadaysthere is an increasing trend for location based services; augmented reality is also fastcatching. But do those technologies has the ability to play a prominent role in day-to-daylife or are those technologies are just fad. So the larger question is what would be thelimits of convergence that customers will embrace.

3. TechnologySmartphones are in a way driving the digital convergence, but we are not yet sure howmuch of convergence will happen in future. However it is difficult to predict the nextBIG technology that might supersede smartphones and erode the market of smartphones.So the larger question still remains? What NEXT?Also with cloud gaining more prominence, there is a need for higher computing power.Will smartphones be able to deliver the expectations or do the limitations of smartphoneswould give raise to a new device. Probably no one knows.

4. Infrastructure (Telecom Companies)The larger issue for telecom companies is declining voice ARPU. Though revenue isincreasing in data ARPU, telecom companies are not very clear about how to makemoney with data services. Providing data services have never been the core strength of telecom companies, so they are struggling to mint money with data services. Alreadythere is huge uproar that smart phone companies are making lots of money withapplications and lots of new mobile application companies are cropping everyday tocapture that market. Also net neutrality is gaining more prominence and it has polarizedthe mobile and internet players. There is larger uncertainty about net neutrality and itsimpact on telecom companies. There is also a larger uncertainty regarding how GoogleVoice will erode the revenues of telecom companies. Since telecom companies and



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smartphone manufacturers are part of the same value chain, any impact on telecomcompanies will impact the entire value chain.

Scenario Framework Of all the uncertainties, uncertainty about market, consumers and degree of convergence

is critical for RIM. So based on the trends, critical uncertainties the initial scenario framework isas follow:

1. After the boom

Few players – high level of convergence

• Few companies drive innovation

• No common standards• End-to-end integrated players will rule• Open platforms have advantage

• Revenue increase, due to convergence

NUMBER OF

2. The playground

Many players – High level of convergence

• Common standards

• Low prices• Innovation is key• Specialized players

• Revenue increase depends on ability toadapt to convergence

PLAYERS

3. Cost cutting

Few players – low level of convergence

• High level competition amongst few big players

• Less innovation• Survival depends on operation efficiency• Saturated market

• Profits are around 4-5%

4. Overcrowded garden pond

Many players – Low level of convergence

• Push for innovation• High competition

• Differentiation through niche markets• Not very profitable• Cost differentiation (risk of price wars)

• Consolidation of players (Mergers,Partnership, Alliance, Acquisition etc)

Scenario 1 -”Few players – high level of convergence”After a troubled period with many players coming to the market but also exiting at the same pace because of lack of innovation, the craziness in the market has settled down. Only a handful of strong companies survive and those companies control the whole value chain involvingsmartphones. The vast majority of hardware and software is supplied by only four players, Nokiaoperating with Symbian and Maemo, Apple has the iPhone series with its own operating system,RIM also offers the hardware with its own software, while Google and HTC have joined forcessupplying open source Android on HTC handhelds. While Apple and RIM stick to their closed

High

Low

Low High

DEGREEOF

CONVERGENCE



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platforms, Google/HTC and Nokia have taken a more open approach. The openness has provento be very effective in consumer markets as they tend to get segmented to smaller groups withmore tailored options, making it very difficult for the two closed platforms to serve their broadlysegmented customer base. The option for closed platforms is to target a nice customer base.Because of increasing digitalization of life, people rely more and more on the functionality of

their mobile devices, increasing the bargaining power of the limited amount of suppliers.

Warning bells

- Lots of companies entering and exiting at the same pace due to lack of innovation- Market highly receptive to new technology

- New apps like location based service and augmented reality gains prominence in day-to-day activities.

StrategyThe implication of this scenario for RIM is to increase its capabilities to develop innovativesolutions not only for enterprise market but also for customer market. RIM’s core strength lies in

enterprise market, but it has already attempted to target consumer segment through Blackberrymodels like Pearl and Bold. Under this scenario consumers are receptive to advancedtechnology, so RIM has to push it to offer innovate solutions to consumers. For instance RIMcan offer solutions like digitized home. Nowadays every consumer has plethora of electronicgadgets in their homes, digitized home should offer a solution to control all the devices through blackberry. We have just provided a sample innovative offering that can be delivered to thecustomers; RIM has to focus more on such solution(s) that would push the limits of convergence.Under this scenario, we believe that RIM’s core market is not threatened and we don’t see any big players entering that market. The target of Apple is always consumers and enterprise markethas never been their expertise. Google’s strategy of NexusOne is to dominate mobile advertisingand entering enterprise market is not their strategy. Since consumer segment is pushing for

higher convergence, we can happily presume that both Google and Apple do not entertainenterprise market and they push themselves to make revenue targeting consumers. However Nokia and Windows had always an eye on enterprise market, so RIM has to watch for those two players. Whether those two players are real threat has to be assessed at that point in time. We arenot stating that RIM should not focus on enterprise market; we only assert that in this scenarioRIM should prioritize consumer market over enterprise market. Though open platforms have theadvantage being first to market and respond to any rapid changes in the market. End-to-endintegrated players are better poised to serve a niche segment and offer more quality. Thedifference between open and closed platforms is analogous to Windows and Apple.

