RIM sure is having a rotten year. After the company released another round of disappointing quarterly results in late June, one analyst described it as “ice cream in the sun.”
The tech giant has had a rough ride lately, and some have accused Canadian Business of being part of a gleeful doomsday chorus. While it’s true we declared it was all over for Research In Motion as early as last summer, we took absolutely no pleasure in the prospect. A year later, I’m sad to say I still don’t see a bright future for RIM (now rebranded as BlackBerry), but it’s got nothing to do with the company’s latest numbers. The problem is, smart phones are about to turn a corner: within the next 12 months, they’ll hit saturation in the U.S., and the whole market will hit the brakes.
Think I’m calling it too soon? Consider that the larger global mobile phone market has already peaked. In 2012, mobile phone sales (including smartphone sales) actually declined by 1.7% over the year before. Sure, the smartphone sub-sector is still growing, but the time from introduction to saturation (defined as 75% U.S. household penetration) for any new device is getting shorter and shorter. The MIT Technology Review points out that it took almost a century for landline phones to reach saturation, while mobile phones did it in just 20 years. So how long will it take for smartphones to level out? MIT estimates 10 years. That puts the turning point at about … now.
Once we hit saturation, smartphones will cease to be a hot new technology product driven by features and innovation, and instead become a commodity, like LCD flat-screen TVs or personal computers, largely sold on price. Being first and being innovative will mean less and less, and today’s market leaders—I’m looking at you Samsung and Apple—will start to lose share. If all of the smartphones on the market have essentially the same quality screens, processors and cameras, why pay $600 when you can get the same device for $400?
And in fact, we’re already seeing that happen. When global smartphone leader Samsung launched the Galaxy S4 in March, expectations were giddy. Now, just four months later, analysts are cutting their earnings forecasts, and investors are so concerned, Samsung has seen an astounding $30 billion in market value vaporize in just a few months. Apple, too, has seen its stock slump from $700 last September to less than $500, as investors realize lofty expectations for iPhone sales will never be met.
So where does that leave RIM? There’s nothing wrong with its latest phones—as promised, the new Z10s and Q10s were indeed innovative. The problem is, that matters less now. Any new feature that resonates with consumers, such as BlackBerry’s timeshift camera, will quickly be incorporated into competing phones, levelling the playing field and putting the focus back on price.
RIM could live on as a niche player, but the winner in the global mass market for smartphones will be the company that can produce the highest number of phones for the lowest cost. Unfortunately, when you’re competing with massive corporations based in China and Korea, no Canadian company has a chance.
Unless of course, you’re so innovative that you come out with a totally different product. That’s what the future of Apple is riding on: not a better iPhone, but creating another revolutionary device like the iPad. Is RIM trying to do the same? They’ve done it in the past. Maybe they can do it again.
Duncan Hood is editor of Canadian Business magazine