Blue Ocean Strategy in Smartphone Market - RIM co-CEOs facing severe criticism - Ripple effect of Apple iPhone & Google Android Success

Jim Balsillie and Mike Lazaridis are running Research in Motion (RIM) as co-CEOs since 1993 successfully until 2011 and the company had been through a turbulent year. Analysts and investors believe that co-CEOs are ruining the company. Lazaridis takes care of the technical side (Engineering & R&D) and Balsillie is responsible for the Finance, sales and marketing. Lazardis built Blackberry, a device which was a new type of wireless handheld solution for companies that saved time and money because employees can access email almost from any place at any time without having to go back to the office. Balsille sold the device successfully to Companies and Governments and created an uncontested market space with in the enterprise segment and Blackberry an example of the third principle of Blue Ocean Strategy: Reaching beyond existing demand. RIM co-CEOs turned it into a 20 Billion dollar business and Blackberry had become a cult device like Apple products and a must have device for all the C level executives, Top Managers, Political Leaders, Professionals and Non professionals across the organizations.

Source: Company Website

The success of the Blackberry had made the co-CEOs billionaires and since the launch of Blackberry 1999 sold millions of devices. The enterprise segment success had lead the company into consumers segments and particularly young people embraced Blackberry and were most attracted to its instant messenger feature. The device too had changed significantly since its launch which was a black & white phone with email and phone, costly and no multimedia features. As the consumer needs changed Blackberry came with features like better screens, camera, media player, touch screens, etc. RIM also started selling a higher volume of its low-end phones, such as the Curve or Tour series that are geared toward consumers upgrading to smart phones for the first time. Company also believed for continuing to grow in the crowded U.S. market is to develop targeted products for specific groups of customers and hence released many models of its seven series of devices RIM's strategy has been to leave the wireless carriers to handle the local marketing and it started advertising campaign focused on consumer directly in 2008. RIM was doing very well in the Smartphone market both in US and global markets and was also doing well even after the launch of Apple iPhone but the real problem started when the Google Android phones hit the market.

Apple iPhone & Android Phones Success

Apple launched iPhone in 2007 which is an internet and multimedia enabled Smartphone with touch screen and it totally redefined the Smartphone market. Apple iPhone has become a cult device and five generations of iPhone models have hit the market till now and Apple sold more than 100 million units till now. With half million applications in app store for the consumers to play with, iPhone is a great device that revolutionized the Smartphone segment with features like a portable media player (iPod), an Internet client with email, web browsing capabilities, multi touch screen, 3G connectivity, camera, etc. iPhone has provided consumers with an unique experience and it has been one of the most successful products for Apple that has generated significant revenues and profits. Apple iPhone created a blue ocean market where it has total control of everything from the product design, pricing, software, app store and development to the way it markets and sells its iPhones. Initially only AT&T was authorized to sell the phone. Apple had been able to sell the iPhone at a premium and consumers are more than willing to pay the premium because iPhone was such a magnificent device with functionality and half million applications in the app store that allowed its users to use for everything. Apple has total control on the hardware, software and provided limited access to developers to its code and it tightly restricts the apps on its app stores and allows only apps that are approved by it.

Android is a pack of software for mobile phones that contain an operating system with middleware and key applications which was originally developed Android Inc. that was acquired by Google  in 2005 and T-Mobile launched the G1 Android phones manufactured by HTC to the public in 2008. Android is now the largest OS in the smart phone market with 44% market share in Q3 2011. Android is an open source mobile platform where any one can create applications and sell them through Android Market. Android has close to half million apps in Android Market as of now. Android phones are being launched by mobile makers like Samsung, Motorola, HTC and other players that are easy to use and often come with functionality and features that are more powerful and useful than the Apple iPhone. Android phones were initially launched with bigger screens, resolutions, multi touch screens & powerful chips like 1GHz Qualcomm snapdragon processor compared to 512 MB RAM of iPhone. Android also has support from multiple networks AT&T, T-Mobile, Verizon, Sprint, etc. Google still has central control over the code but allowed various manufacturers to flood the Market with Android phones at various price points and the wireless operators have pushed them into the market through advertizing and various subsidies on the devices and data plans. Consumers too embraced the device as suggested by market share figures. Google Android targeted the 81% percent market that were not using the smart phones and target this uncontested market as part of the blue ocean strategy, with devices that had features, functionality and apps.

