Monday, April 18, 2011

Why RIM leaned on Google in its war with Apple

There are some 400,000 apps for Apple’s iPhone, iPad and iPod Touch lines. By comparison, there are just 25,000 for RIM’s BlackBerry. By designing the PlayBook to handle Android apps, RIM has just added 200,000 more to its mobile ecosystem.

The question is: At what cost?

The strategy – which marks a significant departure from RIM’s traditional “quality over quantity” approach to mobile apps – could have several-longer term implications, both positive and negative, for the company.

In the near term, the Android strategy is aimed at making the PlayBook a more appealing option compared to Apple’s iPad, which currently leads the industry, and other tablet competitors, such as the Motorola Xoom.

PlayBook users will be able to download software that effectively acts as an Android sandbox within the tablet’s new operating system, called QNX. (An operating system is the main piece of software on a device that allows all other software to function.)

The purpose of that design is to allow users to access Android apps, while still retaining the PlayBook’s security features, which are also present in the BlackBerry and are major selling point for corporate clients looking to keep their communication and data safe.

On its face, the Android strategy seems to clash with RIM’s philosophy, which is grounded in the concept of the “super-app.” The company defines such apps as pieces of software that take advantage of several of the BlackBerry’s (or PlayBook’s) strengths and functions, such as multimedia, e-mail or calendar services. The best example of a super-app is the BlackBerry Messenger, which has attracted tens of millions of users and is now a major reason why many consumers – especially younger consumers – choose the BlackBerry.

Indeed, even as RIM co-chief executive officer Jim Balsillie announced the Android strategy during a conference call with analysts on Thursday, he seemed torn between quality and quantity of apps, saying he was not a fan of the “app tonnage” argument, but that, nonetheless, users who wanted lots of apps to choose from will now be able to do so on the PlayBook.

Whether consumers respond to that pitch is yet to be seen. But the practical impact of RIM’s move is that the PlayBook now has one of the most broad developer environments of any mobile device.

“Opening up the PlayBook is a very significant shift,” said independent technology analyst Carmi Levy. “This opens them up to an entire slice of market that had been interested in Google's solutions and might now be interested in the PlayBook.”

The strategy does come with a risk, however – that developers of software applications will give up on designing apps that are made especially for RIM products and focus just on Android apps, which can also run on myriad competing devices such as Samsung’s Galaxy tablet.

“Ultimately, we believe it depends on the uptake of the PlayBook tablet,” said UBS analyst Phillip Huang. “If the tablet is as successful with enterprise customers as RIM claims due to the performance attributes of the … PlayBook, then perhaps developers will find enough reason to develop apps to run natively on the PlayBook.”

Mr. Balsillie sought to play down such fears on Thursday, and there are several trends that support his assertion. Though RIM’s sales have increasingly veered toward the consumer segment, it still maintains a dominant position in enterprise, or business, smart phones. Businesses tend to upgrade their devices according to certain cycles, and most are unlikely to alter those cycles significantly one way or another. RIM also has tens of millions of existing BlackBerry users, meaning developers will continue to have reason to build BlackBerry-specific apps.

In terms of app revenue, it is unclear just how much of a money-maker the Android strategy will turn out to be. Google doesn’t typically make money from app sales. Instead, about 70 per cent of revenues go to the app developers, with the remaining 30 per cent split between carriers, device manufacturers and processing fees. RIM also gives developers roughly 70 per cent of traditional BlackBerry app revenues.

In the short term, customers will look to see how well Android apps actually run on the PlayBook – both as a way to see if there’s a significant drop in the user experience and as a means to gauge the power of the tablet’s hardware and software. In the long term, RIM may well choose to outsource run-of-the-mill apps to Android developers, and concentrate on facilitating RIM-specific “super apps” as a way of differentiating its products – effectively trying to have the best of both worlds.

“RIM has chosen to tie itself to an established leader that has momentum [rather] than to go it alone and risk it,” Mr. Levy said. “It's a smart strategy by RIM because it hedges the company's fortunes as it moves away from the legacy BlackBerry system.”


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