Mobile Solutions CI

Why Droid Is Killing Blackberry -- 29%

When Android was first announced, I thought it was the death blow to Windows Mobile. And it certainly has created huge problems for WM.

But a bigger victim is turning out to be RIM. RIM gambled big with its Storm launch with Verizon last retail season and ultimately it lost. The device wasn't ready, the app store ecosystem wasn't ready, and the overall experience wasn't fully thought through from the perspective of what use cases mattered to Blackberry core audiences and how the touchscreen would address those.

Now three major factors are boomeranging back on RIM from this gamble.

First, RIM became even more highly dependent upon AT&T, Verizon, and T-Mobile. "One customer comprised 29%" of shipments for RIM. Almost 30%!! RIM's hidden achilles heel is that it has never succeeded at the same rate with smaller carriers who can't invest the demand generation. Over the past year this trend has been increasing, not decreasing.

From their annual report: "RIM is dependent on an increasing number of significant global carrier partner customers with respect to the sales of its products both in termsof the numbers of devices sold and the aggregate value of its sales. While the Company sells its products and services to a variety of customers, one customer comprised 29% of trade receivables as at February 28, 2009 (at March 1, 2008 three customers comprised 19%, 14% and 10% of trade receivables). Additionally, three customers comprised 23%, 14% and 10% of the Company’s revenue in fiscal 2009 (at March 1, 2008 three customers comprised 21%, 15% and 12% of the Company’s revenue)."

So RIM is even more dependent upon the big three. And what happens this year? Verizon makes it holiday bet on Droid, investing $100 million with Moto in the ad blitz. That is money that came straight from RIM. The impact of this switch during RIM's crucial holiday season cannot be overstated.

RIM needs this holiday season. But more than anything it needs it's big three US carriers to market it. Without their resources and attention Android will begin to steal meaningful share from RIM.

RIM adds in-app purchase & advertising

Moconews has great coverage of day one from RIM's developer conference. There is also good live blog coverage over at Mobile Entertainment.

The most important takeaways are:  In-app Advertising, in app purchasing, push notifications for apps. 

"RIM said it will start offering a new advertising service in the first half of next year that will allow developers to monetize their applications using advertising. RIM has partnered with a number of mobile ad networks, including Jumptap, Lat49, Millennial Media, Navteq, 1020 Placecast, Quattro Wireless and Sympatico.ca. The ads will let advertisers initiate a call from an ad, add a calendar entry or contact entry from an ad, and directly link to a BlackBerry app. The service will also report advertising metrics across the ad networks, including impressions, clicks, conversions and earnings.

New payment services: By mid-2010, RIM says it will enable in-app purchases in the App World. That means developers will be able to sell virtual goods, monthly subscriptions, additional game levels or other items from within the app. The purchases will be tied to the payment system, which for now is mostly PayPal.  

Push Services: This is one of BlackBerry’s flagship services that allows information, like emails, to be pushed down to phones. Now developers and content providers can deliver alerts and up to 8 KB of data to applications this way."

These elements bring important capabilities for developers and content partners to plan and use different revenue models. But it does not go as far as I had hoped in merchant friendliness. Either RIM, or Amazon, or some other player will introduce an affiliate type model which enables merchants to embed upsell and cross-sell opportunities across merchants and share back on a click or conversion basis. That is the step change this market is waiting for.

RIM - Stung by Innovator's Dilemma?

And I thought I was tough on RIM: 

"With a confusing mix of new products, poor developer support, lack of innovation and an unwillingness to take risks, RIM is in danger of being outsmarted and overshadowed by aggressive new rivals, such as HTC and Motorola."

Wow, Wired really lays it out.

Motorola is really coming back from the dead. With Pogue and  Mossberg giving Droid so much attention and positive press, Verizon is really scoring on the marketing front. And RIM is losing.

