Company Snapshot
Research In Motion (RIM) is a standout Canadian business success story. Since the launch of its hugely popular BlackBerry smart phone in 2001, the company has grown to achieve FY2007 sales of US $3.04 billion and net income of $631.6 million.
Blue Ocean Strategic Move
RIM's BlackBerry launch was a Blue Ocean strategic move because the company not only created technology innovation, it created superior buyer value innovation as well. Breaking away from traditional cell phone and pager competition, BlackBerry offered a new type of wireless handheld solution for companies. It created a new market space focused on delivering secure company email access to roaming employees. Companies that adopted BlackBerries saved time and money because their staff could now get and send email practically anywhere and any time without having to make trips back to the office. Also, there was no need to install remote client software because RIM offered a turnkey, centralized Enterprise Server and software solution. Since BlackBerries were easy to use and had simple user interfaces and a limited number of contextualized options to choose from, companies also saved training and support costs.
Buyer value was increased because BlackBerries offered high reliability and long battery life, multiple mailboxes at once, and web browsing capability. Traditional PDA functionality such as calendar, address book, and the To Do list were also enhanced along with the included cell phone through smart software that linked these tools and made them easy to use and navigate.
Most importantly, the BlackBerry created a highly secure offering for companies because all emails and their contents could be protected behind their corporate firewalls. If a single device was lost or stolen, the company could easily disable it from its central control server.
Success
The Blue Ocean that RIM created through its BlackBerry keeps growing year after year. Competition in the wireless handheld market is intense, however, RIM continues to expand penetration in existing markets and grow internationally as well. The company's sales grew 47% in FY2007 compared to 2006 and its earnings grew 65%. Subscribers quadrupled from 2 million in 2004 to 8 million by April 2007.
Doerr was referring to the iPhone during Apple’s recent town hall meeting for the iPhone Software Roadmap in Cupertino, CA.
Doerr and KPCB had previously invested $8M to start Amazon and $24M to start Google. On this visit, Doerr announced the KPCB venture capital firm will allocate $100M for entrepreneurs developing software on the iPhone platform.
Two months earlier, Google had announced the Android Developer Challenge with $10M in prizes for winning applications on the Android mobile phone platform. Around the same time, RIM and O2 announced the launch of the BlackBerry Pearl in Germany.
What does this all mean? What is the future wireless landscape?
Bill (Gates) built the first software company in the industry before anybody really knew what a software company was. The business model they ended up pursuing turned out to be the one that worked really well for the industry. Bill really focused on software before almost anybody else had a clue that it was really the software. That’s the high order bit.If you look at the reasons that the iPods exists and that Apple is in that market space, it’s because these really great Japanese consumer electronics companies who own the portable music market – invented it and owned it – couldn’t implement the appropriate software.
iPod is really just software. Software in the iPod itself. Software on the PC or Mac. Software in the cloud for the store. It’s in a beautiful box, but it’s software. If you look at what a Mac is, it’s OS X. If you look at what the iPhone will hopefully be, it’s software. Apple views itself as a software company. People that love software want to do their own hardware. —Steve Jobs
THE iPHONE ROADMAP
There are three important takeaway items from Apple’s iPhone software roadmap event in early March. At the top, Apple will release a firmware update before July that supports pushed e-mail through Microsoft Exchange Server ActiveSync. ActiveSync is a communication protocol that enables “over-the-air” access to your e-mail messages, schedules, contacts, and other Exchange Server data.
For the second takeaway item, Apple will have the same touch API and internal tools made available to 3rd party developers. In other words, 3rd party developers can build native iPhone applications using the same SDK as an Apple engineer. Not only will this API grant access to the media layer of an iPod, but also it will give way to more location-aware applications that triangulate end-user location through cell tower information and Wi-Fi hotspots.
Finally, Apple will launch the App Store, the exclusive way to distribute applications for the iPhone. Developers will set the price and receive 70% of the revenues on a monthly basis; Apple keeps 30%. There will be no credit card fees, hosting fees, or marketing fees. Free apps will stay free to end-users. Streaming and other bandwidth intensive applications will be prohibited.
MAKING SENSE OF THE iPHONE ROADMAP
Apple’s roadmap and architecture makes three design trade-offs: battery, bandwidth and security. To put this roadmap in context, consider RIM’s pushed-email solution.
