Applications are Vital to a Research In Motion Comeback
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Research In Motion (NASDAQ: BBRY) is, behind Apple (NASDAQ: AAPL), the tech go-to for innovative gadgets, such as it’s signature Blackberry smartphones. Of course, competitors Apple and Google (NASDAQ: GOOG) are hot on Research In Motion’s heels, and will continue to be. Apple and Google continue to slowly eat away at Research In Motion’s market share, but investors aren’t giving up yet. There are hopes of a takeover by a rival with pockets and influence deep enough to fund and promote innovative gadgets a la Blackberry, Research In Motion’s golden child, once again.
Research In Motion’s precipitous fall is reminiscent of America Online (NYSE: AOL), a company currently selling and licensing patents to Microsoft (NASDAQ: MSFT). Since Time Warner separated AOL as a spin-off company in 2009, AOL’s revenue has fallen 29%. However, AOL is making cash galore by selling off its patents. It has currently generated over $1.2 billion in profit from the sales. If Research In Motion is inclined to sell some of its patents, it, too, could see heavy cash flows that could save it from being pushed aside by its competitors- and the increased cash would be a nice boost for investors, as well.
Besides hoping that Research In Motion sees the possibility- and profitability- of selling off patents like AOL did, why stay for the long game? First, the company has impeccable finances. It has $1.5 billion in assets as of quarter four, 2011 and it is debt-free. It also has a large research and development budget of $2 billion per year and retains the talent necessary to create more innovative systems, such as its proprietary email system that is hugely popular with multinational corporations, mid-sized companies and public sector organizations alike. Research In Motion is also poised to release the Blackberry 10 this fall. The new phone includes a new user interface that includes a new way to handle task switching, a touch-screen keyboard and an image edit feature. However, doubts persist as to the new phone’s ability to compete with Apple’s iOS and Google Android, especially since the iPhone 5 will be released around the same time as the Blackberry 10.
Of course, Research In Motion doesn’t have the name and brand appeal of competitors Apple and Google, either. The iPhone and Android have thus far proven much more user friendly and have attained wide consumer popularity and influence within the mobile market, especially when it comes to downloadable applications. Research In Motion is simply slacking in marketing and developing mass consumer appeal. In fact, it posted its first loss in the fourth quarter of 2012- a 20% loss in revenue. In addition, Blackberry is quickly losing users, falling from 16.6 to 13.4% of total mobile users, while Android and Apple’s numbers rose from 46.9 to 50.1% and 28.7 to 30.2%, respectively. The company is also lacking in differentiation. Both Apple and Google are offering more mobile products, including tablets, laptops and TVs. Research In Motion does not have plans to develop anything besides smartphones.
So, why isn’t Research In Motion completely down and out?
First, Research in Motion is looking for a new marketing chief, which can help the company with its brand awareness and market penetration problems. Keith Pardy, the company’s old marketing chief, left in March ahead of the Playbook launch and has yet to be replaced. Pardy’s departure was welcome news for investors who were disappointed by the inconsistent marketing strategy following the release of the Blackberry 7 and Playbook. CEO Thorsten Heins claims that the company will focus on a new marketing strategy with a unified message leading up to the release of the Blackberry 10.
Two potential companies are interested in helping Research In Motion with its issues: Nokia and Microsoft. Both companies are struggling to gain market share in the mobile market, so any share, even that as small as the market share Research In Motion currently has, would be a welcome introduction into the mobile game. Both companies would offer something important in exchange, as well: the ability to diversify product offerings and the brand awareness that Research In Motion has struggled to attain. However, both companies would also struggle to integrate Research In Motion’s existing mobile network into their operational framework, taking up time and eating away at cash that could be put to use in research and development for their own mobile features. This may be more attractive than adopting and updating Research In Motion’s existing platform, especially given the exorbitant cost of the company: the market values Research In Motion at around $6.6 billion. Nokia and Microsoft, while able to afford that kind of buy with $15.18 billion and $59.53 Billion cash in hand, respectively, might not buy what at present appears to be a declining asset.
In the meantime, the slump in Research In Motion's operating performance is more good news for giants Apple and Google, who have dominated the market with their mobile products, including tablets and laptops that feature downloadable applications through a software store, similar to iTunes. If Research In Motion wants to get back in the game, it needs to find a way to compete with the application stores Apple and Google have amassed. There is certainly a market of developers chomping at the bit to get rich from their applications, so finding developers to create new apps wouldn’t be the problem, pricing the apps would be. 50% of the apps in Google’s application store are free, while less than 10% of the apps in Apple’s application store are free. Research In Motion would have to determine how to draw in users, and how to price the apps accordingly. Of course, this is down the line, if Research In Motion even gets back in the game.
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