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Is BlackBerry Losing Ground?

Once the reigning champion among business handhelds, BlackBerry maker RIM is steadily losing market share. What happened?

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Just a year ago, BlackBerry smartphones ruled the workplace. With their large QWERTY keypads, fast "push" e-mail, and robust security options, these sleek black handhelds were ubiquitous in business. We've all seen "crackberry" users typing furiously with their thumbs, wearing belt-clip pouches.

But no king can rule forever, as RIM — makers of BlackBerry handheld devices — is now finding out.

According to a recent Gartner report, the company's market share dropped to a 33 percent this year. Last year, they absolutely owned the smartphone market with a 52.5 percent market share in the U.S. That's a free-fall drop of nearly 20 percentage points. So what gives?

For the most part, some heavy competition — especially from Google — is the culprit. The Mountain View, California, search monolith quietly released the Android operating system in 2008. Now, two years later, Android models such as the Sprint Evo and Motorola Droid X command a 34 percent market share. (The iPhone dropped slightly to a 22 percent market share, which is a distant third place.)

Why the BlackBerry implosion?

According to Rob Enderle, a noted consumer analyst who advices tech companies on their products, the economic woes in the U.S. have changed how companies purchase smartphones.

In its heyday, RIM lined up perfectly with corporate buying habits: employees needed phones, so employers bought them a BlackBerry. Now, Enderle says employees are being asked to buy their own smartphones. And guess what? They buy what they want – the latest and greatest.

"RIM hasn't been as successful at attracting individual buyers as Apple and the Android-platform companies have. As a result, they are bleeding customers," says Enderle.

Customer Perception Problems

Recent news reports have not helped RIM. As the San Francisco Chronicle's website and Forbes.com have reported, RIM has struck deals with foreign governments to grant them access to instant messages and e-mail. These revelations hurt the perception that BlackBerry devices are highly secure. In business, that's a death knell because one e-mail slip can bring a legal discovery that closes your doors.

Enderle says BlackBerry's advertising campaign has also been poorly executed. In one ad, he says two gay men are using a BlackBerry to track their interior design business. In another, a Hispanic man tracks Internet RSS feeds for low-rider cars. The ads may have been genuinely intended to reach specific market segments; instead, they come off as trading on stereotypes. (Microsoft made similar mistakes with their infamous Kin ads, which apparently had nothing to do with smartphones and a lot to do with partying.)

Worse, Enderle says RIM has tried to position the new BlackBerry Torch as a competitor to the iPhone, when in reality it is more of a powerful messaging device and not really meant for rich multimedia experiences such as listening to music and watching movies. (See below for my review of this new do-or-die model and whether it can resist the competition.)

Changing Consumer Needs

It used to be enough to deliver messages. But, as BlackBerry's slow downward spiral indicates, consumers have moved on. Carolina Milanesi, a Gartner analyst, says the primary reason BlackBerry market share has fallen is that smartphone users are more excited about apps and touchscreens than messaging. Meanwhile, rivals like the iPhone can now connect easily to corporate e-mail servers.

Financial analysts have a mixed view of the market share decline. Matthew Thornton, a senior research analyst at Avian Securities in Boston, says RIM has healthy cash flows and a strong balance sheet, but its growth has slowed a bit. He says there are obvious technological gaps between RIM's high-end phones and competing handhelds, and that the loss of prestige could eventually lead to management turn-over, restructuring, or a buy-out. But, he cautions, those dire possibilities are at least a year away.

"We expect RIM to continue to show sequential and year on year growth for at least two to three more quarters," writes Thornton. "Their market share in global smartphones has dropped modestly in recent quarters. Their prospects for a sustainable (e.g., multi-quarter) rebound are not good based on their current product cycle relative to emerging competition from Android, iPhone, and even Windows Mobile 7, Symbian, and the MeeGo OS, all of which won't make a push until starting 4Q10."