In RIM’s solution, a corporate e-mail server first forwards the e-mails it receives to the BlackBerry Enterprise Server (BES). BES then compresses and encrypts the packet at the transport layer with a Triple DES algorithm. The packet then digs a tunnel to one of RIM’s Network Operation Centres (NOC), which also manage relationships with wireless carriers like Rogers Communication. The NOC tracks the BlackBerry PIN as it hops between wireless cells and carriers; hence, reducing power and bandwidth usage during packet delivery. Upon arriving in the NOC, the packets undergo user authentication and is then forwarded to the intended device through its network of carriers according to the BlackBerry PIN and routing table.
The NOC also stores incoming messages when someone is out of wireless coverage. A large part of the NTP v. RIM patent trial in Richmond, Virginia hinges on e-mails being temporarily stored at the NOC. RIM’s contingency plan with the original workaround effectively removes some of the redundancy functions provided by the NOC. This means unsent e-mails would be routed and stored elsewhere. Having reached a settlement with a lump sum of $612.5M two years ago, the NOC is a strategic value-adding core which differentiates RIM’s solution from competing solution such as the Microsoft Exchange Server ActiveSync.
In short, this solution enables the inbound firewall port on the BlackBerry to be closed until necessary. This translates to added security and longer battery life.
Apple’s solution, on the other hand, has neither a NOC nor the equivalent of a BES. iPhone and Windows Mobile handsets keep the inbound firewall port open and constantly ping the network in order to maintain the device’s IP address. This replicates a push-like experience without a NOC. The cost advantage is eliminating middleware such as the BES and service fees to wireless carriers such as Rogers Communications.
The disadvantage is the inefficient use of the network resource and bandwidth, which in turn translates to shorter battery life – less video, music and game time. Analysts from the American Technology Research estimates bandwidth utilisation could be more than two times RIM’s solution. A converged handset like the iPhone also mean power will be drawn from the same inaccessible battery. The fastest way to drain an iPhone battery is browsing the Internet while the pushed e-mail function auto-check multiple accounts at a short refresh cycle – the way customers want to use it. An attempt to break the seal and replace the battery would void the warranty.
ANALYSIS
Nokia is “Connecting People”. It is the world’s largest manufacturer of mobile telephone because it commercialised pushed voice. RIM is a wireless solutions company meeting global communication needs. RIM is able to carve out a market because it has commercialised pushed text. Both companies are in the access business. Apple, on the other hand, is a lifestyle, software business. Most of RIM’s marketing shows people in business attire just like “PC” in “Hello, I am Mac” television ads. The difference between Apple and RIM in terms of identity, value, and scope cannot be understated.
A fitting strategy depends on the state of the industry, business, and business model. Apple and RIM have different strategies and their M&A histories reflect this. With its software and digital hub strategy, Apple acquires SoundJam MP in 2000 and releases it as iTunes in 2001 – before the launch of the iPod. With its network and battery efficiency strategy, RIM acquires Slipstream Data for its data compression and network optimisation technology in 2006.
Recognising but not fully understanding how to leverage software in the mobile business, Nokia acquires Trolltech, a software platform and frameworks company, earlier this year. However, Nokia has time to restructure. Economies of scale, cost saving and growing international channels will compensate for slower handset growth in the short to medium term. In addition to the RIM 8 manufacturing plant at 455 Phillip Street in Waterloo, RIM has outsourced production to Mexico and Hungary. Now it is exploring the feasibility of manufacturing hubs in India and China.
We have been very lucky to have brought a few revolutionary user interfaces to the market – the mouse, the click wheel, and now multi-touch. Each has made possible a revolutionary product, the Mac, the iPod, and now the iPhone. We’re going to build on top of that with software. Software on mobile phones is like baby-software. Today we’re going to show you a software breakthrough. Software that’s 5-years ahead of what’s on any other phone. —Steve Jobs on user-interface and software
In this light, RIM will face a different set of challenges than Apple such as logistics and handset design – a la Nokia and Motorola. For a time with the RAZR, Motorola is the quintessential example of innovative product design with recognition from Fast Company, Forbes and the like.
With no other moves in play, Motorola cuts price in order to maintain the growth in market share as the handset matures into later stages of its adoption curve. Although this tactic propels Motorola into the #2 spot behind Nokia, its margin plummets sharply as the market becomes more and more saturated. This is just three years ago. Last quarter, Motorola’s handset division posts an operating loss of $1.2B comparing to an operating profit of $2.7B in the previous year. The same rollercoaster awaits Apple and RIM if they are consumer electronics companies, which they are not. This is the differentiating and strategic importance of Apple’s iTunes and RIM’s NOC-BES.
