The desperate struggle for third place

Although there's little glory in bronze, BlackBerry and Microsoft are battling for the position in the smartphone market. By Alistair Fairweather.

Alistair Fairweather

Alistair Fairweather

Few people remember third place. Whether in sport, science or business, there’s little glory attached to the bronze medal. But two multinational giants, BlackBerry and Microsoft, are straining to be the third player in the burgeoning smartphone market.

The latest figures from IDC, an industry analyst, show a rapidly expanding global market for this new generation of mobile phones. Over 216m handsets were shipped during the first three months of 2013, an increase of over 40% compared to the same period in 2012.

But the lion’s share of that market — over 92% — is flowing to the two dominant platforms: Android (owned by Google and licensed to manufacturers such as Samsung) and iOS (owned by Apple). Between them, Microsoft and BlackBerry scrape together just over 6%, down from 8,4% in the first quarter of 2012.

This aggregate figure obscures important details. In quarter one of 2012, BlackBerry (formerly Research in Motion) sold nearly 10m phones. In the same quarter this year, it shipped only 6,3m units. Microsoft’s device partners, on the other hand, shipped 7m phones — more than double their total from the first quarter of 2012. That puts Microsoft in third place for the first time in nearly three years.

These numbers suggest some important industry trends.

Microsoft’s Windows Phone 8 operating system is finally starting to gain traction, reversing years of steady decline in the mobile market for the software giant. It’s unclear whether Nokia, Microsoft’s biggest device partner, is seeing any growth in its smartphone business, but increased demand for Windows 8-powered phones can only be good for the beleaguered Finnish manufacturer.

The much trumpeted launch of BlackBerry’s new line of phones, powered by the BlackBerry 10 operating system, has yet to produce any positive results. To be fair, its newest handsets only reached most consumer markets in March or April so it’s too early to see any real effects.

But two key decisions are likely to make the going even tougher for the Canadian smartphone giant. The first is its decision to exclude BlackBerry Internet Services (BIS) from BB10.

Initially conceived as a way to shield business customers from industrial espionage, BIS evolved into a mechanism for offering flat-rate, “all you can eat” data services. In bandwidth-poor countries such as South Africa, this proved a huge hit for BlackBerry, attracting millions of customers who wanted the freedom of unlimited e-mail and browsing without the fear of high data costs.

This business model always had a limited shelf life. Bandwidth prices are plummeting in most countries, making BIS less attractive to many consumers. And like any unmetered service, BIS has always been rather slow, patchy and prone to abuse. Last year, Vodacom discovered a local teenager who figured out how to download hundreds of gigabytes of data a month via the service.

Arthur Goldstuck, a local technology analyst, believes that the loss of BIS is not as deadly as it might first appear. In a recent interview he said that “initial indications suggest there is a huge appetite for current and new BlackBerry devices among feature phone users. The brand momentum for BlackBerry is still strong.”

What I think Goldstuck fails to appreciate is that BIS is an emotional proposition, not a logical one. When I talk to BlackBerry customers about the end of BIS, the reaction I see is naked fear, not rational disappointment. Horror stories of people leaving the BIS fold only to be hit with enormous bills for data are a standard trope among BlackBerry loyalists. These customers feel betrayed and abandoned by the brand.

So why cut BIS? Simple: the company has realised that it can’t offer the same quality of service on BIS that open, metered networks can. By baking BIS into its next generation of phones, BlackBerry would have crippled its beautiful new handsets. It was a difficult sacrifice for the company, but a necessary one. It’s not yet clear whether customers will see it that way.

The second decision that will make the fight harder is the opening of the BlackBerry Messenger service (BBM) to users on the other major platforms starting with iOS and Android. BlackBerry assumes that this move will make the BBM network more useful to current customers, and encourage them to stay loyal to the brand.

In reality, the opposite is just as likely to happen: many frustrated BlackBerry customers are staying only because the private BBM network they have built up over years is so intrinsically valuable to them. Now they have a way to leave BlackBerry without losing access to this network.

Microsoft has no such worries. Its core business — desktop software — is still producing healthy profits, which buys it time to experiment with its mobile strategy. It’s never had a market big enough to be worth fretting about so it isn’t hamstrung by expensive legacy systems or awkward agreements with mobile networks.

Compared to BB10, Windows 8 is a clean slate, and one that meshes neatly with Microsoft’s new desktop and “cloud” offerings. It has huge momentum in the corporate market and a six-month head start on BlackBerry (Windows Phone 8 was released in October last year).

Given its deeper pockets and richer ecosystem, Microsoft is the safer bet to take the number-three spot in the medium to long run. BlackBerry is likely to live on as a niche provider to those paranoid about snooping and in those countries where its brand is still strong. One thing is certain, though: short of a miracle, BlackBerry’s glory days are all in the past.  — (c) 2013 Mail & Guardian

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  • Skerminkel

    It is great for consumers and the future development of the industry that there is still competition in the market. A two horse-race would have resulted in one eventual winner and stagnation for a decade (ref. Internet Explorer).

    One correction, though, Android does not “belong” to Google in the same way as iOS belongs to Apple and Windows to MS. Same as a child does not belong to her parents.

  • Greg Mahlknecht

    I think it’s going to be a while until RIM hits bottom. Because they bring in little to no profit, RIM is going to want to ramp down their “Featurephone” Blackberries and transition over to BB10 devices. We’re going to have a repeat of Nokia’s Symbian->WP7 migration, which was an absolute bloodbath, but that transition is now complete for Nokia and they can start building on it. The big question is what will the BB7->BB10 conversion rate be? Based on history, I would imagine BB’s marketshare will at least halve before it turns around.

  • http://twitter.com/afairweather Alistair Fairweather

    Eish. If you’re right – which I suspect you may be – then BlackBerry is going to have a hard time staying solvent. Its cost base is pretty large, and selling 3 or 4 million phones per quarter is not likely to cover it. It’s already running at a loss ($646 million in the last financial year), so I doubt halving its revenue is going to do wonders for the business.

  • Rob Dempster

    In 1992 I dumped Microsoft for Linux. Three years ago I mostly dumped Linux (Ubuntu) for an iMac. About a month ago I bought a new iMac. While I would like one, I am yet to buy an iPhone, I simply cannot get myself to spend that sort of money on an iPhone 5 when I can get, and have a Nokia Pureview 808 for half the price. That said, what I would like to know is, what is the iPhone market share in SA? And while I am at it, which cellphone brand currently dominates with respect to the use of data in South Africa?

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