RIM growth stalling--no longer reports int'l, enterprise stats

One of the real frustrations of sitting in on earnings calls is hearing the limited question time go to the same question over and over. A few weeks back RIM reported surprisingly low growth. Subscriber additions were flat quarter on quarter. RIM stopped reporting on the split between consumer and enterprise (BIS/BES) and international and NA on this call for the first time in years--at least four years. That lapse is very meaningful.

And what did the analysts ask about? ASP (Barclay's). And ASP (Citigroup). And ASP (Scotia). And ASP again (UBS). WTF?! Hey guys, here's a hint--RIM isn't going to hit the margin numbers you modeled so try tweaking the Excel.

I can see asking this once but you're not going to get informative forward looking context on device margins from this call. Why not ask a more basic question, such as why RIM would stop reporting a metric which was really useful and which they reported on for at least the last four years? You would have a better chance of getting a meaningful nonanswer from that.

It really says something to me that RIM won't mention US growth and enterprise growth. New subscriber ads has been flat the last two quarters. New devices, especially the Tour, seem to mostly be going to existing customers and not winning in the market. Two quarters ago the overall QoQ growth rate dipped to 11%--the lowest in years, if not ever.

My suspicion is that RIM's BIS growth rate has dropped to around 20% QoQ, which only looks bad compared to iPhone, but the enterprise growth rate has stalled completely and is lucky to be in the high single digits. International has slowed substantially as well. And the elephant in RIM's room is the iPhone. I believe the iPhone is now really impacting new consumer subscriber uptake even though RIM, Verizon, and other key partners are heavily subsidizing new devices. This is the real reason RIM doesn't want to break out growth metrics.

The BES 5.0 release has had adoption fatigue from the beginning. RIM handled the release poorly by first keeping it in beta for years, announcing its launch over and over without doing so, and then launching without real customer testimonials and uptake metrics. I'm skeptical that the largest customers even want it given the amount of custom dev, integration, and security requirements invested in 4.1 and earlier. This has very troublesome growth implications for RIM if it's true. The enterprise base may not get headlines but it is the foundation of RIM's strategy and a requirement for consumer success. A large proportion of RIM's "consumer" base is comprised of workers whose businesses don't want full native Exchange integration into a BES. 

How about someone asks some questions about these things next time instead of asking for guidance on device margin? I think RIM is slipping behind and their slowing growth is showing it. I believe their messaging platform has not translated well to web services and app-centric marketing of carriers critical to their success. Despite RIM's 450+ carrier partners only the top five drive real volume. Carriers like Verizon, AT&T, and T-Mobile USA are essential for RIM to continue its growth and RIM is slipping within each of these. And this will be a real headwind for RIM for some time.

It's a webkit world, part ii. Palm goes all WebOS

It turns out that RIM is not the only smartphone vendor moving rapidly to webkit from a strategic platform level. And no, I'm not about to refer to Motorola--we already knew that.

WMExperts links to a Palm comment which verifies Palm is abandoning WM as an OS.

"Due to importance of webOS to our overall strategy, we've made the decision to dedicate all future develoment resources to the evolution of webOS. Which means that going forward, our roadmap will include only Palm webOS-based devices".

What does this signal for the convergence of widgets and apps in mobile?

It's a webkit world. RIM acquires company for browser, widgets

RIM made an acquisition to help address it's weaknesses in web browsing. Torch Media, a small Toronot-based mobile webkit developer, has announced it is being acquired by RIM

You also have to wonder if this move isn't to address RIM''s broken app store experience. A widget-based platform, similar to Yahoo!'s, would make a lot of sense as a bridging strategy to address the existing base of Blackberry users who will not be able to make use of an application-based app store and apps because their OS and device memory capabilities will never support it.

FUD alert: MSFT & Nokia aliance is not RIM challenge

Well the rumours were true and Microsoft and Nokia announced a collaboration to distribute Office mobile software on Symbian devices. Reuters quotes a Nokia executive as saying "This is giving some of our competitors -- let's spell it out, RIM -- a run for their money".