BEYOND THE TECHNOLOGY
The product differentiation is in the software; the monetisation is in the hardware. SDKs and mobile phone platforms are nothing new. Nokia has Trolltech Qtopia. Microsoft has Windows Mobile 6 SDK. RIM has BlackBerry MDS Studio and JDE with a BlackBerry Developer Program. The last entrant before the iPhone platform is the Android from the Open Handset Alliance (OHA), which is led by Google.
Open standards and decentralisation will bring more success to the OHA consortium. One of the success factors for both OHA and Apple will be distribution of value-adding applications. Many questions remain. What sustainable incentives will drive the need to develop for each platform? Will these applications in turn drive handset sales? If so, how many units?
As strategic a role as software may be, its purpose in some business models is to drive hardware sales. More than 70% of RIM’s current revenue is from selling handsets. Only 30% of RIM’s current revenue consists of services (NOC) and software (BES). Similar ratios apply to Apple’s 2007 revenue in portable music: 75% from iPod handsets, 25% from iTunes and related products. Before anti-competition from Microsoft in the first browser war, Netscape Communications’ original business model is to drive user adoption with a free browser, then monetise on servers and related web server software.
The rules change for software when a vendor has virtual monopoly like Microsoft. This is why the most impactful news from the roadmap event is not the software update for pushed e-mail, but rather it is the Apple App Store. This could be the way new applications will be distributed and monetised on mobile platforms. Distribution and the monetisation of software have always been problems for entrepreneurs. Microsoft has monetised Windows and Office at the OEM level before the consumer point-of-sales – a model immune to the Internet. If Apple could scale up and build a subscriber base to the point of virtual monopoly, it will not be long before they could demand 30% of the revenue from applications such as Microsoft Office, or its equivalent, on the iPhone platform.
This channel-monopoly business model is as new as ship and freight. Using this model, Nintendo has monetised its older game titles for almost two years with the Nintendo Wii. The strength of this model is simplicity. Its weakness is scalability due to the inability of quality to scale. Jobs does not believe the App Store will drive significant revenue for Apple. This is the wildcard to watch as the 70/30 revenue concept ripples through the developer community.
CLOSING DEALS
Closing deals and signing large contracts take more than just technology. It is in Apple’s corporate DNA to engineer products; not chase contracts. To date, RIM is the only vendor receiving government security accreditations. RIM has worked with the NSA to win US contracts from the Department of Defence and the Department of Homeland Security. Yet, Good Technology, whom RIM has a patent dispute in 2003, has also won US government contracts.
Aside from reduced security, IT managers deploying the iPhone solution will face additional support issues. The iPhone architecture involves Microsoft Exchange, Apple iPhone, and wireless carrier. The BlackBerry architecture has one support number to call in the event of a failure. This plays in RIM’s favour in the enterprise and government segment.
In the end, however, all this makes a difference only for people in the know. Technical jargons and design trade-offs such as security and bandwidth do not channel well on television, radio or print. RIM may try to quantify the intangible, but the average, non-technical consumer, which makes up the majority of the mainstream, will be indifferent to the argument if the image is sharp and quality is sufficient. Customer service and advertising will be the determining factors in the consumer market. This plays in Apple’s favour: Apple Stores, Mac v. PC ads, and future iPhone v. BlackBerry ads?
On the other hand, RIM does not have to play Apple’s game, nor should it. The media will work up frenzy and announce a winner when there are many segments and performance metrics. RIM and Apple are different companies with different assets and different scope. There are more niche markets in the consumer market than the enterprise and government market. A combination of long battery life through word-of-mouth, ease of deployment for SMEs, and the penetration of the Chinese market with China Mobile may be enough to satisfy Wall Street and Bay Street. In Canada, the iPhone remains a distant threat beyond the border horizon as the trademark dispute continues between Apple and the Toronto-based Comwave with its VOIP “iPhone”.
SUMMARY The big debate wasn’t Mac vs. Windows. The big debate was character mode interface versus graphics mode interface. When the 386 came and we got more memory. The speed was adequate. Some development tools came along. That paradigm bet on GUI paid off for everybody who got in early and said this is the way. —Bill Gates< strong="">
What’s the next paradigm shift that would allow an entry? We made this bet that the paradigm shift would be the graphical interface and that the Mac would make this happen. We really bet our future on the Macintosh being successful, then the graphical interface in general being successful.
