The Strategy RIM Must Employ to Survive

By Randy Eckel  DEC 05, 2011 1:40 PM

RIM lowered its outlook for FYQ4 again, the stock is under further pressure, and the few supporters the company had left appear to have thrown in the towel. It's current path is an uphill battle.


There is an old saying: “The pessimist complains about the wind; the optimist expects it to change; the realist adjusts the sails.”
It’s time for Research in Motion (RIMM) to adjust its sails.
RIM preannounced an in-line (with consensus) quarter last Friday, but lowered its outlook for FYQ4 -- again. The stock is under further pressure, and the few supporters the company had left appear to have thrown in the towel. 
At my firm, we are not experts on the consumer handset market, but we are very experienced in the enterprise software sector and have been spending time on the enterprise smartphone/smart device space -- specifically from the angle of IT, successfully dealing with the “consumerization” of IT and the integration of these alternative computing devices into the enterprise infrastructure. 
Consumerization is no doubt a big problem for IT, and vendors are responding. However, today’s IT departments have to assemble a patchwork of solutions to address security, management and provisioning of these new, non-PC devices.  RIM has the opportunity to be a holistic solution to this problem if it moves decisively.
From that angle, we have a few observations about RIM's strengths and weaknesses, and what the company might do to turn things around and solve the thorny problem of smart device integration into the IT infrastructure.
Imagine If RIM Management Adjusted Its Sails
From a user perspective, when they choose the iPhone (or Android) they are making a trade: application flexibility over security… a sexy, diverse user experience over Push messaging.  IT departments are in a bind because it’s very hard for them to reverse this equation even though they would choose security and manageability over sexy and diverse any day.
What if both users and corporate IT got what they wanted? This is what RIM could provide, and all the company would have to do is:
By shedding its proprietary roots (handset and OS), RIM is everyone’s friend and potential partner. Management would almost instantly position the company as the solution to a problem every company is struggling with today: “How do I manage and deliver enterprise applications to smart devices?”  Instead of trying to be everything to 70 mln users, why not be something important to 300 million?
We believe RIM's strength is in its secure messaging platform, its robust management platform, and its worldwide network for efficient message delivery.  Port messaging and management to Android, iOS, Windows and Lion. Let the hardware OS companies duke it out.  Instead of fighting for a 10% share of a fast growing market, drive for a 50% share of all the market.
As a standalone provider of secure, efficient messaging, notification and management, RIM becomes the ultimate enterprise mobile SaaS solution. Enterprises would adopt their service to deliver secure, workflow enabled, mobile applications to any platform – including ultrabooks and laptops – using any email application.  Build a workflow engine that allows easy configuration of policy and rules (and insure delivery) via BES, and RIM would become the heart of massively mobile computing for the enterprise.  It would be like having a worldwide, vendor agnostic, secure workflow and management platform – for $5 month per user!
No other smartphone company has these assets. No enterprise software or SaaS company has these assets. Stripped of proprietary hardware and OS, the company becomes a very, very profitable $4 bln + and growing SaaS provider.  Moreover, a divesture would immediately unleash value for long suffering shareholders. The company is now selling for 2x Reoccurring.  As a SaaS/Software provider, that’s incredibly cheap. We would expect a 4-5x multiple would be more appropriate.  SFSF was just bought for 10x Reoccurring.  Imagine a service that can charge $60/year and get 300 mln subscribers?  That’s $18 billion in reoccurring revenue.  You think Microsoft (MSFT) might be interested in owning this business for Office 365? Or Google (GOOG) for Android and Gmail? Microsoft is already partnered with RIM for a low-end version of BES.
If the company decides not to divest its handset business, its future will come down to a couple of things:
  1. Can BBX run Android applications better than native Android?
  2. Can RIM compete with consumer hardware manufacturers on their turf? Can they out design and out market one of the best companies in the world?
Can RIM convince the consumer buyer that secure, push messaging is better for them than having the latest sexy, phone accessory?  We think not. The wind has changed from east to west for RIM.  It’s time for RIM to adjust its sails.
Hopefully RIM management has a topflight strategy consulting company engaged to help it sort out the future.  If it is really open to change, the course we outline above has a high probability of success. RIM’s current path is a steep uphill battle.

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