I was struck by comments in my most recent article on RIM (A World without BlackBerry: Impact or No?) that the company needs to wake up and realize it is a software company. The comment resonated because that had been my opinion as well until I looked at the numbers. It may be that RIM should become a software company, but today it is still very much a hardware company.
An article in the Wall Street Journal today addresses the software question with the title, The New BlackBerry 10: The Patchwork Smartphone. BlackBerry 10 is the new operating system (OS) that RIM has promised to release later this year. The premise behind the article is that RIM is patching together software from some acquired companies and licensed components in its new OS. This revelation underscores the key cultural barrier to RIM becoming a software company. It’s still a hardware company.
RIM Relies on Hardware
A quick review of RIM’s financial statements tells the story. Revenue from hardware is nearly 75% while software is 1.7%. On an $18 billion top line, 1.7% is actually over $300 million. A good sized number but dwarfed by $14 billion in hardware. Even though software grew year over year from 1.5% and hardware dropped from 80%, there is still a wide gulf in value delivered. If you can tell a person’s priorities by looking at how they spend their time, you can certainly tell the focus of a business by looking at its income statement. RIM is a hardware company that makes software in order to sell hardware.
Changing corporate culture is hard. This fact probably impacted the decision to keep software acquisitions QNX and The Astonishing Tribe in their home offices and not move them to the Waterloo corporate headquarters. By keeping them separate, RIM may also be missing out on the opportunity for software to become a bigger part of the company culture.
Does RIM Have the Wrong Formula?
Based on the nose dive in BlackBerry popularity and the rapid rise of Apple and Android devices ushered in by bring your own device (BYOD) policies, it is easy to say RIM needs to change. It is harder to say that it needs to shed hardware. Look no further than Apple to see that integrated hardware and software can create a mobility powerhouse. The business model was so compelling that Apple’s chief rival for mobile dominance, Google, recently acquired device hardware manufacturer Motorola Mobility to complement its successful Android software.
It may be that Android is the instructive case study. Google grew its mobile market share through software. It is now adding hardware. There is no doubt that Apple’s iOS software is similarly viewed as its crown jewel despite its elegant devices. The usability of touch interfaces, ease of navigation and high resolution screens laid an important foundation for the success of the iPhone and later iPads and Android based devices. These are core software features where RIM has trailed significantly.
However, there is another challenge on the horizon. Even if RIM were to upgrade to the now-standard smartphone features in BlackBerry 10, it will still be missing a robust developer community. This ultimately will be RIM’s Achilles heel. Users may avoid purchasing BlackBerrys today because of OS controlled software features, but fixing this is not enough. Having hundreds of thousands of apps to choose from is also a decision criteria.
Build a BlackBerry App Community…Fast
Enterprise buyers may value this less, but consumers are now often choosing their own devices and broad app developer support is essential. Apple’s App Store and Google Play for Android are key weapons in their competitive arsenals. Few people believe Android would be a legitimate iOS competitor without its own app community. RIM historically has been difficult to work with on this front. I recall a technology company two years ago lamenting how hard it was to get support for integrating new software into the BlackBerry. By contrast, Apple and Android were easy and welcoming.
The culture of collaboration needs to change quickly for RIM. A lesson from Microsoft and Apple during the rise of the PC is worth noting. Microsoft didn’t displace Apple on the desktop because of superior software or because of IBM’s distribution. It succeeded because it leveraged the IBM relationship to achieve scale and reach out to a broad developer community. Microsoft’s early differentiation quickly became the large number of applications it ran that weren’t available on Apple or later on IBM’s own OS/2. Steve Jobs learned this lesson well and ensured that the iPhone welcomed external app developers. RIM’s on again, off again position on supporting Android apps through Google Play is not helping its long-term strategy.
Hardware is not Bad, Software is Just Better
We can conclude from all of this that a software first approach is critical, a robust developer community is also required, but owning the hardware platform is not necessarily bad. Having hardware in-house may in fact have its advantages. Samsung has proven that hardware alone can be a good business in mobility with the right software and app market partner.
BlackBerry today is predominantly a mobility hardware company in both revenue and culture. Given its situation and history the question is not, “when will BlackBerry realize it is a software company.” The question for Waterloo is, “how can BlackBerry become more of a software company?” With QNX and other assets the company has the seeds of a solid software basis, but it will have to overcome a hardware device culture to make a successful transition.
What do you think about BlackBerry today, its culture and chances for a successful makeover? Comment below.