In the wake of Research in Motion’s disappointing financial outlook recently, the anxiousness about the company’s future has been cranked up. This included a highly-speculative story in the Toronto Star about how RIM could become a takeover target. Even more alarming are growing comparisons to Nortel, which was Canada’s flagship high-tech company until it disappeared after filing for bankruptcy protection.
Having covered Nortel for five years as a technology journalist and writing a blog devoted to Nortel, the comparisons between Nortel and RIM are the work of people with nothing better to do than declare the end is nigh. Call it the “Chicken Little Syndrome”, or a typically Canadian reaction of trying to tear down our success stories.
While RIM’s challenges and problems should not be sugar-coated or dismissed as a strategic bump in the road, the situation is far from doom and gloom. RIM has some difficult decisions to make and desperately needs to find a way to reinvigorate its Blackberry and PlayBook sales but it’s a long way from becoming the next Nortel. Here’s a few reasons why the two companies can’t be thrown into the same basket.
1. Stronger Senior Management: Maybe RIM’s co-CEOs, Jim Balsillie and Mike Lazaridis have ruffled some feathers because of their arrogance, and there is no doubt they have failed to strategically execute but they have built RIM into a telecom powerhouse over the past decade. In comparison, Nortel struggled with a string of weak CEOs that included John Roth, Frank “The Bean Counter” Dunn, Bill “The Admiral” Owens and, finally, Mike “Mike Z” Zafirovski, who bumbled and stumbled their way through mistake after mistake until Nortel eventually capitulated.
2. RIM is highly profitable with lots of cash, which should provide it with a healthy financial cushion to figure out how to ride out the storm. In comparison, Nortel was burdened with billions of dollars in debt after missing out on windows to raise equity before its shares became a penny stock.
3. While Laziridis and Balsille were slapped on the wrist by the OSC after being accused stock option backdating, Nortel was killed by class-action lawsuits that cost it billions of dollars and distracted senior management at a time when tough decisions need to be made.
4. Nortel made a series of multi-billion dollar acquisitions that were spectacular failures. Many of them were completely written off, while others were dumped for pennies on the dollar. Again, Nortel’s focus was all over the place. In comparison, RIM’s acquisitions have been small and far more strategic. This includes the purchase of QNX, which will be the core of RIM’s next-generation operating system.
5. Lazaridis and Balsillie control a big chunk of RIM through share ownership. At the end of the day, RIM won’t be sold without their agreement. In comparison, Nortel was controlled by institutional holding stock and debt holders.
6. With the right strategic execution, significant improvements in the half-baked Playbook and a big dose of luck, RIM could keep its status as a tier-one smartphone maker. In a blink of an eye, Nortel went from a tier-one telecom equipment supplier along with Cisco and Alcatel to second-tier, plagued by a portfolio that did not include a market-leading product line.
Again, make no mistake RIM faces some major strategic and tactical challenges amid fierce competition from Apple, Google and Samsung. If RIM continues to stumble, the company could implode. But with the right moves, RIM could regain its industry-leading status.
For more thoughts on whether RIM could become the next Nortel, check out this MarketWatch column by Bill Mann.
Another interesting read is TechCrunch’s John Biggs, who declares that RIM is “done” and that it will sold in the next year or so, probably to Microsoft.
RIM’s expansion strategies were awful: the touchscreen phones and other attempts to replicate Apple have driven them away from professional (or wannabe professional) market. At the same time they sucked at the whole “Look at me, I’m also Apple” thing.
Other than that, there’s nothing wrong with the company. They are huge and make good stuff, just not ready to battle iPhone-grade markets. If anything, RIM should spell quality and reliability, not games and toys.
hi mark,
I like my blackberry also. but you know what, some companies have announced on twitter that they will no longer develop for BB. See here below announcement from Seesmic:
Blackberry users, we have important news we would like to share:
Effective June 30th, Seesmic will discontinue support for Blackberry in order to focus development efforts on our most popular mobile platforms: Android, iOS and Windows Phone 7.
We encourage those effected by this change to try out Twitter for Blackberry, UberSocial or Socialscope. Please also have a look at Seesmic’s additional mobile offerings.
