How RIM Splitting Would Affect The Mobile Industry - Business Insider

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Over the weekend, an anonymously sourced story in The Sunday Times suggested that Research In Motion is considering selling its handset business, possibly to Facebook or Amazon, and licensing its enterprise messaging technology.

It might also consider accepting an equity investment from Microsoft or another large technology company.

The report comes after RIM's announcement on May 29 that it had hired bankers JP Morgan and RBC to evaluate alternatives,? "including opportunities to leverage the BlackBerry platform through partnerships, licensing opportunities and strategic business model alternatives."

RIM's handset business fell off a cliff last quarter, as it sold less than 10 million phones -- its lowest number since the third quarter of 2009. (See chart 1.)

More important, its drop in market share, from 21% in Q3 2009 to only 7% in the most recent quarter, (chart 2) will make a recovery difficult, as developers turn their attention to growing platforms like iOS and Android. A planned technology break, the long-awaited BlackBerry 10 operating system, makes developers even more hesitant to build for the current platform. Developers strongly favor iOS and Android, and are even turning to Microsoft's Windows Phone over BlackBerry for new projects, despite that platform's lack of market share traction. (Chart 3.)

So there's no question that RIM needs help, fast.

What would a RIM split-up look like, and how would it affect the mobile market?

Here's a rundown of several options:

• Amazon buys RIM's handset business. We first heard last summer that Amazon was thinking about making a smartphone to follow the Kindle Fire, and subsequent reports suggest that Amazon is moving forward with the plan. Unlike Apple and other handset vendors, Amazon's business strategy would not be based on selling phones at a markup, but instead would tie into mobile commerce: Amazon has a huge store of information about customers' buying habits, as well as millions of credit card numbers, and could use this information to roll out a competitive mobile commerce solution consisting of phones, a POS system (perhaps by acquiring Square?), and mobile daily deals (partly through its investment in Living Social). It would also leverage the mobile content and information services it's already built for the Kindle and Kindle Fire. And that's the problem: Amazon already has a set of services and mobile software built for its own fork of Android. Buying RIM would complicate matters by adding a new platform -- BlackBerry 10, based on QNX -- and would not fit into Amazon's business model of selling low-cost hardware as a way to pull through services. It seems much more likely that Amazon will work with Asian manufacturers to develop its own? inexpensive smartphone hardware.?

• Facebook buys RIM's handset business. Facebook's mobile strategy has restarted several times, but the company now seems set on building its own mobile software platform, and at least designing (if not manufacturing) its own hardware. Facebook needs to earn more money from mobile users, and depending on Apple and the Android ecosystem is risky, as it leaves Facebook's mobile strategy subject to the technology changes and business considerations of competitors. Buying RIM's handset business would immediately make Facebook a serious player in smartphones -- Facebook would effectively be buying hardware design expertise, supply chain and manufacturing relationships, a network of software developers, and a big existing customer base. Building these assets alone would take years. That said, integrating the business could be a major distraction that a relatively small company like Facebook cannot afford, especially as it struggles with a recent slowdown in revenue growth.

• Microsoft invests to gain leverage over RIM's enterprise business.?Microsoft already has a smartphone platform, Windows Phone 8, and a deep relationship with a hardware maker, Nokia. However, RIM's core strength is in the enterprise, providing a level of security for mobile email that many big companies and government agencies demand. By investing in RIM, Microsoft would gain leverage over this enterprise business, and could use it to help boost Exchange Server (Microsoft's $2 billion-per-year email server business) over already waning competitors like Novell and IBM, which RIM also supports today. Microsoft could also use this investment to give Windows Phones the same kind of secure messaging support that RIM currently reserves for BlackBerry phones, which would help them penetrate large enterprises and government agencies. Microsoft could also ensure that BlackBerry 10 is integrated with Microsoft services like Skype or Xbox Music, although this would be a secondary consideration.?

• What about a three-way tie up with Microsoft AND Facebook? This is an intriguing possibility: Microsoft could invest in or buy RIM's enterprise business, then use its relationship with Facebook (in which Microsoft owns a small stake) to help broker a deal for RIM's handset business. We've also heard that Microsoft wants Facebook to choose Windows Phone as its mobile platform, so it's possible that a three-way deal would have some tie in with Windows Phone 8, too.

• RIM licenses its secure messaging technology broadly. The big winners here would be Google and Apple. Apple and Android smartphones are already finding their way into enterprises through end-users (a phenomenon known as BYOD, or "bring your own device") and IT departments are being forced to figure out how to manage them. If RIM licensed its secure messaging technology so Apple and Google (or its Android partners) could offer the same level of security that RIM offers to BlackBerry devices, the BYOD invasion could become a rout. Google could particularly benefit, as it already has a suite of enterprise apps; adding military-grade mobile security to Gmail would be a huge selling point.

There could also be some wild-card scenarios, like a possible Microsoft acquisition of Nokia in conjunction with an investment in RIM, or RIM pursuing a much more aggressive patent-licensing strategy.

However it ends up, despite RIM's current problems, the company has been shipping around 40 million smartphones per year and still has a sizable percentage of the handset market. Putting that business up for sale would change the dynamics of the mobile industry.

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