RIM bets on quality, not speed, as it fends off death spiral

In an interview with CNET, a RIM executive defends the company's decision to delay the release of BlackBerry 10. But will it arrive too late?

RIM CEO Thorsten Heins at BlackBerry World in May Brian Bennett/CNET

With unprecedented losses, evaporating market share, and enough competitive pressure to smash it into irrelevancy, you'd think Research In Motion would show a bit of urgency.

In fact, it's showing quite the opposite.

Rather than rush out a half-baked product, the company said last week that it would push back the debut of BlackBerry 10 from later this year to the first quarter of 2013. Company executives say they believe the extra time will pay off with a more complete product.

"Doing it right is more important than doing it fast," Richard Piasentin, RIM's managing director for the U.S., said in an interview with CNET. "We won't release a subpar product."

It's an attitude that makes a lot of sense from a product development perspective and is an admirable move by RIM. The company is gambling that the extra time and effort will pay off in a more polished product that can turn some heads and win back old BlackBerry users. RIM knows the company's fate is riding on the success of BlackBerry 10.

The decision, however, puts RIM in an even more tenuous position. Even if BlackBerry 10 is a stunning jump from the current BlackBerry 7 operating system and can actually be the platform for multiple devices that CEO Thorsten Heins envisions, the gap between then and now leaves a lot of room for its competitors to race further into the lead, and for consumers to forget the BlackBerry name. The product delay only heightened the skepticism about the company's comeback attempt and ability to continue operating.

RIM is following a strategy "that we believe has a very low likelihood of success and that will most likely drive RIM into irrelevance," said Nomura Equity Research analyst Stuart Jeffrey. "If RIM continues to be run as it is, we believe that the company will eventually fail."

In addition to the delayed launch, RIM last week reported a loss for the fiscal first quarter and warned of further losses in the coming quarters. While the company is focused on preserving its base and generating cash, many are wondering how long it can sustain itself.

Fighting spirit remains
Ask Piasentin, however, and he says he remains excited about the opportunities BlackBerry 10 brings. He believes there's still a base of loyal BlackBerry users who are eagerly anticipating the next-generation platform.

His attitude echoes Heins' recent comments, in which the CEO denied there was anything wrong with the company and dismissed the notion that it was in a death spiral.

The comments are equal measure exuberant optimism and delusion. While the executives remain upbeat in their sentiment, it's hard not to draw comparisons to the stance taken by former co-CEOs Mike Lazaridis and Jim Balsillie, which took an "everything's fine" view of the company even as it began to falter.

Heins last week pegged the BlackBerry 10 delay on the additional time required and volume of work involved with integrating the software and features with the QNX platform.

In defending the decision to delay the launch, Piasentin told CNET he believes the additional time will pay off for RIM.

"We're in this for the long haul," he said. "These are important decisions for preparing the company for the long term."

He said the work force's "fighting spirit is palpable" and added that employees remain relatively upbeat despite the company's plans to cut 5,000 jobs, or a third of its staff.

"They understand the difficult decisions we've had to make," he said, adding that employees are excited by the new management team, and that the company continues to invest in important areas such as BlackBerry 10.

'Highly dynamic market'
Piasentin describes the U.S. market as a "highly dynamic" one and an exciting time for the industry. Critics would argue that it may be too dynamic and fast moving for RIM.

The next few months will see the debut of several high-profile smartphones. Samsung Electronics' flagship Galaxy S3 has already proved to be a juggernaut overseas and is likely to make big waves in the coming months at all of the U.S. carriers.

Apple, of course, will debut its next iPhone, widely believed to feature a new design, bigger screen, and the ability to tap into the 4G LTE network.

Microsoft might even be able to spark some excitement for its Windows Phone platform with the debut of its Windows 8 operating system, which ties the mobile and desktop environments together.

Throughout it all, RIM will be virtually silent with no major new products in the market.

Avoiding past mistakes
Still, perhaps a bit more time could benefit BlackBerry 10 greatly. That RIM is delaying a product isn't new. The company has had a mixed history of getting products out on time, with devices including the original Bold facing longer-than-expected review processes with carriers.

"RIM's history with product timelines does not inspire confidence," said Jeff Kvaal, an analyst at Barclays, who noted the QNX smartphones were initially supposed to debut in the second half of last year.

But the times RIM has rushed out a product resulted in embarrassing gaffes. Under pressure by Verizon Wireless to put out an iPhone competitor, the company launched the BlackBerry Storm, its first touch-screen phone, during the 2008 holiday season. The much-buzzed-about device was plagued with glitches and a "SurePress" button display that actually hurt the user experience.

RIM had been riding high with hit phones such as the BlackBerry Bold, the Curve, and the consumer-friendly Pearl, but the Storm was a big black eye and a product that dented its reputation for quality products. Its sequel phone, the Storm 2, got only nominal advertising support from Verizon, which at that point had moved on to Android.

A more recent example was the rushed PlayBook tablet, which initially debuted without access to BlackBerry's much vaunted corporate e-mail, calendar, messaging, and contacts features. The lack of such key features hamstrung initial sales and dashed the company's tablet ambitions. Though the company has said it will continue to support the PlayBook, the product has clearly taken a back seat to BlackBerry 10 smartphones.

Going low end
RIM plans to stay in the headlines by introducing new, low-cost BlackBerrys into the market.

The company said it would begin selling the Curve 9310 for $99.99 on July 10 through prepaid carrier Boost Mobile, a unit of Sprint Nextel. Piasentin said RIM plans to unveil more carrier and phone announcements by the end of the summer.

By going after the low-end market, RIM is attempting to attract cost-conscious consumers looking to upgrade from a basic phone to a smart one.

The problem is it's following a strategy many other companies have tried and failed at.

"Management seems intent on sustaining its customer base through aggressive discounting, even though this approach has failed for Nokia, Sony Ericsson, and Motorola, among others," Jeffrey said.

Part of the problem is that there are too many low-end Android smartphones already in the prepaid market, which have access to the same hundreds of thousands of apps as any high-end Android device. Apple has gotten into the prepaid and low-end game, offering up its phones at every prepaid carrier, and selling its older models at a lower price.

A focus on enterprise
Big business, government agencies, and other entities that value security still remain faithful to BlackBerry, something RIM is counting on. Piasentin insists there's a core base of loyal BlackBerry users that will return for BlackBerry 10.

For now, RIM hopes to keep sales in the U.S. alive by upgrading older BlackBerrys to newer BlackBerry 7 devices.

"We are still upgrading our enterprise customers towards BlackBerry 7, and making good progress with this," Heins said during the company's conference call last week. "I expect us to be successful in bridging this gap and protecting our installed base through those measures."

The bring-your-own-device trend sweeping over businesses has enabled consumers to choose what smartphone they want to use, which has generally been bad for RIM. But the company believes there are enough businesses that still require BlackBerrys that it has a shot at defending its customer base.

Piasentin was quick to note that RIM still serves 90 percent of the Fortune 1,000 and there is tremendous loyalty at those companies.

"Our customers are pulling for us," he said.

About the author

Roger Cheng is the executive editor in charge of breaking news for CNET News. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade. He's a devoted Trojan alum and Los Angeles Lakers fan.

 

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