Shares of Research In Motion got hammered to the tune of more than 27 percent to close the week - this despite a quarterly earnings report yesterday that included a 72 percent jump in profit from a year ago. That just goes to show that, especially in the quick-growth, suddenly-crowded smartphone business, you're only as good as your next quarter. And for RIM, that doesn't look as good.
It's not enough that RIM, which once dominated the smartphone business in the corporate market, is being challenged by the likes of powerhouses Microsoft, Apple and now Google, with its Android operating system. Now, as so many of the players in the game go after the ripe consumer market, the outlook for the key holiday season is clouded by a crashing economy.
Like Apple, RIM is both software and hardware, the Blackberry (and the iPhone for Apple.), which means they're managing both sides of the equation. Microsoft's Windows Mobile runs on a number of devices manufactured by partners - the Nokias, Samsungs and LGs of the world. Google's Android is subscribing to that same strategy. The market is growing quickly: Smartphones now account for almost 10 percent of mobile phones in the U.S., as of July 2008, an increase from 4 percent in July 2007, according to comScore M:Metrics.
Here's two things worth noting: The number of subscribers more than doubled during the same period, from 9 million to almost 20 million and teens 13-17 saw the biggest jump in the adoption of smartphones. In that age range, the number of mobile subscribers was mostly flat year-over-year but the number of smartphone users in that age range jumped 44 percent in one year.
RIM is smart to sacrifice margins now to try to grow subscribers and hook those kids to the Blackberry platform instead of the iPhone or Android. (My 12-year-old daughter is dropping hints for a Blackberry Pearl for Christmas, giving up on the iPhone because she knows our family plan is tied to Verizon Wireless.) Larry Dignan wrote in his earnings report entry yesterday:
(RIM CEO Jim) Balsillie made a good argument that the company should sacrifice margins today to grab the most platform market share. Balsillie said the mobile market is undergoing a sea change and RIM would be foolish not to expand aggressively. He noted that investors need to determine whether they want margins today or a platform that can be leveraged years into the future.
It's not enough, though, to gain customers because of the shortcomings (iPhone tied to AT&T) elsewhere. It's going to take a diverse product line (check) tied to a variety of wireless carriers (check) and an catchy marketing campaign like the one that shows icons of the various applications morphing together to form a Blackberry (check). It's no Jerry Seinfeld but I do remember it. Still, it might be better to spend some marketing and advertising money and really get aggressive about locking in that market of new subscribers (and help stimulate the economy, too.)
If investors could force themselves to look beyond the next quarter or the next year, then maybe the beating against RIM today might have been a bit more tame. But then again, if investors started looking at the long-term, lawmakers in Washington might not be spending this weekend hammering together a financial bailout plan that is bound to have implications that last longer than a sluggish holiday shopping season or an aggressive advertising campaign.