2011 Worst Year for RIM

It all started in the first quarter of this fiscal year when RIM announced that it is having problems gaining traction in new markets and shipping updated products. RIM shipped lesser number of Blackberry units and announced the delay in introduction of BlackBerry Bold 9900 and next version of BlackBerry OS 7 to late August. The BlackBerry 7 handsets launch was delayed because RIM redesigned the hardware and switched to a higher-performance processor, which caused delays as wireless carriers had a qualifying process for new phones. Also RIM could only sell only 500,000 units of the newly launched Blackberry Playbook tablet in Q1, 250,000 units in Q2 and 150,000 units in Q3 far below the company estimates. The company is forced to offer huge discounts on the tablets to push the inventory into the market and a pre-tax provision in the third quarter of fiscal 2012 of approximately $485 million, $360 million after tax, related to its inventory valuation of BlackBerry PlayBook tablets. Playbooks had been launched prematurely and had a number of software issues like problems with Flash content. Carriers like Sprint opted not to sell the Playbook as it got very poor reviews which had a significant impact as RIM always depended on its wireless carriers to push the products on to the consumers. Hackers were quick to hack the playbook and made a dent to RIM’s product security reputation.

RIM's new BlackBerry 7-based handsets sold well at launch and had helped company to meet its guidance of 14.1 million BlackBerry units but the revenue fell short of expectations as demand for older versions of Blackberry has drastically come down. Consumers completely lost interest in the Blackberry devices as the devices were slow, had few features, problems with browsers and lack of applications. RIM gave a bleak outlook for its Q4 i.e. 18 % drop in BlackBerry shipments (11-12 million units) and downgraded its expectations which made investors angry. Another issue is that during the Q3 call, RIM co-CEOs announced due to non availability of a more power-efficient dual-core processor until mid-2012, the BlackBerry 10 phones are not expected to arrive until late 2012. Blackberry 10 handsets will be the first the “mobile computing” handsets that RIM launches as it was all along launching messaging handsets and hopes the new handsets will turnaround the company next year. But the fact is US consumers that were addicted to Blackberrys have deserted them and with new iPhone next year and Android Phones being released aggressively, RIM plan of spending on a new marketing and advertising campaign in 2012 will not help RIM in retaining the consumers.

Blackberry outage occurred in October 2011 which was a massive outage for three days due to which messaging and browsing were affected as a result of a core switch failure in RIM's infrastructure and it affected BlackBerry users in Europe, the Middle East, Africa, India, Brazil, Chile and Argentina. Blackberry users had earlier too experienced outages in the last three years but not in the scale of the October 2011 outage. This happened just before the launch of the new iPhone 4S and it made a big dent to RIM reputation and the damage did not reduce despite the co-CEOs apologizing to their customers publicly. There has been a general perception that this outage was not handled properly by RIM in terms of communicating with their consumers. RIM is forced to give up the BBX name after a New Mexico ruling against using the BBX name and company is now referring the next generation Blackberry based on the QNX operating system as Blackberry 10. Next year RIM is launching the BlackBerry Mobile Fusion and the service will allow corporate IT departments to manage a fleet of Smartphones and tablets from a single web console—including rival iPhone and Android devices. This will help in raising the service revenues from current 24% but the company gets majority of revenues from hardware sales. RIM wants to be known as Product Company rather than managed services company.

RIM Co-CEOs criticism

Rim co-CEOs are being criticized by all the stakeholders and the ultimate proof for their poor performance is that they are no longer Billionaires as the RIM stock price had fallen significantly since mid 2009. They failed to understand the transformation that happened in the Smartphone market which is consumers’ preference towards a complete mobile computing with multimedia features device from just a messaging device. In 2007, Jim Balsillie stated that iPhone is not a threat to them, downplayed the significance of touch screens, felt that the Apple total control is dangerous and it is just another entrant in the Smartphone market with multimedia features. The first Blackberry touch screen phone was launched in November 2008 which was Blackberry Storm as the wireless carriers wanted a new device to counter iPhone. Mike Lazaridis even down played the touch screen only phones were not what the consumers wanted as late as in 2010 despite the phenomenal success of iPhone and other Android phones.  Not only had the Blackberry RIM co-CEOs blamed for the failure of Playbook tablet as they launched it prematurely that had severe problems but also for the delay that happened in introduction of new Blackberry and Playbook. They still believe that they can turnaround with the launch of Blackberry 10 and Playbook 2.0 next year in 2012 and are asking for patience from all the stakeholders.