Sincerely,
Team Seesmic
@jinan alrawi – don’t read too much into that. If you look at Tech Crunch’s video today you see that Seesmic stopped development for a couple of reasons:
1. Declining user base of Seesmic
2. Their poor design made it difficult for them to develop and test for multiple BB phones. (As someone who has developed a successful app that runs on EVERY BB phone released in the last five years, I can confirm that a well-designed app is NOT difficult to maintain across platforms. A poorly designed app, though, would be a testing nightmare.)
But put this in context. The Seesmic client for BlackBerry was a very poorly executed piece of software. It did not receive many good reviews. Does it not logically follow that in the wake of offering a sub-par user experience, fewer people will download their product for BB?
THis is an example of a company blaming a platform for their own development and design shortcomings.
In all fairness to Seesmic, I have yet to hear someone who tried developing for Blackberry that did NOT complain about the SDK.
I, one of many thousands of former Nortel employees, joined RIM in 2006. After the first couple of months, I commented to a number of RIM colleagues (who were also former Nortel colleagues) of the striking resemblances to pre-Y2K Nortel. It had all the same smells; great employee morale, amazing business success, the ‘flagship’ brand, people calling me daily to enquire about possible opportunities at RIM, etc etc. It was an unbelievable high that was oh-too-familiar. They all nodded in agreement.
Both companies rode the high waves of success and so questioning the leaders, they would simply point you to that success. Jim commonly pointed to the hockey-stick growth of the previous years when questioned about the seemingly lack of vision. Let’s not even talk about the execution of the ‘non-existent’ vision.
Though I agree that they aren’t doomed (yet), it would be silly to suggest they aren’t the Nortel of today. You conlude by saying, ‘if they don’t fail, they’ll succeed’; insightful.
Leonard,
Thanks for the insight. I think what I’m suggesting is that RIM could go either way – success or failure. Clearly, I’m hoping it manages to rediscover its strength and vision. Mark
As a former RIM employee, I can attest that the Nortel culture is ever too present at RIM.
The central tenet of this culture is “follow orders and management will take care of driving the company”. What’s missing in that picture is “ship products”: even the bonus structure isn’t based on what you deliver but only on broad department-level metrics. Everyone works hard at RIM, but very few actually build products that ship (and when they do, it’s usually quite late)
Many successful companies have managed to embrace innovation throughout the organization, but RIM has always been driven by top-down decision making. Unsurprisingly, by the time senior management figures out that the company needs something and gets through the politics of giving this project to the VP that’s in favor that month, the market has already moved.
I think RIM has simply forgotten that they can’t go forever selling what made them successful 10 years ago, but to innovate again they would need a culture that allows embracing innovation from the bottom up.
Tall order.
That’s a very insightful comment Jay. Engineering vs. creative culture is at the heart of it. Creative cultures do not thrive in linear, authoritative, closed systems.
“Stronger Senior Management”
I could say that I’m smarter than Sarah Palin, but it also doesn’t mean I’m smart.
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“Again, make no mistake RIM faces some major strategic and tactical challenges amid fierce competition from Apple, Google and Samsung.”
Regardless of what you think of Apple, Apple is in a class by itself. The pundits seem to have deluded themselves into thinking that “Apps” are the metric that determine the success of a mobile platform, but they forget that Apple is also a *media* company that provides a seamless experience for buying and consuming movies, music, books _and_ apps through their iTunes store. The only company that can realistically compete with that will be Amazon and their rumoured Android tablet.
Google and Samsung? That’s a little muddled. Perhaps you should just say Android phones, of which Samsung is only one of the manufacturers. HTC is just as much of a threat to RIM as Samsung. According to Asymco, even Nokia (with their mixed bag of operating systems) is selling more smartphone units than RIM:
http://www.asymco.com/2011/05/22/other-vendors-sell-10-of-smartphones-but-30-of-voice-oriented-phones/
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“But with the right moves, RIM could regain its industry-leading status.”
With the right numbers, I can win Lotto Max and be a millionaire. RIM and its peers were complacent in an industry that treated **carriers** as their primary customers. Apple disrupted the marketplace by releasing a product that treated consumers as their customers. RIM thinks they can regain their lost glory by producing a “better copy” of an Apple product. They must think we are really stupid.
