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Article: Balsillie sought strategy shift before he quit
As seen here:
Fri Apr 13, 2012 6:54am EDT
By Alastair Sharp
TORONTO (Reuters) - Former Research In Motion co-chief executive Jim Balsillie sought to reinvent the BlackBerry smartphone maker with a radical shift in strategy before he stepped down, two sources with knowledge of his plans said.
Balsillie hoped to allow major wireless companies in North America and Europe to provide service for non-BlackBerry devices routed through RIM's proprietary network, a major break with the BlackBerry-only strategy pursued by RIM since its inception.
The plan would have let the carriers use the RIM network to offer inexpensive data plans, limited to social media and instant messaging, to entice low-tier customers to upgrade from no-frills phones to smartphones.
But the talks with carriers led to discord at the highest levels of the troubled Canadian company, and Balsillie resigned as a director soon after he stepped down as co-CEO. His former partner at the helm, Mike Lazaridis, still has an active role.
The veto leaves RIM's focus squarely on a new generation of BlackBerry gadgets it promises will wow consumers. The devices will have to do just that, analysts say, to arrest the precipitous decline in market share suffered by RIM, the company that virtually invented mobile email more than a decade ago.
Balsillie's plan may have heralded a broader strategic move by RIM to define its high-margin network services - which bring in around $1 billion a quarter - as a business that's distinct from building and marketing the BlackBerry. That hardware business may have lost money last year.
Carriers may have seen value in the plan, which would have encouraged lower-value talk-and-text customers to upgrade to entry-level smartphone plans, with access limited to Twitter, Facebook, messaging and other social media platforms.
The package would have included RIM's BlackBerry Messenger application, a powerful tool that has kept many BlackBerry users faithful even as flashier gadgets from Apple Inc and running Google Inc's Android software beckon.
That said, the arrangement would have relied on RIM's private network, which crashed painfully last year, adding a layer of risk that some carriers might have shied away from.
The RIM network is integrated with cellular networks across the world. Managed from a string of data centers, RIM encrypts and compresses massive amounts of data it then pushes out to BlackBerry devices. It charges carriers a monthly subscription fee per user for the service.
The system allows the BlackBerry - and in theory other devices - to gobble up much less bandwidth. So routing non-BlackBerry traffic through RIM's servers would help carriers by easing strain on their networks.
RIM took a first step toward establishing the network as a standalone operation late last year with its Mobile Fusion software that gives corporate and government customers the option of linking iPhones and Android devices to their existing BlackBerry management systems.
But that does not offer outsiders the unique technology that encrypts data and pushes it out to the BlackBerry.
Balsillie developed close business relationships with hundreds of telecoms executives as RIM's chief salesman and dealmaker in the years of BlackBerry's most prodigious growth.
He was talking to AT&T Inc and Verizon Communications Inc in the United States, and Vodafone Group Plc, Deutsche Telekom AG, Telefonica SA and France Telecom SA in Europe, as well as at least one major Canadian carrier, the sources said.
RIM, which declined comment, already offers basic messaging and social media plans to BlackBerry users in many countries, something that has helped it drive growth, particularly in emerging markets.
The plans restrict Internet access to a few popular sites and are typically cheaper than the smallest per-gigabyte plan available for other gadgets.
RIM was well along the path, having developed software to deliver the service to users of the latest versions of Apple and Android operating systems. It had also studied the global potential of selling the service, one source said.
But before that could happen, RIM's new CEO Thorsten Heins, backed by Lazaridis and the board, rejected Balsillie's initiative in favor of a focus on next-generation BlackBerry 10 phones due later in the year, two sources said.
Balsillie's plan might have resonated with investors and analysts who have urged RIM to sell its hardware business as a way of salvaging some value from the company, whose shares have shed 80 percent since February last year.
RIM's BlackBerry devices have struggled to compete with Apple's iPhone and iPad and a slew of Android devices. RIM slashed more than $750 million from the value of its smartphone and tablet inventory in each of its last two quarters.
The company likely lost money on hardware sales in the fiscal year just ended, an analyst said on Tuesday.
Yet with the global smartphone boom showing no signs of abating, RIM could target a market six times larger than its existing BlackBerry base, former RBC Capital Market analyst Mike Abramsky wrote in a note last year advocating RIM split in two.
Some 1.55 billion mobile phones were shipped worldwide in 2011, of which less than one third were smartphones, according to research firm IDC. Only about 51 million were BlackBerries.
But smartphones will likely account for more than half of the 2.17 billion phones shipped in 2016, IDC said.
Assuming that RIM could sell its services for even a tiny portion of the new smartphones, while retaining its existing subscribers, its services business would expand meaningfully.
Verizon, Vodafone, France Telecom and Telefonica declined to comment. A Deutsche Telekom spokesman said the company was not aware of such a proposal.