Scenario 2 - “Many players – High level of convergence”

Due to a highly diversified market with many suppliers for both hardware and applications, themarket cannot support the wide range of smartphone operating systems (Apple’s iPhone OS,Google’s Android, Nokia´s Symbian and Maemo OS, RIM’s Blackberry OS, Palm Web OS andmany other small OS´s) for much longer. There is a need for a common element: the standards.After a battle for common standards, separate players might emerge for hardware, software andapplications. Open source platforms such as Android and Symbian will drive the standards.However we don’t say that there will not be native platforms, end-to-end integrated platformslike Apple and RIM still exist but their priorities changes. In this scenario, continuous



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technology changes keep shifting the range of available customer solutions. Applicationdevelopers gain the roost as the trend is inclined towards innovative applications. Convergence isat its peak and it has created a big opportunity for a various players especially applicationdevelopers and service providers. Because of the crowded market, the opportunity todifferentiate between players and gain a competitive advantage relies on specialization. So

innovation is key element for survival. Bearing in mind that competition is very high, so thesuccess of big players like Nokia´s, Apple´s, RIM´s depends on their ability to adapt to thedigital convergence and meet the needs of specific customer segments.

Warning bells

- Many new players entering- Everyone makes profit, there is sufficient space for every player

- Highly segmented market

StrategyIn this scenario, RIM has to focus on protecting its core market through offering customized

enterprise solutions. RIM has earlier offered customized solutions to enterprise

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, RobertTransport operating in Canada is one of the best examples. RIM has to push itself to offer moresuch customizable solutions across a wide range of industries. The key success factor is in thisscenario is keenly study various industry and study how wireless mobile can change their business models, the essential factor is not to sell smartphones but to sell services that cannot bereplicated by its competitors.

Scenario 3 -“Few players – low level of convergence”

The market of smartphones reached an unexpected mature stage. Social networks, micro- blogging, and location based services have turned out to be hype of the first decade of the 20th century. The mobile device has a much smaller impact on the lives of people than expected. The

number of companies involved in Smartphones has decreased a lot and innovation is not havingthe anticipated impact. The competition between RIM, Nokia, Apple and Google is fierce. Thereare no standards but at the same time, the level of convergence is lower, so the opportunity todifferentiate themselves and achieve greater benefits lies in the ability to cut costs. Operationalefficiency is the key factor for companies to operate at the margins and to ultimately survive.Differentiation is also done by building strong brands. There would be broader focus on makingthe mobile phone not as a tool, but as a (fashion) statement as done by Apple.

Warning bells

- Companies are either spun-off or sold.- New promising technologies are turning out to be a fad- Companies start focusing on operational efficiency

StrategyThis is not ideal scenario for any smartphone manufacturer. In this scenario, RIM should reduceits focus on customer market and drive all its resources towards enterprise markets. Enterprisemarkets offer a steady income and churn rate is much lesser than the consumer market. In the

10 Source: www.blackberry.com/go/success



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SWOT analysis, we have indicated that BES architecture is increasing the costs of RIM, so RIMshould try to reduce the cost of BES architecture while keeping its core capabilities intact.Emphasis can either be on offering customized enterprise solutions or standard depending on therequirements on enterprise customers. However if Blackberry can demonstrate a costadvantage/competitive advantage to enterprise customer(s) through its customized solutions then

enterprise customer(s) will be receptive to such customized solutions. RIM don’t make out of selling services they make money out of benefits derived by the enterprise through using thecustomized solutions of RIM. So RIM is basically sharing the risk and benefits of its customizedsolutions. The difference between the offerings in scenario 2 & 3 is the change in businessmodel.

Scenario 4 -“Many players – Low level of convergence”

In this scenario, rivals compete highly in a constant market. The market is too small for the largeamount of players to be active. Besides the well known brands, many smaller brands arestruggling to get a pie of the market. The most widely used strategy to get a share of the marketis to target niche customer segments. Rivalry is now intense as the number of rivals has

increased and the niche customer segments will also be flooded with lots of players. The profitability is low and cost efficiency plays a big role. Even though companies are trying to finda way of differentiating by targeting niche segments; price war is inevitably. Only players withsufficient backup funds or firms with significant advantages like a loyal customer base cansurvive.

Warning bells

- High level of competition- Price wars

- Specialization on niche segments-

Consolidation of players

StrategyIn this scenario, high competition leads to price wars and smartphones prices start falling. Sonone of the players make money and they start consolidating. For instance Nokia has already joined hands with Intel to make MID (Mobile Internet Devices). If there are more playersentering the markets and if Nokia’s market share starts plummeting, it might join hands withWindows to form “WINTELOKIA”. Nokia is good at H/W and it might ally with Microsoft toobtain a better S/W provided both the open source software Symbian and Maemo fails. Aligningwith Microsoft is also a good move the capture large pie of the enterprise markets for which boththe players are looking yearning for. If such alliance materialized then the prospects of RIMmaking big is doomed and it is left with no option other than aligning with other major player.For RIM, the perfect ally would be either IBM or SUN. Both their expertise in server platformswill be key for offering much better enterprise solutions. IBM is better because of its sheer sizeand both of them should join together to form “RIMBM”

Conclusion

Scenario 1 & 2 are the most ideal for RIM, scenario 3 is the worst for any player includingBlackberry. All this scenarios are formulated taking into consideration the basic trends and a



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time frame of 5 years. Most of the scenarios are plausible and the occurrence of each scenario isdepended on lots of factors. It is not easy to predict those factors, however we have listed themarket signals that would acts a warning bells for each of the scenarios. Overall the key to RIMis to innovate consistently and seek advantage of its end-to-end integration to fullest extent;however they have to seek ways to reduce cost incurred because of BES and keep its competitors

at bay without giving them enough leverage to enter the enterprise market.

Surving Competitive Landscape-RIM Scenairo Analysis

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