In the gutter looking at the stars - Mobile World Live

In the gutter looking at the stars

27 JAN 2012

Modern capitalism can be an unforgiving beast. RIM’s new boss Thorsten Heins barely had time to move into his new CEO office on Monday before analysts were queuing up to declare that he doesn’t have what it takes to turnaround the ailing BlackBerry maker.

A day later, Apple – a company at least indirectly responsible for RIM’s current woes – reported staggering quarterly earnings with sales up almost US$20 billion from a year ago. Even those analysts guilty of setting unreasonably high expectations for the iPhone-maker saw Apple power past their numbers. Already the world’s most valuable tech company, Apple’s share price temporarily rose into unchartered territory in response to the announcement.

In harsh contrast, RIM’s stock – which has plummeted 80 percent over the last year – currently values the company at less than its fixtures and fittings. Heins will do well simply to resist investor pressure to break the company up and sell it off.

RIM is not the first firm to find itself thoroughly trounced by Apple; it’s not even the first mobile handset maker. But like those in the past that have been left looking out-dated and outclassed by the Cupertino giant, RIM must learn lessons in defeat.

Thanks to the launch of the iPhone 4S in October, Apple managed to increase sales of its iconic handset by 128 percent year-on-year to over 37 million for the quarter. That was enough to re-establish Apple as the world’s largest smartphone vendor, but it's still less than a third of the volume of phones sold by struggling Nokia in the same period (113.5 million). But while Nokia’s total revenue (not just handsets) for Q4 was EUR10 billion, Apple generated a cool US$24.4 billion from iPhone sales alone. The game is now about value, not volume.

This highlights one key area where Apple has turned conventional wisdom on its head. The iPhone maintained an ASP of US$659 in the last quarter – despite some earlier models being available for free on a contract for the first time in the device's history. The iPhone is a premium product. Luxury retailing – be it cars, jewellery, watches or whatever – can be a highly profitable niche, but it can’t scale up to the mass-market (which is partially the point). But that’s what Apple appears to have achieved with the iPhone – and who knows where sales will go when Apple starts getting serious in markets such as China.

Answering analysts’ questions on his first call as CEO on Monday, RIM’s Heins was wise not to concede the high-end market to Apple – Nokia’s Annus Horribilis in 2011 shows how this can decimate the bottom line. But to compete with the iPhone – or even Nokia’s new Lumia Windows Phones – RIM needs to get working on something special. And Heins needs to foster an environment and a culture that will allow this to happen. And again he needs look no further than Apple for the requisite inspiration.

The story that underpins Apple’s working philosophy is the stuff of legend. Steve Jobs was a college dropout and a product of the US counterculture of the late 60s – and he was openly hostile to the business school ethos that still dominates US corporate boardrooms today.

As a result, you won’t find identikit MBA-toting careerists at Apple. Instead, the firm covets highly-specialised experts focused solely on delivering product. Google – Apple’s only serious tech rival today – holds a similar disdain for “generalist” management, though its focus has always been on engineering rather than product design.

By comparison, RIM’s management culture had begun to look horribly out-dated under Heins’ predecessors – the much maligned pairing of Mike Lazaradis and Jim Balsille. The two acted as both co-CEOs and co-chairman, a set-up that risked RIM’s upper echelons being viewed as an old boy’s closed shop. While this was tolerable for shareholders during RIM’s boom years, it meant the firm did not have the dynamic, product-focused culture in place to make innovative changes when its fortunes waivered and the situation demanded it. Last year’s PlayBook fiasco was evidence of this; a rushed-to-market ‘me too’ product that lacked basic features and was therefore cold-shouldered by consumers.

Much of the early cynicism around Heins’ appointment rests on the charge that the senior management changes haven’t gone far enough. Those cynics point to the likely on-going influence of Lazaradis and Balsille, who will both remain on the board, and to the fact the promotion of an existing COO to the top job hardly represents an injection of fresh talent and ideas.

RIM can point to a decent-looking near-term product pipeline, with an improved PlayBook shipping next month and the first BlackBerry 10 devices launching later this year. Longer-term Heins is minded to remember that Apple’s dominance will not last, just as it didn’t for the once-mighty IBM or Microsoft. But when Apple’s crown finally slips, Heins must ensure that RIM is still around to take advantage.

Matt Ablott

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members