RIMM - A Case of Mistaken Identity?
Note: this post was
carried this morning on Wallstrip
Overview – I Am The Blackberry Poster Child
Now this is a post I can get into. Boy, do I ever know this company’s
product! I was an early adopter of the Blackberry during my days as a
derivatives pro. I remember when I had my first tri-band Blackberry that came
with me to London, Paris, Hong Kong and Tokyo.
It was all magic as far as I was concerned. I am now on my fourth Blackberry,
having just upgraded to the 8700. Pretty cool is all I can say. For me, that
is. I am an admitted “Crackberry” business geek – power email user (type 40
words a minute with my thumbs, no kidding), love it for opening attachments,
quickly accessing the internet, and NO PICTURES. Whenever I think about the
Treo or any of the other devices out there, I cringe. I just can’t live without
my Blackberry. In the immortal words of the Governor of California, “There is
no substitute.” Poor fools like me look like the dude in the picture in a post on
NPR, catching a downward glimpse of the screen in a meeting sometimes called
the “Blackberry Prayer.” What can I tell you – it helps me manage workflow,
man. Just the way I like it. Some call it jail – I call it emancipation. That
said, there are more people with iPods than there are Blackberrys, and therein
lies the issue for the stock.
Issue #1 – If I am the Blackberry Poster Child, then Blackberry is NOT
COOL
So what does that mean for growth? It seems to me that the big growth
opportunity for RIMM, when you really get down to it, is in the consumer
market. This is a company whose identity has been built on being a provider to
business, and a very good one at that. The device is ubiquitous, particularly
in finance, investment banking and trading, but is also heavily used in
businesses of all stripes. As a result, RIMM has created a pretty enviable and
deep market position in the business space. The problem, is, however, that how
do you go from being perceived as an uncool workaday warrior tool to a hip
vehicle for individual expression (are you getting the parallel issues here to
yesterday’s post?). RIMM isn’t Apple, you know, and those Canucks running the
show ain’t no Steve Jobs, either. Sorry guys – you know it’s true (and if you
don’t, then I truly am worried). But I will say that RIMM is trying. It is only
that when you get funny support from the Street that is both fawning and
seemingly out-of-touch with reality that my bullshit meter starts flashing red.
And it is flashing red right now with respect to the Pearl.
Issue #2 – Analysts on drugs?
Eric Savitz, a writer for Barron’s posting on Seeking Alpha, wrote of Merrill Lynch
analyst Vivek Arya’s pure love of the Blackberry Pearl:
Merrill Lynch’s Vivek Arya loves the Research In Motion (RIMM) Pearl. I mean, he’s
ga-ga. In a note Monday, Arya said the Pearl is “a unique combination of design
and functionality and can be a game changer like Apple’s (AAPL) iPod and
Motorola’s (MOT) RAZR, in our view…[the Pearl] platform extends RIM’s earnings
momentum till at least 2008, warranting a longer term view on the stock.” With
the Pearl, he writes, the company has extended its reach from the enterprise market to the
“4x larger consumer space.”
Ergo, Arya on Monday raised his price target on the stock to $135 from $110.
That’s the first time’s he raised his price target on the stock in, uh, 10
days.
Arya says that according to T-Mobile, “Pearl sales are well ahead of all internal forecasts.” He notes that the phone will launch with Cingular in November and Verizon in 2007; he also expects a version with a full QWERTY keyboard in 2007.
Arya estimates that the company generates profits of 29 cents a share for
every 1 millon Pearls it can sell. “We believe the Pearl will be a platform, not just a device,
much like Apple’s iPod and Motorola’s RAZR,” he says.
Aside from whatever you might think about Arya’s confidence in the stock, I
find his belief in the equation iPod=RAZR=Pearl to be kind of hard to swallow.
For a product that just started selling, that seems like an enormous leap of
faith.
All I can say is “thank G-d.” I’ve read Eric for who knows how many years,
and have always enjoyed his writing and his insights, and I’ve got to say that
he and I are on the same wavelength. Vivek, are you kidding? Have you been
partaking in prodigous amounts of Molson’s and Labatt’s? I mean, the Pearl is a nice device,
but a game changer for RIMM? How can you possibly compare this to the iPod?
