2011: The year RIM fell to earth

We all have bad days, weeks, months, even years. But it's hard to hold a candle to the year that Research In Motion has just had.

We all have bad days, weeks, months and even years. But it's hard to hold a candle to the year that Research In Motion has just had. In fact, it's a fair conclusion that RIM is wishing that 2011 had never happened in the first place.

This was a year, after all, when the company's stock price fell so far — 80 per cent from January to December — that its market capitalization tumbled below its book value. It was also a year pockmarked by a high-profile, costly service outage, the failed launch of its PlayBook tablet, its first-ever large-scale layoffs, slackening demand for increasingly long-in-the-tooth smartphones and continued delays to its next-generation devices.

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If that wasn't enough, a promotion gone awry in Indonesia touched off a stampede, and a tractor trailer full of 5,200 PlayBooks was stolen from an Indiana truck stop. The most depressing event wasn't even the company's fault: A couple of drunk executives forced a Beijing-bound Air Canada plane to land in Vancouver. Before they were hauled off the plane, fined $71,000 and fired, they managed to do further damage to a brand that probably couldn't afford much more.

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In a year of monumental mistakes in the tech sector that ended careers and eroded shareholder value — HP's Palm disaster and Cisco's Flip shutdown were only the beginning — the RIM train wreck topped them all. Bad as it was, however, 2011 could be a cakewalk compared to what awaits RIM in 2012. The company starts the new year with a virtually empty product pantry and months of anxious waiting before new offerings hit the market. Its key challenges fall into the following categories:

PlayBook

It would be charitable to call the PlayBook an underachiever. Despite generally positive reviews about its relatively powerful hardware and clean, if chunky, design, it was released in April with an incomplete set of software. The device had no native email, messaging, scheduling, or contact management — critical pillars for any user. Instead, BlackBerry Bridge software allowed users to tether their tablets to their BlackBerrys to gain access to their smartphone apps. Great for BlackBerry users; not so much for anyone else.

Sales languished as RIM failed to properly explain the device's value proposition to a market already distracted by the hurricane force of Apple's iPad 2 launch. Despite fleeting rumours in September, quickly denied, that RIM was about to pull the plug on its tablet, the device is still on sale as of year-end. Even so, it's of interest only to bargain-seeking consumers looking for a $200 alternative to Amazon's half-baked Kindle Fire or some no-name tablet running an ancient version of Android. As soon as the price goes back to the original $500 baseline, tumbleweeds return to the retail aisle.

PlayBook OS 2.0, an updated version of the operating system that powers the device — and promises native support for the still-missing apps and improved performance, among other things — missed numerous ship dates through 2011. RIM promises it will be available for download in February. No word on updated hardware, but the pipeline should already be full given that RIM promised — and failed — to deliver versions with 3G and 4G/LTE capability in addition to the Wi-Fi-only model that to this day remains the only offering. In a tablet market where devices without Apple logos on them are old news well within six months, the almost-year-old PlayBook (it launched in April) needs a refresh by spring or not even snazzy software will save it.

Security and availability

One of the key differentiators of BlackBerry devices is their inherent security. They support end-to-end encryption, with all messages processed through Fort Knox-like Network Operation Centres, or NOCs. No other smartphone even comes close in this regard, which largely explains RIM's early success in convincing once-wary enterprise buyers — many of whom refused to allow any corporate traffic over wireless networks — to get on board and convert their workforces to BlackBerry-toting road warriors.

As consumers lost interest in the BlackBerry's fundamental security in favour of newer, more consumer-friendly, app-running touchscreen devices, RIM's key advantage became its albatross in two key ways.

  • Because of RIM's highly centralized NOCs — each of which generally supports an entire continent, outages in any one facility would quickly take down millions of users. October's outage was RIM's largest ever, and was global in scale as traffic from the downed site in the U.K. was routed to other NOCs, which were in turn eventually overwhelmed.
  • The second disadvantage was political. Governments in certain emerging nations such as India, Saudi Arabia, the United Arab Emirates, Kuwait, among others, had been complaining for years that RIM's technology didn't allow law enforcement officials to easily monitor traffic. The governments claimed the need to clamp down on terrorism and other criminal activity. Opponents countered, saying it would give less-than-democratic regimes carte blanche to spy on their own citizens. RIM struck a deal with India early this year to give authorities there access to encrypted traffic. While this issue has been burbling for years, RIM's failure to fully quash it in 2011 has hurt its prospects in the very regions where its growth prospects had been strongest.

Leadership and branding

As of year's-end, Co-CEOs Jim Balsillie and Mike Laziridis remain at the helm despite growing pressure from activist investors for them to step down. While leadership debates in business are hardly uncommon, the sustained arguments over their continued suitability for the job — critics say they were asleep at the switch as they failed to adapt to a rapidly changing market — has become an ongoing diversion.

No one doubts the company needs cultural change. It's the only way to keep understandably despondent employees from bolting for the exits — and focused on keeping the new products coming. The most direct means of improving culture is often leadership change, but the transition to a new set of chiefs — along with the layers of upper and middle management below them — could add more uncertainty to the company's operations at a time when it can least afford it. And endless bickering only serves to damage the brand even further. Either way, if the bleeding continues into 2012, both of them likely won't survive the year.

Next-generation BlackBerry

The next version of the operating system for smartphones, now known as BlackBerry 10, will be based closely on the OS at the PlayBook's core, and will complete RIM's transition away from software that traces back a dozen years to the very first BlackBerry. Unfortunately, the next-generation smartphones on which the new OS will make its debut have been delayed until the second half of 2012 because RIM says a key chipset supplier won't be able to deliver the goods.

Until then, RIM has the unenviable task of convincing consumers to keep buying devices based on BlackBerry 7 despite widespread perception that they're a generation or two behind offerings from Apple and Google. New television and online commercials featuring the Bold 9900 — the flagship of the current lineup — are a helpful start, tossing the ambiguous messaging of earlier, now-forgotten campaigns with a more memorable, inspirational approach. Still, it'll take a lot more than better ads to staunch further erosion until the new devices are available.

In 2009, research firm Canalys said 49% of all smartphones sold in the U.S. were BlackBerrys. By 2011, RIM's market share had tumbled to 10%. As 2012 dawns, RIM is faced with the daunting task of surviving an increasingly hostile — or indifferent, depending on your perspective — market with products perceived as outdated.

It's beyond obvious that the company's future hinges on every new release in 2012. RIM is down to its final at-bats, and unless each new piece of hardware and software is an out-of-the-park hit that helps restore the brand to something approaching relevance in the minds of both consumer and enterprise buyers, 2012 could easily end with RIM sitting in someone else's hands, or worse, well on its way to oblivion.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. carmilevy@yahoo.ca

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