Research in Motion (NASDAQ:RIMM) kicked off its annual three-day BlackBerry World conference with the launch of a prototype of the BlackBerry 10 OS on Tuesday, giving developers the first glimpse of what is touted to be the company’s best chance to stage a turnaround. While RIM doesn’t plan to unveil the actual BB10 smartphones until the later half of 2012, it took the opportunity to showcase reference devices running on an yet unfinished Dev Alpha version of the OS that, not very surprisingly, lacked a physical keyboard. The company has also been handing out these prototypes as well as a dev toolkit to developers in order to generate a favorable buzz and create an app ecosystem that may not appear too handicapped when the actual smartphones are launched.
A late-2012 launch however pits it in direct competition with Apple’s (NASDAQ:AAPL) next-generation iPhone, a horde of new Google’s (NASDAQ:GOOG) Android smartphones and an increasingly competitive Microsoft’s (NASDAQ:MSFT) Windows Phone ecosystem.
Shares of RIM fell more than 5% in trading Wednesday, as investors were looking for more than just a developer version of the OS with mostly similar features to what can be found in existing smartphones. However, considering that the company was only demoing the developer version of the OS, many new features may have been kept under covers for later. Also, from whatever little that RIM showed us, we could gauge that the company is indeed focusing on meaningfully differentiating from rivals by merging existing strengths with a new improved UI. We have a $15.51 price estimate for RIM, about 20% ahead of the market price.
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Focus on touch – Sign of changing times but risky
With the BlackBerry 10 OS, RIM plans to keep up with the changing times by focusing on the touch-screen while not letting go of its traditional messaging strength. The on-screen keyboard on the new OS offers predictive next word suggestions, as opposed to just word completion which can be seen in many of today’s smartphones. This will help cater to the expectations of its core productivity/message-centric clientele, a customer base that RIM had lost focus on in recent years. The company CEO, Thorstein Heins, had said during the most recent earnings call that he is planning to get the company to refocus on its core enterprise base and try to reclaim market share in the area. The BlackBerry Messaging (BBM) feature, that is still absent from the QNX version running on its Playbook 2.0 OS, looks likely to make its way to the BB 10 smartphones when they’re launched.
The fact that RIM is launching the BB10 smartphones in the later part of the year shows that the company, having learned from the Playbook debacle, is taking great pains to ensure that the product is completely ready before launch. However, having a completely touch-based interface coupled with a late 2012 launch means that the BlackBerry will have to contend with the next-generation iPhone that is likely to be launched just ahead of the holiday season, a slew of improved versions of Android smartphones and the Lumia line of smartphones that would have potentially grown in popularity by then. The addition of a third popular mobile ecosystem in Windows Phone could even further shut the door on the Blackberry OS.
Need to build app ecosystem
RIM also has to ensure that its app ecosystem is competitive enough to stave off competition. This, however, is a potentially much tougher ask considering the wide gap between itself and rivals Apple and Google. Apple has over 600k apps and the Android more than 400k. Still, with carriers increasingly trying to find a competitive third ecosystem in order to mitigate the impact of a duopolistic environment on their margins, RIM has a chance. But here too, it has Microsoft to contend with, which has had a headstart with the Lumia this year.
However, RIM has over 77 million existing BlackBerry subscribers worldwide that it can leverage. This amounts to about 12% of overall mobile subscribers, a distant third behind Apple and Android combined 80% but still miles ahead of Microsoft’s lowly 2%. While vying for the top spot may be a distant dream, competing with Microsoft to create a stable third smartphone ecosystem may not be as daunting a task. Underscoring the importance that apps will play in creating that ecosystem, RIM said that it would be offering a $10,000 guarantee on any Blackberry licensed apps that make an initial $1,000. It is also persisting with its Playbook tablets despite their poor performance in the market as it is looking to build developer support for its BB10 smartphones, since both draw from the same QNX platform.