RIM's easy money will disappear with BlackBerry 10

RIM's easy money will disappear with BlackBerry 10

Summary: RIM's service fee cash cow is going to slim down, but may not fall off a cliff due to international subscribers. Did RIM trade fees for carrier support?


Research in Motion is taking its lumps on concerns that it won't be able collect as much in monthly services fees as its BlackBerry 10 devices launch. Those fees, roughly $1 billion in revenue a quarter, are critical to keeping RIM's balance sheet healthy.


In other words, RIM is really betting the farm on BlackBerry 10 since it may not be able to count on that lucrative fee structure. In a nutshell, RIM collects enterprise fees for things like security and device management. On the consumer side, RIM collects a service revenue fee on BlackBerry subscribers because they use the company's infrastructure.

According to analysts, RIM may have nixed fees in exchange for carrier support of BlackBerry 10. Simply put, BlackBerry 10 has to be a hit because there's a weakened service revenue safety net.

Also: RIM's Q3 revenue fared well enough; CIO announces departure | Nokia, RIM settle Wi-Fi patent battle, legal spats dispersed |  Better late than never: UK operators pledge support for BlackBerry 10 | RIM and BlackBerry 10: Palm 2.0 or a real comeback?

Based on comments from RIM CEO Thorsten Heins it's unclear whether RIM will collect from consumers who buy BlackBerry 10. Meanwhile, a new service tier for enterprises will lower margins. After all, smaller enterprises don't need the buffet of services RIM brings to the party. To compensate, RIM may charge for services and develop new offerings.

Heins said:

Starting in the fourth quarter, we will begin seeing revenue from BlackBerry 10 devices. With the introduction of the BlackBerry 10 mobile computing platform, we will be transforming our service revenue model to reflect different usage levels of our network infrastructure, and different value-added software security and service packages, so we plan to offer a range of security, mobile device, and application management services, in addition to communication services.

We will position BlackBerry Enterprise Service as the leading cross-platform enterprise mobile device management service, and continue to invest and grow its capabilities. Subscribers that require enhanced services, including advanced security, mobile device management, and other services, are expected to continue to generate monthly service revenue. Other subscribers, who do not utilize such services, are expected to generate less or no service revenue. However, I want to be very clear on this. Service revenues are not going away, but our business model and service offerings are going to evolve. Our vision is to position BlackBerry as the clear leader in the enterprise mobility market.

Heins was then pelted with questions. He continued:

Instead of one service fits all, that security, mobile device management, is basically segmenting across various sizes of enterprises and various businesses get regulated or not. So there is not just one entity or question of what are the right pricing tiers. It depends on the industry, it depends on the set of services that are being subscribed, but it is variable additional services. It is a little bit of a menu thing that you can choose and pick.

The upshot is that RIM doesn't know how it’s a la carte structure will hurt revenue, but there's turbulence ahead (again).

Now none of this news should surprise anyone. RIM isn't the biggest enterprise dog on the block anymore. As a result, it can't command the fees it used to. Why would an enterprise pay up to RIM if it can get by with less. Heins realizes the new world order. He noted:

We have to realize that some of the smaller enterprises are actually good enough with just some e-mail Exchange product or connectivity to their main server or their Exchange server that they are running.

Analysts were a bit appalled by RIM's honesty. But let's get real: There is no way RIM's fee structure was going to hold up. RIM is getting ahead of it, but realizes there's a hit. RIM has to keep its subscriber base and sacrifice revenue.

William Blair analyst Anil Doradla said:

To us it is a clear indication that RIM was getting desperate in ensuring that its 79 million subscribers continue using its services and, going forward, enterprises/pro-sumers not using these features may not pay services fees. Bottom line, although the service ARPU has been in secular decline, RIM will increasingly sacrifice its ARPU (average revenue per user) to hold on to its subscriber base.

Jefferies analyst Peter Misek painted an all-or-nothing BlackBerry 10 picture:

We believe RIM may have traded consumer monthly service fees (or a vast reduction in fees) in exchange for volume commitments and high ASPs. Carrier support dramatically increases the chance of BB10's success (we estimate an increased chance of success from 10% to 30%), but now RIM is playing without a safety net. If BB10 fails, it will likely be unable to stumble along and will either become a take under candidate or a niche business. If BB10 succeeds, its business model will more closely resemble other handset OEMs.

The wild card here is RIM's international base---mostly BlackBerry 7 for the foreseeable future. Those international customers will still see the same fee structure. RIM's service fee revenue will mostly take a hit in North America.

Macquarie analyst Kevin Smithen argued that the service fee changes may not hit RIM as hard as some expect. If the service revenue decline is gradual, RIM can manage it.



Topics: Mobility, BlackBerry, Smartphones

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.


Log in or register to join the discussion
  • expect more

    Yesterday was a very (surprizingly) great day for RIM, the people who have claimed BB10 wouldn't even launch are getting very worried the Apple/Android only world is about to be severely interrupted. Betwwen now & launch day expect a nonstop barrage of negative articles & even initial BB10 success will be downplayed until that success is soo overwhelming it can't be denied or spun in a negative way
    • Keep telling yourself that.

      "Betwwen now & launch day expect a nonstop barrage of negative articles"

      Has there been any positive article about RIM lately? Seriously, when the best thing you can can about a company is "they didn't lose as much money as we thought they would." Do you really have to say anything negative?
  • I take what analysts say with a mountain of salt

    Analysts get paid to hype something so their investors see larger returns or dog it ensure another venture pays off. For example:

    2007 - Apple iPhone Will Fail in a Late Defensive Move ( http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRelVKWbMAv0 )

    2008 - Why Google's New Android Will Flop - ( http://www.siliconbeat.com/2012/10/10/my-worst-prediction-ever-column-from-2008-explains-why-googles-new-android-will-flop/ )

    2011 - Amazon has Palm in it's shopping cart - Will it buy? ( http://venturebeat.com/2011/09/29/amazon-buy-palm/ )

    Clearly analysts have a pathetic track record when it come to predicting what will happen in tech. Because there's finally a non-Ballmer/non-Jobs mobile CEO who's not blowing smoke up our butts, the company's going to pot?

    Seems to me that Heins doesn't think the public is stupid, understands what's at stake and is facing reality. I'm an Android Boy but I hope Blackberry pulls this one out.
  • Severely interrupted?

    Seriously? No, really, seriously?

    RIM's rise and fall will be in MBA curriculum for generations. It is a textbook example of succeeding to fail.