Travis McCourt, a financial analyst with Morgan Keegan, is more bullish on RIM's outlook. He says he expects a growth rate of between 25 and 30 percent over the next two years. He points out that, while BlackBerry market share declined in the US, their international market share increased. (A New York Times feature on RIM argued that the company's global market share will eventually drop as well, since the U.S. market tends to drive trends and influence the foreign markets.)

Part of the drop, says McCourt, has to do with how major cell carriers, such as Verizon, tend to pick "hero" phones and push them strongly. Android is riding a wave of popularity, so a business owner sitting at home watching NFL pre-season thinks the Droid is the leading smartphone.

McCourt, who says RIM has a $25 billion enterprise value and strong support among shareholders, needs to focus their attention on marketing. Ads should focus on the BlackBerry business advantages. For example, he says, the company might position itself by noting that, on a BlackBerry, e-mail arrives faster, the battery lasts longer, the device can compress data on the fly, the keyboard lets you type faster, and encryption works better.

A Silver Lining?

Of course, even with the drop in market share, RIM is still in a solid second place. One reason has to do with strong customer loyalty. There are legions of BlackBerry diehards, such as Brenda L. Gleason, the president of M2 Health Care Consulting in Washington, D.C. She says her BlackBerry allows her to type faster, shows combined e-mail messages in one inbox, and offers stronger security.

Gleason also prefers "push" e-mail. Messages appear automatically on the phone without having to select a send/receive option, and she can copy and paste text between apps. (In truth, Apple introduced copy and paste in a previous iPhone version, and Android phones also support the feature.)

Similarly, Adam Kruse, a real-estate broker and business owner with Hermann London Group, says he will stick with BlackBerry devices even as they fall in and out of fashion. He sees his BlackBerry is a no-nonsense phone ideal for making basic calls and texting. His co-workers use competing phones, he says, but waste time on weather apps and social networking tools.

 

Not every BlackBerry user is sticking with the platform, though.

Rebecca Theim, a writer and public relations specialist with Tipitina Communications, switched to Android after seven years of using BlackBerry. She says she likes how Android offers better social networking feeds, the interface is more visually appealing, and it's easier to use.

The Torch Test

If RIM is going to rebound, the company will need to come up with a new smartphone darling. The Torch 9800, released this past week, is RIM's latest attempt to regain the hearts of the business and consumer crowd. On inspection, it suggests the company's engineers have more work to do.

The hefty 5.68-ounce device feels beefy, and not in a good way. The 3.2-inch touchscreen is much thicker than any Android phone, but there's a slide-out QWERTY keyboard so the phone stands almost six inches tall. Fortunately, RIM has solved the irritating problems with the Storm and Storm 2 models where every screen click and swipe became an awkward guessing game. Now, when you want to start your e-mail program or open a browser, the screen clicks register accurately.

On the plus side, the Torch browser — for which the phone actually gets its name — is extremely fast. In my tests, sites like ESPN.com and IGN.com pulled up in just a second or two over either Wi-Fi or 3G. The browser is also easy to use. You can quickly type up a URL, bookmark sites, and flick through open sites.

Unfortunately, while BlackBerry models are known for their spacious keypads, the Torch uses one that is just a hair too small – since the keyboard has to slide under the device.

I couldn't find any really compelling games (like Angry Birds on the iPhone) that would help make a long plane ride more bearable. I encountered some problems with the interface as well. In a few cases, I'd click an icon to move, and the phone would not let me. The touchscreen is much better than the Storm 2, but still lacks the fine sensitivity of the iPhone 4 or the Sprint HTC Evo. And, for music and movies, there is no obvious way to download either, although AT&T does provide a pay-as-you-go music streaming service.

In the end, there is something in the air when it comes to BlackBerry. It's not a black cloud, or even gray—it's a slight mist that tells me the days when the company dominated the world of business users are over. There are plenty of good business phones around, and plenty of options for business messaging. I think RIM will rebound from this latest drop in market share. But I doubt it will ever again dominate.

Last updated: Sep 7, 2010

JOHN BRANDON | Columnist

John Brandon is a contributing editor at Inc. magazine covering technology. He writes the Tech Report column for Inc.com.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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