This is an industry where it takes more than a year to develop a product. Does RIM have years of runway to compete? People may be talking about the upcoming iPhone 5, but make no mistake, Apple’s R&D are probably deep in the design of the iPhone 6 and have the iPhone 7 on the drawing board. It’s not easy catching up with a moving target, especially if you’re producing a “me too” product (Playbook seems like a derivative of HP’s WebOS and Apple’s iOS).
Agreed that one of Apple’s strengths is the ecosystem (probably it’s biggest strength in fact – it’s hard to justify switching to another platform when it means that you will immediately lose out on hundreds of dollars of music, apps, video etc.).
It’s unfortunate (but understandable) that there is no time allowed for growth. It really seems at this point that the market has decided that Android and iOS are the only two OS’s worth having (with a high emphasis on the number of apps/developers). It’s the same thing that exists in the desktop market (nobody is going to release a new desktop OS because of no apps will exist for it and nobody would be willing for it to grow) and it stifles innovation.
I disagree that the PlayBook is a me-too product. If you’ve played with it, you’d see that it’s the only tablet (of those I’ve experienced anyway) that doesn’t just feel like an oversized phone. Of course, the PlayBook has other issues to work out.
RIM is a primarily hardware company. Their software is 3rd rate. They need to change into a true, integrated hardware/software company, and that will be very difficult. Nokia is in the same boat. They both make great hardware, but so does HTC and Samsung. None of these companies have the software chops to hang with Apple, sorry.
@plist – I would argue that RIM is first a service provider, second software vendor and third hardware manufacturer. Let’s not forget enterprise software like BES and BIS which are huge pieces of what RIM does. The handheld and desktop software are much smaller pieces, but has consumer visibility.
I think if you were to survey a cross-section of RIM folks, they might each give you very different answers. Part of the problem?
The Seesmic announcement seemed to be timed to give a headkick to RIM while they perceived it to be down, hoping for some publicity on the backs of their statement. They got that publicity.
I am in the camp with D.H. – http://37signals.com/svn/posts/2959-ten-apps-is-all-i-need
Get the core apps *solid* (in the case of RIM that means putting their temporary cash-cow BES at risk and making very good general email clients) and then the rest is just gravy. In the grand scheme of things, apps like Seesmic just aren’t terribly important.
There was a good video on TechCrunch that included an interview with Seesmic today on that very topic. The topic: “RIM: Fly or Die”. The conclusion was not pretty.
DHH made a very compelling and strong point. Looking at my own iPhone usage, 90% of my usage comes out of Safari, with the bulk of the remaining usage coming from the built-in apps.
iOS5′s iMessage could end up being a BBM killer. RIM’s sacred cow and one of their few remaining competitive advantages could die an ugly death because RIM was too complacent to enhance it over the past several years.
It is very debatable if RIM could have done anything to avoid this decline, since, after all, they were up against the giants, Apple and Google. Apple was difficult enough to compete against, but, Google, with the free Andriod OS to all of the handset makers, was really the big blow against RIM. How do you compete when Google gave away a free OS and created an ecosystem too boot.
How does RIM really compete in the face of the Apple/Google combination? RIM thinks QNX is their life saver, but, who knows. Nobody will know for one year if the public and enterprise really get turned on to it. By then, who knows how much additional market penetration happens by Apple and Google, along with Microsoft, to take away RIM customers. Lastly, the Playbook looks to be lackluster and not going to sell anywhere near projections. All of these problems are a backdrop to the bad economy and 4G LTE expansion that RIM has not participated in yet.
Horace Dediu did a great podcast earlier this week with Dan Benjamin on the 5×5 podcast network. He opened by saying you can’t blame management for this failure.
The incumbents in the phone industry were first disrupted by Apple, whom was dismissed by most of the industry execs as dilettantes. The next disruption happened when Android was successfully introduced into the market.
The incumbents couldn’t really predict what would happen with these disruptions, and the ones that paid the biggest price were the companies that maintained the status quo from a strategic perspective.
At least Nokia finally had the sense to cut the head off and make significant strategic changes to stem the bleeding, whether you agree with them or not.
