As illustrated in my previous post, companies adopting a closed ecosystem (eg. Apple and RIM) will find it increasingly difficult to compete against the combined R&D and marketing budgets of the Android Army.

This is of concern to us for two reasons: (a) RIM is the crown jewel of the Canadian tech industry, and (b) most IT shops in the country are geared to support the Blackberry platform (e.g. BES).

The Blackberry brand has been a major player in the wireless arena longer than Apple or Google, but has ceded significant market share to these relative newcomers who are now battling each other for smartphone dominance. So what can RIM do to avoid the fate that befell Palm, the other smartphone precursor whose products defined the PDA age?

RIM will be hard pressed to keep up with the OS, app and hardware advances of the Android Army, so what options does it have? It can choose to succeed by focusing all its resources to excel in only one of the above arenas.

Option 1: Focus on hardware
RIM can adopt the Android OS as a platform and become a handset player.  RIM has extensive experience in hardware development and has several generations of phones deployed with carriers around the world.  However, I do not believe that they should pursue this route.  Hardware is a low-margin business relative to software and services, with very short product lifecycles.  To make things worse, RIM will need to compete head-to-head with the likes of Apple, Samsung, LG, HTC, Nokia, and Motorola for hardware dominance on their turf. These companies easily match or exceed RIM’s capabilities and global distribution and have already replicated the Blackberry form factor. It is unlikely that RIM can maintain any meaningful competitive advantage in this arena.

Option 2: Focus on OS
Again, unlikely to be successful since Blackberries are not known for their OS.  Licensing the OS to hardware manufacturers will also put them in direct competition with Android and Windows Phone 7 – both coming from software development powerhouses.  The installed user base of Blackberries is large, but it hasn’t translated into meaningful support from app developers.  In fact, Android is well on its way to eclipsing Apple’s App Store, has gained strong developer suppor,t and gives its OS away for free.  A powerful competitor indeed.  Microsoft is taking a run at Android with Windows Phone 7 and is better positioned than RIM to fight that battle.  MS has been a leader in OS development for decades and has more developer support than probably all other operating systems combined.  So, again, a no go for RIM.

Option 3: Focus on services
Blackberry controls what is likely the most lucrative “app” in the world: BBM.  This app is not only insanely popular, but technically elegant and efficient.  The threat, however, is that with coming unlimited data plans and speed, another developer can launch a successful instant messaging platform (possibly for free) and co-opt RIMs business with lower fees and multi-platform support.  RIM can pre-empt this threat by developing BBM apps for competing platforms, and/or licensing the technology to competing hardware manufacturers.  The potential user base is tremendous and BBM will likely spread as virally as Facebook has, though with an important distinction: a monthly user fee from millions of users.  A network’s value is derived from the number of nodes (or users) it has and BBM already has a tremendously valuable network. It can leverage this user base to expand virally to users on other platforms as users invite friends to join them, or as users of other platform, long envious of Blackberry’s networking potential, clamour to join the growing network.  RIMs expertise in elegant global communications and synchronization also positions it well to manage other productivity functions in the cloud such as contact lists, calendars, and notebooks.

Bottom line: RIM is facing unprecedented competitive pressure and its closed ecosystem is unlikely to serve it well.  Recasting itself as a messaging network /service provider, rather than a phone developer, will allow it to leverage its current position to dominate the mobile messaging world and potentially, the “cloud productivity” suite.

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