With the help of a strong apps ecosystem, Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL) have been able to consolidate their positions in the smartphone operating system market. And now Research in Motion (NASDAQ:RIMM), although late, has started to realize the importance of developing its own apps ecosystem. Last week at the DevCon Europe event hosted by RIM, the company executives stated that, contrary to popular belief, BlackBerry users have shown great interest in embracing smartphone apps. 
And more recently, RIM announced that it is extending a promotion that awards a free 16 GB BlackBerry PlayBook tablet to developers who port their existing mobile applications to the new BlackBerry PlayBook OS 2.0.  We think that giving the PlayBook for free and extending this offer is a bold move by the company as it tries to compete against formidable players like Apple and Amazon (NASDAQ:AMZN).
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Our $16.50 price estimate for RIM stock is about 10% above the current market price.
Free PlayBook Offer Driving Great Interest…
According to BlackBerry Developer’s blog, there is an overwhelming interest in the offer, and the company has seen 1,500 apps submissions as of last Friday and 6,600 new developers have registered at the BlackBerry app store. The PlayBook promotion is just one part of RIM’s ongoing effort to attract developers to its app store.
Last week RIM stated that about 174 million apps are downloaded from BlackBerry’s App World each month and that these apps are quite profitable for developers. According to the company, BlackBerry apps generate 40% more revenue than their Android counterparts, and around 13% BlackBerry developers have made more than $100,000, which is a higher percentage compared to iOS or Android. 
…But Will Hurt RIM’s Margins
Attracting developers is one part of the equation, but giving free PlayBooks will definitely hurt RIM’s margins. We estimate that PlayBook’s gross margins will decline from about 17% in 2011 to 10% in 2012, and will continue to decline in the future. PlayBook already accounts for less than 1% of our price estimate for the RIM stock, which means that PlayBook’s value to RIM is unlikely to improve if the company keeps giving them away for free.Notes:
- RIM: BlackBerry apps are more profitable than Android apps, BGR, February 7th, 2012 [↩] [↩]
- We’re Extending the BlackBerry PlayBook Tablet Offer!, BlackBerry Developer’s Blog, February 13th, 2012 [↩]