RIM signals price war potential; Fallout could be substantial
Research in Motion's second quarter sounded alarm bells and may have signaled a smartphone price war, according to analysts. The company's contention that it would target a ‘more mainstream’ market was viewed as a sign …
Context & Ripple Effects
RIM has been drifting toward this quarter for two years. Its late-2007 push into touchscreen BlackBerrys was the company's first bid beyond the keyboard-and-enterprise base, and by October 2008 the open question was whether a deepening downturn would leave RIM rotting along with the economy it sold into.
Against that backdrop, the second quarter's alarm bells among analysts are less a surprise than a confirmation. What changed is the language: RIM's stated intent to target a 'more mainstream' market is being read — analysts' interpretation, not a company commitment — as the opening move in a smartphone price war whose fallout they expect to be substantial.
First-order effects
- RIM's own roadmap now points downmarket: winning a 'more mainstream' buyer means lower average selling prices per BlackBerry, straining the revenue-per-device math behind its subscriber growth.
- With the quarter already having sounded alarm bells among analysts, RIM faces immediate pressure to prove that cheaper devices add subscribers fast enough to offset thinner margins.
Second-order effects
- If RIM prices into the mainstream tier, rival smartphone makers face pressure to match on entry-level pricing, turning a device-differentiation contest into a cost contest.
- Cheaper BlackBerrys aimed at the mass market give carriers more substitutable hardware to choose from, strengthening their bargaining position over subsidies and shelf space.
Third-order effects
- If the pattern holds, the smartphone industry's center of gravity shifts from premium enterprise niches to volume economics, rewarding manufacturers whose cost structures survive at low price points and squeezing those built around high-margin flagship devices.
The trend: Smartphones are crossing from a premium niche into mass-market price competition, with RIM's downmarket pivot an early indicator of incumbents trading margin for volume.