The big debate is not iPhone v. BlackBerry or Android. The big debate is single-touch interface v. multi-touch interface.
We could be witnessing history in the making. The final fight is in software. Apple is experimenting with a new business model. It could be disruptive and change how applications on the mobile platform will be distributed and monetised. The iPhone will become a richer client over time.
This is not a RIM knockout. RIM remains rock solid in the enterprise and government space. The fight for them will be growth in the consumer and small business segment. The Android will have niche community support but not mainstream adoption due to less convenient software updates and less post-sale application support. In the medium term, Android, BlackBerry, and iPhone will co-exist as each platform serves different segments with different needs.
There will be different winners depending on the performance metrics. Unexpected beneficiaries may include backend dataset providers like Navteq and remote on-demand cloud computing service providers like the Amazon Web Services.
The Apple App Store will further flatten the world. Competition will intensify from overseas entrepreneurs. With the recent wireless auction in Ottawa, market forces will drive costs further down for pushed e-mail and mobile Internet services. A virtual land rush may be coming for developers. There may even be a new Conrad Hilton.
By Paul Rubens
December 12, 2008
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That's because these applications and their data need managing and backing up from the data center, and phone-related security, network hygiene and compliance issues must also be addressed. "Once you have smartphones running enterprise apps, you need to have the same rules in place as for laptops," said Ken Dulaney, a Gartner VP Distinguished Analyst.
Of course, smartphones and smartphone applications are not new. But despite what the hardware and OS makers would have you believe, phone-based enterprise applications are not widely deployed. "The reason that many companies don't have a management system for their mobile phones at the moment is that 90 percent of all usage is e-mail only," said Dulaney. "It's not until you get applications that reside locally that you a management system — you don't need one just for e-mail."
Dulaney believes, however, that during the next five years, smartphone-based enterprise applications will become much more common, and at some point a management tool of one form or another will become unavoidable for most businesses. The three things IT departments must consider when smartphones are running enterprise applications are:
Companies becoming active in this space with management tools include Sybase with iAnywhere (for Windows Mobile, BlackBerry, Palm OS and Symbian), Logmein (for Windows Mobile, Symbian and BlackBerry shortly), and Microsoft with its Mobile Device Manager 2008 module, which is part of its System Center family of management products for devices running Windows Mobile 6.1.
The System Center module is arguably the most comprehensive. It includes:
An open source operating system like Android provides big benefits to handset manufacturers and network operators in terms of lower costs, faster time to market, and the ability to differentiate their products, Delaney said. But, he points out, this differentiation is just what enterprises want to avoid: Management from the data center is much easier if phones and their operating systems are standardized. The implication of this is that Android is unlikely to be a big hit in the enterprise space.
But on the face of it Apple's iPhone should be an ideal enterprise device since the OS is locked down and available only on a limited range of Apple hardware. Yet, it too has its drawbacks, Delaney says. "Apple meets the criteria of hardware and software, but they are not willing to put in the highest level of security."
And, at the moment at least, the only way to activate an iPhone, to get applications on to it and to update firmware is by using iTunes. For a consumer this is fine, but in an enterprise this makes it very hard to control the iPhone centrally, to push applications to it and to ensure that all phones are running the same version of firmware. Essentially, it makes any management system impractical.
It's possible Apple will rectify this problem in the future and allow more central management capabilities, and for the moment the iPhone Configuration Utility lets administrators distribute configuration files to users by way of a web browser. Apple describes configuration profiles as "XML files that contain device security policies, VPN configuration information, Wi-Fi settings, APN settings, Exchange account settings, mail settings and certificates that permit iPhone and iPod touch to work with your enterprise systems."
Certainly a start, but is it enough?
Anti-virus software for mobile phones has been around for years, but the suspicion has always been that it is necessary only in the eyes of the vendors looking to make some money. That's likely to change as smartphones become more complex and a more fundamental part of most organizations' IT infrastructure. Network admission control (NAC) systems may then also have to be updated to check these phones for the presence of this anti-virus software, and to ensure patches and updates have been applied before allowing the devices on to the corporate network.
During the past five years or so, many employees have been given quite a free reign over what phone they want to use, and what they do with it. Once enterprise applications start appearing more frequently on smartphones it's likely IT departments will have to standardize on a single platform, and these devices will have to be actively managed using sophisticated data center-based tools. And that can only mean one thing: More work for data center staff.