Anyway, you get my point.
Not to cast aspersions, but did you know that Merrill and RIMM have had a
long-standing relationship over the years (Lead Underwriter along with Lehman
Brothers in 2002)? So I can kind of pardon Vivek for his unbridled enthusiasm.
Now I can accept a comparison to Motorola; I’d have let that slide. But to
Apple? Did you read my post yesterday? Truly capturing the consumer market is
f@cking hard! It takes brilliance in product, packaging, production and PR, and
Apple has it all. I’m afraid to say I can’t repeat those words for RIMM. So you
are targeting the smartphone market. The boys running that fruit company in Cupertino are also
targeting the smartphone market. They’ve seen that you’ve put a music player in
your phone. Very nice. You’ve also added some other neat stuff as well -
popular access to internet messaging clients, and a camera to boot. Which says
to me that you are aiming squarely for the young adult and not the enterprise
email user for a change. Now you’re going after the big boys, guys. It’s
showtime.
Issue #3 - A Case of Mistaken Identity or Do Youz Got Da Goods?
The Blackberry Pearl is the first model offered by Blackberry with a real
creative campaign behind it. There are four major themes in their marketing
campaign: Beauty, Inspiration, Function, and Life. For kicks check out the site. Click on the Life section. See
the people profiled as the representative users of the Pearl. Should be cool, right? Should convey a
hip, MySpace image, right? Well it doesn’t. At least not to me. Where’s Bono? Where’s Paris Hilton? Where’s freakin’ Oprah, for chrissake? This ain’t cool, dudes. And if you can’t get your version of cool past me you’ve got some big, big problems.
So what is “hot.” Am I being harsh? Well, how about Paris Hilton and the new
Sidekick “It’s Hot” campaign? What about the Sony Mylo, recently profiled
in Gizmodo. Now the Mylo - THAT’S hot. I know hot when I see it. And we haven’t
even talked about the iPhone yet. So, suffice it to say, there is no shortage
in the competition for the much sought-after consumer.
Shifting from utilitarian to cool just isn’t easy. So is it me? Let’s see
what some other folks have to say.
BusinessWeek had a nice
take on the SideKick 3 — which for me outlines the problem that Blackberry
faces:
As much as T-Mobile has modified Sidekick so it can take on Research In Motion’s
(RIM) very grown-up BlackBerry, the third iteration is still geared toward
teens and young adults.
From the International Herald Tribune, speaking
of the Pearl:
The Pearl, named for its glowing navigational trackball, is the first BlackBerry geared
more fully toward consumers. It’s the first with a digital camera and a slot for a MicroSD mini-disc to store songs, photos and video games — the sort of recreational functions that RIM has stoically deemed nonessential or even counterproductive for the corporate user market.
David Pogue wrote an interesting piece
in the NY Times:
White-collar types on both coasts have become addicted to the BlackBerry,
thanks to its ability to display e-mail instantly as it arrives — and to
synchronize with your computer back at the office over the air. Delete a
message on the phone, and it disappears from the PC at work.
People with collars of other colors, however, never really saw the point.
The BlackBerry’s Tom Thumb alphabet keyboard offers fairly quick typing, but
consumers weren’t much interested in a phone as wide as a wallet that doesn’t
play music or take pictures.
And therein lies the issue. The Blackberry will likely always be perceived
as the Adult Device. There is absolutely nothing wrong with that, except when
you are trying for the larger, trendier, more fickle consumer market, which
requires a different set of skills in order to achieve success. RIMM is a good
company that makes good products. The issue is, are they moving beyond their
core competency to access the consumer market, which can, over the long run,
damage their core business franchise? Sometimes going for the gold can leave
you without a medal. Let’s hope that they don’t squander the silver and end up
with nothing. Bottom line - know who you are and what you are good at. Merely
chasing a large market doesn’t mean you will catch it.
Thanks again to Rob Passarella for his research assistance and support.
The author does not have a position in the securities of RIMM.
