The Freight Train That Is Android
“People get ready, there's a train a comin'” - The Impressions From Zacks via Yahoo: Mark Vickery, On Thursday March 24, 2011, 4:58 pm EDT “BlackBerry maker Research In Motion (NasdaqGS: RIMM - News) beat its fiscal 4Q EPS estimates by 2 cents per share …
Context & Ripple Effects
Bill Gurley's freight-train metaphor lands at an awkward moment for Research In Motion: the quarter Mark Vickery flags showed RIM beating fiscal 4Q EPS estimates by 2 cents, and a March Reuters special report noted it still held profit growth and impressive margins under competitive pressure. The financial engine works — that is precisely what makes the platform story worth watching rather than dismissing.
But the strategic picture has been deteriorating all year. Verizon spent December marketing Android as the cure for CrackBerry addiction (Verizon's Android pitch), RIM shifted resources toward cheaper entry-level handsets and lost its chief marketing officer weeks before launch, and its answer to Apple — the PlayBook tablet framed as the weapon against Apple — arrives only because RIM announced in late February that it will run Android apps. An incumbent whose flagship product depends on a rival's application ecosystem is the definition of a train bearing down.
First-order effects
- RIM enters the PlayBook launch with healthy earnings but a tablet whose headline software feature is compatibility with someone else's apps — an admission its own QNX app catalog cannot carry the launch.
- Developers deciding where to build now see RIM itself validating Android: if even the PlayBook needs Android apps, BlackBerry OS drops further down the priority list.
Second-order effects
- Carriers deepen the pattern Verizon already set, promoting Android handsets alongside — and increasingly instead of — BlackBerry devices, squeezing RIM's carrier relationships at exactly the moment it pivots to low-margin entry phones.
- Competing device makers read the same signal RIM just sent: hardware alone no longer sells, so expect more licensees to bolt Android compatibility onto proprietary platforms rather than fund their own app stores.
Third-order effects
- If the pattern holds, the industry consolidates around ecosystem owners rather than device makers — the durable profits migrate to whoever controls the app platform, while hardware vendors like RIM compete on price and distribution, a slide already visible in its entry-level handset shift.
- Regulators and partners begin treating mobile operating systems as the chokepoint of the industry: whichever ecosystem reaches critical mass sets terms for carriers, developers, and enterprise buyers alike, making the 2011 share race consequential well beyond quarterly earnings.
The trend: Smartphone competition is shifting from device economics to ecosystem gravity, with Android absorbing developer mindshare and forcing incumbents to run a rival's apps to stay in the game.