The co-CEOs hold the position of co-Chairman also of the company which is being severely criticized by many and despite holding hold board meetings like any other corporation; they are accused of making the sessions a "non-event”. They have a tight grip on the company since past 27 years and since 2007 stock options scandal they are facing severe criticism and even more since mid 2009 the market cap reduced drastically and the blame totally lies on the co-CEOs. 2007 stock options scandal is about back-dating stock options that it gave to its senior executives in such a way that the options were made more valuable. Jim Balsillie was forced to step down from the role of Chairman but regained his position back after the 2010 settlement. Also they are criticized for not handling properly the proposed bans by governments of UAE, Saudi Arabia, India and other countries as Blackberry declined to provide greater access to the encrypted information sent by its devices. Recently an email surfaced supposedly from disgruntled executive in RIM that highlighted some of the key reasons for problems like lack of innovation support, lack of focus for the top management, failing to listen to the end consumer and understand their needs and the way the organization is become redundant with inefficient leaders and lack of quality employees.

RIM co-CEOs are also blamed for not communicating to the stakeholders about the delay in launches, in communicating the bleak outlook, fall in sales and accept failure of its Playbook tablet. They have overseen rapid depletion of the market cap since past two years (Share price fell 74% in 2011) and they are even now announcing more bad news than good news. They say transformation plan will turn around the company and asking for patience from the stakeholders. Research firm Strategy Analytics forecast RIM’s share of the US Smartphone market to fall to 12% in 2011, a sharp drop from 2007, when RIM had a 44% share. By comparison, Apple, which just started selling smartphones in 2007, is expected to grab a 24% US market share this year. The co-CEOs have decided to take a salary cut to token 1$ a year like Apple’s Steve Jobs, Google's Eric Schmidt, Sergey Brin, and Larry Page, Cisco Systems CEO John Chambers and Oracle's Larry Ellison who had at one time reduced their annual salaries to $1. They are also are believed to be holding closed-door meetings to discuss potential strategies for a shakeup in the company's leadership. But the fact remains nobody will be interested to take over as the CEO of RIM as long as both of them stick to their co-chairman roles. Their fate hinges on the company’s board of directors report by the end of January 2012 on management effectiveness in response to demands from investors. Investors and other stakeholders are asking for the co-CEOs to step down as they lost confidence in them and doubt their capability to turnaround the company and want new leadership to take over the company.

Why so much criticism after running RIM for 27 years? Smartphone market has been drastically changed by Apple iPhone and Google Android based phones. They have successfully developed and launched devices that are way over consumer requirements and in fact they have provided consumers devices that have powerful hardware, unique functionality and features and million of apps and consumers are ready to pay for the powerful mobile computing devices that help them browse internet, listen to music, watch videos and use social networks. Apple iPhone and Google Android are both Blue Ocean Market creators that are immensely successful. Blackberry earlier created its own Blue Ocean market with Push email technology on the phone and created an uncontested market space in the enterprise segment and its devices are cult devices that made executives addicted to Blackberry. But the present scenario is different Blackberry is no longer in Blue ocean but chasing the Red Ocean dominated by iPhone and Android phones. They are trying to follow the market leaders and it is till now not able to do it successfully. RIM co-CEOs believe that Blackberry 10 and Playbook 2.0 with QNX operating system will help them regain their lost market. They are betting big on this strategy and hope they will deliver this strategy to the consumers or else Blackberry will become another Palm in the Smartphone market.

Discussion Points:

1. What are the reasons that are responsible for RIM bad performance?
2. What should be RIM strategy to revive the company?
3. Do the co-CEOs leave and bring in new leadership to take over?
4. What should be the innovation strategy for the company and How to manage the product portfolio?
5. How to survive in the Red Ocean of Smartphone market?