Verizon Wireless is a joint venture of Verizon and Vodafone, while Deutsche Telekom also owns T-Mobile USA. France Telecom, Telefonica and Vodafone all have operations in emerging economies where RIM has notched most of its recent growth.
"OPEN TO ALL OPTIONS"
Balsillie and Lazaridis stepped down from their shared CEO roles in late January, and gave up roles as co-chairman of the board.
Lazaridis stayed on as vice-chair and head of a newly created innovation committee.
The pair, who together built Lazaridis' 1985 start-up into a global business with $20 billion in sales last year, handed the CEO job to Heins, a German-born former Siemens AG executive.
Heins initially said it would be wrong of RIM to focus on licensing its software or abandoning its integrated stance - where RIM ran its own software on its own phones, supported by its own network - and he certainly wasn't considering a sale.
But in late March, while reporting RIM's first quarterly loss since 2005, Heins abruptly said he was reviewing options such as partnerships, joint ventures, licensing and other ways to leverage RIM's assets. He did not rule out a sale.
"I did my own reality check on where the entire company really is," he said. "It is now very clear to me that substantial change is what RIM needs."
Those comments don't rule out talks with carriers about a plan like the one Balsillie proposed.
"There hasn't been any inconsistent 'back-and-forth' between Thorsten and carriers," a separate source familiar with the situation said, without confirming or denying that any talks had taken place.
Balsillie cut his last professional tie to the company on the day Heins opened the door to all those options, stepping down as a board director. He remains one of RIM's largest shareholders, with a 5 percent stake.
- 04-13-2012, 07:56 AM #2
Smart phone technology is moving at a extremely fast pace and RIM didn't see the need to keep up until sales started to drop. As long as BB 10 is a success RIM will survive as a major player in the smart phone industry. As much money carriers are making on the data services they are spending almost as much in infrastructure upgrades and this is becoming an issues with carriers. It will be a few more years before we know who the major players are going to be.
For the first time Verizon is charging a upgrade fee to cover some of their losses.
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- 04-13-2012, 09:27 AM #3
Carriers in established markets want to upsell data plans and make as much as they can from people, not sell cheaper plans that they have to give RIM a $5 cut on. Also if people could get BBM on an iPhone or Droid, you would see more US customers stop using Blackberry hardware, and eventually those carriers and the iOS and Droid would be able to replicate the BB offering for free and the carriers would work hard to stop paying the $5 to RIM. I am so glad this guy is gone as it is crazy thinking like this that put RIM in the predicament they are in now.
- CrackBerry Genius
04-13-2012, 09:47 AM #4
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If this is limited to RIM only devices and gets only a small portion of feature phone users to sign on then perhaps it is worth it. But ideally RIM would need a device that does not "look" like a regular BlackBerry. The Style form factor is similar to the flip phones a lot of folks still carry.
As for the carriers working to not pay RIM the $5, effectively the carriers are *already* dissuading people from buying BlackBerrys just about as hard as they can. That part can get no worse.
I do see your point as well. Because... I'd buy this device. I am paying a pretty hefty bill each month for 3 BlackBerrys on a plan from VZW. If I could get out from that 90.00/mo in data fees and go to paying oh... 45.00 I would probably do that. Perhaps what RIM would need to do is *not* allow email with the social plan. That would keep the business type users paying the 30.00.
Last edited by southlander; 04-13-2012 at 09:51 AM.
- 04-13-2012, 10:23 AM #5
Even though it was a long shot to get carriers to bite, imagine picking up a hundred million or so subs to the noc. At 5 bucks a month per subscriber, that is a lot of cha ching. If successful, I could see that reliance on hardware profits would be less important.
Would it work long term, who knows, but little seems to be working right now and at the end of the day, profit is what matters. Not thinking outside the box is what has put them in the position they are in now. You can't really fault Balsillie for looking at ways to increase the bottom line.
- CrackBerry Genius
04-13-2012, 10:38 AM #6
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Good idea combined with new hardware might of worked.
But it should of been done two years ago.
He sat back and enjoyed the ride for too long and both CO-CEOs sucked the life
out of RIM.
Too little too late. His time has past.
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- 04-13-2012, 11:05 AM #7
I don't think that this is a terrible idea.
Carriers have real bandwidth constraints because the use of data on cellular networks is exploding and increasing faster than the carriers' abilities to roll out more capacity. Plus, it may be cheaper to use RIM's services than it is to roll out more capacity.
Carriers can find different ways to price data plans to make them more attractive to consumers all the while increasing their own bottom line (and RIM's).
Frankly, this seems like precisely the kind of thing that RIM should be seeking to do. Plus, RIM would not have to throw BBM into the mix if it did not want to.
- 04-13-2012, 12:04 PM #8
I don't like the plan at all --- not because of any geek related hardware obsessiveness --- but because you can't trust carriers to do the right thing.