FUD alert! It is not, of course, doing anything of the kind.

1. Mobile client software is not a challenge to the device, middleware, and NOC integration offered by RIM.
2. This deal is with Microsoft's Office division and not the mobile division so it does not neccessarily signal anything further than software distribution. It is in effect a bigger version of a dataviz launch. 
3. Offering Microsoft mobile does not affect enterprise buying decisions for solutions--that happens because of role admin capabilities, security from both a process and hardware/software perspective, more basic usability criteria such as battery life, UI, device durability, etc. 
4. Slapping more client software on top of Symbian as an OS is not a recipe for better integration and access to mobile business needs. Integrating those features natively in Symbian would be, but that won't happen because the OS moves to the Symbian foundation and not Nokia.  

So this is a great distribution deal for Microsoft and a nice extra for Nokia's E-Series device line. But you'd certainly think that a company that had burned through several in-house mobile email efforts, a huge acquisition and divestiture, and several partnerships during failed efforts to offer solutions competitive to RIM would know better than to use a client software distribution deal to claim parity with a Blackberry and BES solution. Doing so just demonstrates how little someone understands the enterprise mobile market.

Recap and reflections on Verizon's first developer conference

I spent yesterday at Verizon's first developer conference. It was a very interesting event and I'm thankful Verizon hosted it (and that I got to go). Here are my key takeaways, and below the details on them:

- VZW is launching their own app store featuring integrated billing on Blackberry Storm.

- Channel conflict, addressable market for stores will remain challenge thru 2010

- Verizon is serious about committing to JIL

-  App stores can go from a small trend to market dominance in 12-18 months

- Many off portal players and partners are struggling now with payments and distribution, this will quickly pivot to needing to solve merchandizing

- BREW market is changing, will app stores replace off-portal?

What was it: Verizon held their first developer’s conference yesterday in San Jose to discuss plans for opening network API access to third parties, introduce application stores on smartphones, and discuss the roadmap for non-smartphones for rich content. The event was over-subscribed. 800 attending filled up the venue, another 500 registered for the webcast. Some VZW people I spoke with said they were surprised at the level of interest. The show was a very well-run event.

I would estimate the crowd demographic was 70% partners/ISVs (ranging from core vendors such as Nortel to device OEMs such as Samsung), 10% leading on-deck portal vendors, 20% developers and small content players who are currently iPhone focused.

The details:

Verizon app store

Carrier/direct billing and on deck merchandizing are the two areas Verizon won't give up and sees as critical value differentiator. 

VZW is only planning on launching VCast app store on the BB Storm, then the remainder of the BB portfolio, then WM by end 2010 (RIM and WM basically comprise the full smartphone portfolio). This means that instead of the 86 million subscriber base frequently cited the addressable market will begin in the hundreds of thousands and scale to 20-40M within a year or two. A big market, but not as big as the single form factor iPhone (i.e. you will still have to write/port multiple apps on VZW to achieve similar market reach as a single app on iPhone). Until VZW has their VCast store on the Curve it will not be a meaningful distribution point for most merchants.

Channel conflict: App Store confusion remains

During the morning keynote talks by VZW senior execs they said both that VZW doesn’t think multiple storefronts “is the best experience” and also that offering tens of thousands of apps on one store introduced “too much clutter” in a thinly veiled knock of the iPhone app store. However, during Q&A they claimed VZW would allow discovery and download of other (i.e. OEM) storefronts onto devices and that VZW believes helping devs get distribution should be a priority for them.

JIL gets real

Stratton said that Verizon’s stance was that “Platforms rule” and Verizon will create tools and distribution across web & mobile to create value, not try to own the entire customer experience. Each Verizon executive began their talk by saying they had not opened up their networks or attitudes soon enough and were now trying to do so. Their concrete demonstration was an embracing of JIL. Balsille of RIM then announced a new eclipse-based web sdk for Blackberry, bringing RIM into alignment on JIL from a tools perspective. In the breakout session Verizon demonstrated eclipse-built sample apps and code to demonstrate current API capabilities.