“With the right strategic execution, significant improvements in the half-baked Playbook and a big dose of luck, RIM could keep its status as a tier-one smartphone maker.”
I really take issue with this statement. First, what evidence is there that RIM’s management are capable of “the right strategic execution”? They’ve had no credible response to the iPhone in the 4 years since it was released, and to Android in the 3 years since it’s first hardware release. A new entrant came into a market that RIM essentially created, and they did nothing for 4 years. I don’t think it’s valid to use the company’s performance in the time leading up to the iPhone, when RIM had no credible competition, as a predictor of future success. The moment a credible competitor began to encroach on their market, they had no response. IMO this is a much better indicator of future performance in the face of dominant competition.
“significant improvements in the half-baked Playbook”
Again, what evidence is there that this will happen. The first Storm was, by all accounts, a massive failure. The Storm 2 was too little, too late. The current management was responsible for both. People love to talk about how Apple came back from the dead, but what they forget is that Apple was driven to the brink of death by someone other than Steve Jobs. Steve Jobs came back and brought Apple to where it is today. Had the existing management remained in place, they would have undoubtedly gone bankrupt. RIM desperately needs a change of management.
“a big dose of luck”
With a big dose of luck, the 6/49 could make me millionaire. But you can be sure I’m not making investment decisions based on those odds.
This reply is long on rhetoric and short on fact. *look at the numbers*. RIM has no debt and a ton of cash (for their size). Their profits overall continue to increase – even if not as fast as the profits of competitors. . You can harp on the mistakes of two or three years ago if you want, but it just makes me wonder what it is you have to gain by consistently talking down RIMM value.
Hi Simon. Thanks for responding. I actually did look at the numbers. Their profits decreased about 10% year-over-year. Revenues are up, but their margins shrunk, so they made less money. Net income is really what matters after all. It’s not really just me who’s “harping” on their mistakes. They’ve lost a massive amount of investor confidence, and almost all analysts have cut their price targets.
I have nothing to gain, I’m just writing about what I see happening. I’m not sure what’s wrong with that. Sorry if you’re offended by it though. That wasn’t my intention.
Jamie Murai – do you just troll the internet hoping in search of opportunities to troll RIM?
Please do something useful rather than hate on RIM and suck up to the Apple fan boys.
While Apple gets all the attention, they’re really not a threat to RIM. They sell a highly “opinionated” product that is incredibly polarizing. You either “get it” or you don’t.
Android is the real threat to RIM, it’s the commoditized product that is eating up the overall industry market share. Android has gotten “good enough” in the sense that most of Blackberry’s competitive advantages are nullified.
In terms of software, one can easily make the argument that Android provides a more user friendly experience than anything RIM has to offer. You can also make the argument that the iterations of Android have been fast arriving and improving in greater increments than we’ve seen with anything coming from RIM.
Sure, RIM’s numbers are good now, but the lack of differentiation in the marketplace due to Android’s success doesn’t bode well for their future performance or financial statements. In my mind, they’ve plateaued.
I tend to think that Apple is the bigger threat to RIM _because_ it’s not a commoditized product. Traditionally, RIM has targeted the higher-end market, and I think they have the costs associated with that in terms of R&D of both hardware and software. Android handset OEMs don’t have any (or very low) software R&D costs since Android is essentially free.
RIM will have a hard time competing in the low-end market because software R&D costs and price competition will push their margins down, and in the high-end market they’ll get dominated by Apple.
But the thing is, RIM has moved downmarket. The quality they’re famous for has gone on a steady decline.
The definition for “high end” has also shifted. What used to be considered high end when RIM dominated is not the same. RIM is at its core (and deepest core, no less) an engineering company. If they even try to regain a foothold in that market, they’ll get slaughtered by Apple’s marketing. RIM sells phones, Apple sells life-enhancing devices. RIM can’t expect to buy another piece of the puzzle to solve that. I doubt that they’re getting any real synergies between the clashing culture types of TAT and QNX.
In any case, I guess it’s a lose-lose situation for RIM. Get killed at the high end by Apple, where they don’t have any fundamentals to compete with, or at the low end by Android, where they have nothing significant to differentiate themselves with.
