Friday, September 24, 2010

Top 3 RIM BlackBerry Myths

Despite posting strong August quarter results, and providing solid November quarter guidance, RIM stock is keeping close to its 52-week lows. While RIM has its fair share of challenges, mostly as a result of a severely aging operating system which keeps crashing, freezing and just isn't as capable as Google's Android and Apple's iPhone, there are also some myths that present RIM in a too unfavorable light.

Myth #1: BlackBerry competes with Android and iPhone. BlackBerry is sold in 175 countries. In most of these countries, BlackBerry has zero competition from Android and iPhone. In some of these countries, Android and iOS are available, but are not available on a pre-paid basis -- which is close to 80% of the world's cell phone sales. In most of these countries, iPhone in particular -- but also Android -- are just too expensive for most people. An unsubsidized iPhone may be $700 and up, whereas an unsubsidized BlackBerry can be had for $250 even in a Best Buy vending machine at an airport or at a Las Vegas casino.

The truth is that it is only in a relatively small number of countries out of the 175, such as the U.S. and the U.K., does BlackBerry compete with iPhone and Android -- and even in those countries, BlackBerry is available from numerous operators on a pre-paid basis and is a lot cheaper than iPhone and many Android devices. Yes, I know there are some exceptions, such as Sprint's Boost and Virgin Mobile brands, but this is true in most of these 175 countries.

Americans also don't often appreciate that iPhone and Android are more competitive in the U.S. than in most other countries. Many desired features of iPhone and Android simply aren't available in so many countries. For example, Google Voice is only available in the U.S., and even Apple's signature iTunes store for some products, iBooks and other critical features are not available in all countries.

In reality, BlackBerry's main competition in a majority of the 175 countries is Nokia, and to a lesser extent basic old-style cell phones from Samsung, LG, Sony Ericsson and Motorola. In this fight, BlackBerry has been gaining market share every day.

Myth #2: New subscriber count guidance is fishy. On the conference call a week ago, RIM stock reacted negatively after management stated that its policy was to move away from subscriber guidance. While this may sound suspect at first, there is a really good explanation for it.

An increasing degree of BlackBerries sold worldwide are to people who don't use email. This may sound doubly fishy to a U.S.-centric analytical crowd, but the fact is that most people in the world have never used email or for that matter a PC with a browser. Their equivalent of our email is SMS. As a result, they use their new BlackBerry for massive SMS volumes, but not email or web surfing. For this reason, they don't need to "subscribe" to RIM's Internet service.

The result of this is that BlackBerry ends up selling more and more handsets to people who don't show up in subsequent statistics. BlackBerry gets a good margin on the handsets, and may up-sell these people to email and other Internet services some time down the road, but for the near future, these sales go into a de-facto black hole with the only certain money collected up-front. And this shows up in revenue and profit growth, but not subscriber growth.

For this reason alone, it made sense for RIM to stop giving out these "subscriber" numbers -- they just don't matter as much going forward, as they did in the past when almost all BlackBerries sold were to people who were living in "modern" countries where everyone used BlackBerry for email. The revenue and profit numbers will simply speak for themselves.

Myth #3: Tablet as "companion device" is a joke. The only thing about most of the reporting to date on the subject of the BlackBerry tablet that's a joke, is the inconsistent reporting itself. Commentators have made fun of this "companion device" concept as something quaint and reminiscent of Palm's failed 2008 "Foleo" product, which ended up stillborn.

The alleged definition of this "companion device" concept is that the tablet won't have cellular connectivity, but rather only WiFi. In other words, the same thing as approximately 80% of all iPads sold to date. Are these commentators criticizing the iPad as a joke too? Of course not, but this only reveals that they apparently don't know what the heck they are talking about. Clueless, and shamelessly so!

A WiFi-only iPad is also a companion device, in that it will only connect to the cellular network using a device offered by Sprint and Verizon Wireless such as the the Sierra Wireless Overdrive, the HTC EVO, the Samsung Epic (all on Sprint), the two Palm devices Pixi and Pre Plus (both on Verizon Wireless) and the Novatel MiFi (on both Sprint and Verizon Wireless). There is nothing wrong, quirky or otherwise quaint about this approach. Some consumers prefer it; others don't. Clearly the vast majority of Apple's iPad sales -- probably around 80% -- are in this "companion device" format.

To further show how insane the commentary has been with respect to the prospect of a BlackBerry "companion device," let's take the initial comments made about the Samsung Galaxy tablet, introduced a couple of weeks ago and expected to become available by November or so. Initially, it appeared that this Samsung tablet would only be offered with a cellular subscription, i.e., the opposite of a "companion device." The bloggers screamed bloody murder! How dare Samsung not offer a WiFi-only -- i.e., a companion device -- version?

Only a few days later, commentary from Samsung appeared to have suggested that a WiFi-only version was indeed also going to be offered. The tech bloggers shouted a big sigh of relief. Well, gee, how about some of the same feelings for BlackBerry alleged similar approach, then?

Of course, we don't know what the BlackBerry tablet will look like, when it will be offered or any other details for that matter. But can we please have any consistency in the criticism of it, even on the terms assumed by the commentator assailants? You can't have it both ways. You can't praise Apple and Samsung for offering the exact same "companion device" concept -- and in Apple's case be extremely successful in doing so -- while at the same time criticizing BlackBerry for it allegedly planning to offer the same concept.

Perhaps BlackBerry will offer its tablet in both kinds of versions, just like Apple does, and which Samsung apparently will do? If so, will these early inconsistent critics give up and recognize that BlackBerry will have a device for every person's preference? I think the real answer is that these commentators don't really know what they are talking about, and they never stopped to ponder their (lack of) analogy with the other tablet products offered.

The bottom line is that while BlackBerry has huge challenges in terms of an urgent need to come up with a brand new operating system, it has been unfairly vilified for several things where BlackBerry is in fact doing a lot better than the critics suggest. The basic revenue and EPS numbers support this. If BlackBerry can only get away from an operating system which takes me almost half an hour (yes, I kid you not) to reboot, and which doesn't crash and freeze all the time, it can continue to have a great and rapidly growing business, deserving of a much higher set of multiples.

For this turnaround to work, it would help if the negative myths around RIM are crushed. That said, its flaws and challenges aside, RIM isn't the first player on the world stage to be misunderestimated.