VZW is launching network location and sms/mms APIs by end of 2009, other APIs following in 2010 (address book, calendaring, all TBD).  I'd say that we'll really have to see the implementation details and documentation to know how meaningful these will be.

Verizon sees publication ease and speed as critical

Verizon’s goal for application distribution is to not test, police, or judge app UI and experience--only network impact. This conflicts with their many comments that “reducing the clutter” was important for app stores. At several points during the day VZW and RIM both referred to having a big inventory of long tail content as “clutter” and claimed it was a problem, not a strength, of the iPhone. Verizon claims it will focus on quality but then also claims it will not test or judge apps based on content and that legal review will be minimal (screen for no adult or illegal). Verizon is launching store with no registration, testing, or certification fees while promising a 14 day launch once partners have registered with their app store.

Payments and distribution rule the day now, but soon demand generation will

Customers and partners at the show were focused on what tools would be available, what terms were required and what costs are implied in publishing. Neither Verizon nor customers are planning for how to tackle discovery and monetization which are, of course, the main challenges of the successful app store.

Many off portal players and partners are struggling now with solving payments and distribution, 
this will quickly pivot to needing to solve merchandizing (demand generation, audience targeting, 
context/personalization of content).

BREW market is changing, will app stores rule off portal? 

Stratton said Verizon’s device market has flipped from 10-15% smartphone to over 45% and growing over past 12-18 months. The speed has astonished them. For their non-smartphone base, VZW announced a renewed BREW distribution deal allowing for free apps on BREW phones and eliminating developer fees. However they also said they hoped to port over the entire BREW catalog to the VCast store or at least offer that option to BREW publishers.

If Verizon can deliver on its 14 day publication promise, and has limited review of apps and app content, this would present substantially lower costs for content publishers on the distribution side and a smaller but more intensive user base on the demand side relative to the current off portal market. If this happens off-portal content could rapidly migrate to app stores. This is definitely a trend to watch for.

LG winning share in recession

Economic pullbacks are a rare opportunity to win market share. LG has been the big winner of this tough economic cycle. Their profits and market share continue to rise, they have made strategic advances in launching an app store, and their devices are becoming critical to data margins for leading service providers such as Verizon.

LG is providing an interesting counter-model to HTC in carving out a great niche. While Apple gets all the attention, mobile device vendors should be paying attention to LG's success in carving out their own market segments and experiences at the expense of smartphone and high-end feature phone competitors.

RIM bets on bandwidth constraints; will bandwidth matter to app stores?

I noticed this interesting story on why RIM was bidding on Nortel assets. RIM has consistently championed its NOC and data compression as a saving grace to operators. And watching AT&T's experience with the iPhone shows just how true that can be.

It's interesting how little attention that service architecture receives as cloud-based consumer services migrate to mobile. Simply delivering existing services to mobile devices has some serious constraints. Bandwidth is limited, backhaul is already stretched, and a crowd of tech users can bring down a network as we've seen at SXSW and pretty much any mobile industry trade show (where, ironically, 3G coverage is difficult to impossible to get and basic cell coverage is also unreliable). I hear very little about this as part of the overall app store hype.

RIM is the only major vendor to address this head on with its service architecture. The iPhone platform has the advantage of moving more and more of its API differentiators to the device, but every other vendor and all service providers should be actively planning for how to do the opposite: Move service experience differentiators to network-based APIs. Part of planning for that should be planning for how to offload bandwidth requirements during intensive usage. There are many routes to choose from. For instance if there isn't a NOC-based alternative then focusing service differentiators on apps/services/APIs that imply being within WiFi coverage, making aggressive use of updating based on difference checks, relying more upon local storage possibilities--these are just a few options.

What is the role that platform players, and specifically developer programs, should play in this issue? What should be done to make development, distribution, and most importantly usage the easiest and best possible experience for end customers?