Fred: I’m not sure I understand how what I wrote was trolling, but I’m sorry if it upset you. I’m interested in the business side of the tech industry, and that’s what I try to write about. I’m not personally attacking anyone, but again, sorry if it upsets you.
I actually thought it would be an interested exercise to imagine if Nortel had come after RIM and people would explain why Nortel couldn’t fail.
Nortel had literally thousands of different products across dozens of markets. It was a market leader in countless market spaces from enterprise software, optical, wireless etc. It was still generating Billions in revenue every year and in most market sectors this number was growing YoY. It had a massive distributor network and huge installed base of loyal Nortel customers who would be reluctant to rip out a Nortel infrastructure. We’ve now seen that it had thousands of critical patents, was still innovating faster than many competitors and still had thousands of very smart people working there.
In spite of all of this, it collapsed.
The RIM product portfolio is a miniscule fraction of Nortel’s. It doesn’t lead any market that it competes in. It has barely come out with any market leading innovation in years…..it doesn’t look good.
I think the biggest reason for RIM’s decline is that gave into popular wisdom, where everybody from media to experts have been framing it as Apple vs. RIM since the launch of the iPhone. In my view, RIM’s brand stood for more than just a handset. It represented a secured way of communication and that helped it become the darling of enterprise security teams. Had it perceived itself in being in the enterprise security market, it would have RIM vs. IBM vs. HP. Not that it would have been an easier battle to win, but RIM had a big brand presence, it had the right contacts. It had the core assets in place that would have given it a fair chance of winning. Apple Vs. RIM was like suggesting Harley Davidson vs. Kawasaki motorcycles. Apple, just like Harley Davidson, has a cult following which is almost impossible to break into and everybody who is not a part of the group, aspires to buy the next iPhone or iPad to join this club.
Mark – great post. You’re bang on in my opinion. RIM and Nortel are totally different beasts, and I worked for Nortel too, and then covered both stocks as an analyst for a long time.
The only similarity I see right now is in terms of how they are being managed at the R&D level. Too many people doing stuff that doesn’t ever ship, as someone also pointed out above. But look at the income statement, balance sheet, quality of acquisitions, concentration of ownership by actual long-term management … it’s very different.
As one friend of mine wrote on a blog post of mine:
“An iPhone is the world’s most advanced communications device and a wondrous mini computer capable of performing 21st Century tasks. A blackberry is…a phone.”
The comparison to RIM and Nortel is fair. Where that they both make market leading products that were able to compete in their respective market place. But they both failed at winning over the masses in the business world equivalent of a “High School Popularity Contest”.
If you talk to any Cisco Engineer that is worth his/her salt and has any thread of honestly he/she will tell you that when it comes to Features, Performance and Price, Nortel’s(now Avaya) Enterprise Data portfolio runs circles around 90% of what Cisco is offering. And its usually 2 years ahead as well. Yet, people were always apprehensive about investing into the technology. Then once the book keeping scandal at Nortel was uncovered the company just had no chance. It really is a pity.
The same can almost be said about RIM. Trolls and Speculators can just jump on their soap boxes and talk RIM down and it is not justified. The whole iPhone vs Blackberry debate is neither here nor there. There are holy-wars that will have shorter life spans than this debate. The key thing to remember is that regardless if RIM is losing market share you must acknowledge that it is a MASSIVE MARKET and life for RIM, Apple, and Google will go on.
and I will concede that the iPhone is an awesome piece of hardware. But until I have a business requirement for an Animated Farting Cat or the digital level that can replace my $100 6′ level I bought from Home Depot I will continue to use my Blackberry Torch and Playbook. And proudly support a Canadian company with a product made in North American or Europe versus an American Company with a device made in China.
Mark, I think the headline should be “Six Reasons Why RIM is No Nortel, Yet”
It’s RIM versus the world.
They are the whipping boys of Apple fans, media and investors alike.
Look at their balance sheet. Still solid. People in developing economies who are, for the FIRST time using a Blackberry on miniscule data plans are being exposed to social media and networking. Much of RIM’s profits are due to Blackberries getting into the hands of these people.
Don’t write off RIM just yet… I think their finest hour is just around the corner.