Investors and analysts are disappointed with RIM’s latest financial results and the stock has shed 10% in after hours trading. RIM reported a 32% growth in earnings, which were in line with what Wall Street predicted. Personally, if our business was reporting a 32% increase, I’d be happy and my partners would be too. However, I think RIM is starting to suffer from the same plague Apple has suffered for years.
RIM’s stock will likely regain its losses in the coming days and weeks. 32% profit is healthy, yet there are questions about RIM’s success with the upcoming PlayBook and it’s long term effectiveness competing against Apple and Android. Here’s an interesting take on RIM’s future and a concept called platform collapse: http://tinyurl.com/258fd3b I happen to agree with Michael Mace, but that’s another story.
For now, the expectations of Wall Street will come back into line with the fact that RIM is posting healthy growth and that the future is still unknown. However, I think RIM will deliver a great product from a hardware standpoint, but it’s pretty clear their QNX based OS is being rushed out the door. Over time the’ll iron out the bugs, make it more efficient in terms of CPU and battery use, and the’ll likely add many improvements and features. The trouble is that in order to compete with Apple and Google, RIM needs to not only produce great hardware and modern, powerful software, it needs and ecosystem.
A cornerstone of the appeal of iOS devices is the iTunes and App Store ecosystem. music, movies, tv shows, podcasts, books, and apps are available via an easy to use, and accessible market place built into each iOS device and every Mac. Compared to other online market places, iTunes and the App Store dominates when considering any number of statistics. There are good reasons for this and Apple’s been building this platform as a top priority for years now. Almost a decade ago, Apple saw that content delivery as the glue that keeps an ecosystem attached to a platform.
Today, Apple finds itself on a tear. Growth in earnings, profit, market share and stock price makes Apple the darling of the tech industry. Apple has outperformed Wall Street’s expectation for 19 straight quarters. In essence, it’s become a printing press for money and there’s no signs of slowing down. In and of itself, this presents a problem for competitors like RIM. Investors have gotten used to massive growth and have come to expect it from any player in the mobile space. Regardless of RIM’s long term viability, it now suffers from the same plague Apple suffered for years.
For years, as investors in Apple, we watched over and over again how Apple would report solid gains yet their stock price would drop. For years, Apple was compared to Microsoft in almost all respects. No matter how well Apple did, it wasn’t really comparable to what Microsoft was accomplishing. It took years for investors to realize that Apple had moved beyond the PC vs. Mac wars of the ‘90s and sidestepped the PC market entirely with the launch of the iPod in 2001. Apple realized it could create a future where computing really meant mobile computing and that it had a reasonable chance to own a large portion of it - perhaps even dominate it.
Now, as Apple releases the iPad 2 in 24 countries while stock-outs persist in the United States, RIM finds itself being compared to a juggernaut now worth well over $300billion.
RIM finds itself with two fundamental problems. It’s got a new OS with new hardware and it needs to sell well. If it doesn’t, their stock is going to take a beating and serious questions will be asked about RIM’s sustainability as a company. I think it’s going to be an almost impossible fight without an ecosystem that can reasonably compete with Apple. Secondly, RIM’s now expected to post massive growth quarter after quarter because Apple does. It’s going to get more and more challenging to push the needle forward on its stock price.
The difference between Apple’s tutelage under Wall Street and RIM’s is that RIM was, for years posting massive growth. Now, that growth is slowing while Apple, continues to grow at breakneck speed after years of steady, sustained growth. Essentially, I see RIM on a downward slope while Apple rides a rocket ship. It’s a straight up role reversal in the eyes of Wall Street.