The iphone has proven that carriers don't know what they are doing --- that they were willingly transfered massive amounts of their profits to Apple. Carriers worked hard, carriers gets the blame and Apple get the profit.
Then years later, carriers finally realized that they are working for Apple.
This new strategy to rescue RIM will be a failure because carriers don't know what they are doing. Carriers will listen to this new strategy, acknowledges that it makes good business senses --- and then promptly ignore it because there is a brand new toy in town that the carriers instantly think that is the magical solution to gain market share off its competitors and promptly diss RIM's perfectly good business plan.
- 04-13-2012, 02:59 PM #11
The carriers didn't anticipate the huge data usage that would follow that would cut into their bottom line. And many attribute this to the iPhone but I would say both iPhone and Android because the iPhone came first. But them Android started coming out all over the place driving data usage and cost for carriers. But they certainly get benefits from having the iPhone on their network. If it was that bad, why would have it? Wouldn't they just do without it? There's obviously a reason they want it and sell it.Who cares which device is better? Isn't all that matters is that it's the best one for you?
- 04-13-2012, 04:08 PM #12
Long term, these customers sign a two year commitment and the carriers have dropped the one year early upgrade option. They have also imposed a larger early termination fee. I expect that their net earnings will increase as contracts mature.
- 04-13-2012, 04:45 PM #13
Since the iPhone Launch AT&T has had consistently lower margins,
they are NOT making it up at all in the long term, which is why they are looking for new ways to charge people
before the iPhone and smartphone craze North American Carriers amortized their contract costs over 4 years, yes devices were contracted for 2-3 years depending on your country, but few people upgraded every 2-3 years, phones lives were on a 4-6 year scale, the US carriers felt it harder than Canadians because they used 2 year contracts vs 3, and saw higher volumes of change overs faster.
The smartphone crazy has hurt the bottom line of carriers, but increased their topline,
- 04-13-2012, 05:15 PM #15
Last edited by hootyhoo; 04-13-2012 at 06:46 PM.
04-13-2012, 05:52 PM #16
- 1,119 Posts
Somewhat similar to how flat panels tvs replaced the tubes, which replace B&W.
It just a matter of the technology becoming cheap enough for everyone to afford it. Similar to how the prices of some blu-ray players are now <$100, but when they first hit the market some were priced >$500.
Consumer choice is somewhat of an illusion at certain levels. Consumers are told what's available and they decide based on these options.
- 04-13-2012, 06:13 PM #17
Also edge bands are being reclaimed so you will also lose the ability to run 2g to save battery life eventually as well...
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04-13-2012, 06:19 PM #18
- 755 Posts
These plans already exist in Canada. One can get a 100 mb data add-on plan with BBM/Twitter/Facebook/Windows Messenger and limited browsing on BlackBerry devices for about $10 (Telus has one called Flex Data Lite).
Balsillie probably wanted to sell such plans to Verizon et al in the US. But Lazaridis probably kiboshed it, fearing impact on Curve product line.
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- 04-13-2012, 06:23 PM #19
- 04-13-2012, 06:27 PM #20
using the above site you can see Verizon's profitability
Verizon Communications Gross Profit Margin (VZ)
I believe Verizon is more susceptible to Wireless losses than AT&T because hasn't AT&T been a TV provider much longer than Verizon?
- 04-13-2012, 06:35 PM #21
Even if margins declined, you have to look at overall groth in revenue and, most importantly, profit. If you sacrifice some margin for growth, you almost always make out better than if you kept margins high but did not grow.
ATT net income in 3/2007: $2.84 billion.
ATT net income in 3/2011: $3.4 billion.
If you track earnings quarter by quarter (comparing each quarter to the comparable quarter in the prior year), you will see strong growth.
- 04-13-2012, 06:43 PM #22
CEO Lowell McAdam said in a news release that while the moves might produce a quarter with smaller profit margins,they position Verizon well for the future.
“Verizon Wireless produced particularly strong growth in the fourth quarter,” he said. While that diluted wireless margins in the short term,it is good news for revenue and margin growth over the long term,particularly given our leadership in the rapidly developing 4G LTE ecosystem.”
Edit. Fixed the link.
Last edited by hootyhoo; 04-13-2012 at 06:48 PM.
04-13-2012, 07:02 PM #24
- 1,119 Posts
Innovation is ALWAYS driven by necessity. As phones become more sophisticated, battery makers are now fighting to see who can clear these new hurdles.
Batteries are big business.
A 3M innovation could boost battery life by 40% — Cleantech News and Analysis
- 04-13-2012, 07:20 PM #25
People have been claiming battery tech revolutions for years and years...
Even IF they are available, SMARTphone customers have to actually demand battery life as a high priority for it to be worth putting them in the phones.
So far the current trend is the opposite of that in the smartphone market.