Think Tank Roundtable: Should Microsoft Move in on RIM?

Speculation that Research in Motion is now an acquisition target has emerged again—this time fueled by its dismal first quarter performance (CP: BlackBerry fallout: Does RIM have a plan?). Bloomberg fingered both Dell and Microsoft as possible buyers, a prediction that has been greeted with a mixture of enthusiasm and derision from various commentators. In this debut edition of a new Connected Planet feature, we’d like to explore one of those possibilities in more detail, with the help of experts from around the industry.

While Dell is certainly an interesting prospect, it isn’t the mobile soap opera that is Microsoft. The software giant has been formulating—some would say blundering—its mobile strategy for more than a decade, going through multiple iterations of smartphone operating systems and experimenting with being a device vendor. With Windows Phone 7, Microsoft feels it has a winner, though initial WP7 device sales have yet to bear that out. It is banking on a strategy of partnering closely with manufacturers, most notably Nokia, which is dumping its Symbian OS in favor of Windows (CP: Nokia CEO says Microsoft deal will create mutual dependency).

But how would a buyout of RIM benefit or complicate that new strategy? What would Microsoft be buying exactly? A respected and established product line to serve as a vehicle for WP7? BlackBerry’s corporate-entrenched BlackBerry Enterprise Server (BES)? Would it be buying access to RIM’s customer base, or it would it merely be buying a brand? Would becoming a competitive handset vendor upset the delicate balance it has established between itself and licensing partners like Nokia?

We’ve brought in three guest columnist to help our editors answer those questions and more. We ask our readers to add their own thoughts in the comment section below.

PAUL THURROTT, editor at Paul Thurrott’s SuperSite for Windows

For starters, I don't see Microsoft making a bid for RIM. But in the unlikely event that this does happen, the first thing Microsoft should do is integrate BES right into Exchange so that a separate server is not required (or add cost to the equation). It could then position BlackBerry devices as its enterprise solution, called Windows Phone Professional, and work to bridge the two lines' technologies through a common set of C#/Silverlight application programming interfaces. Then Microsoft would merge the two product lines as well.

I don't see a future for the BlackBerry brand, no matter what happens to RIM.

And this would simply force the consolidation that is already happening. The mobile market is going to be a three way race. BlackBerry is either is not going to be part of that race or will be a distant fourth that only services niche government and corporate needs. (Both markets are already moving to iPhone/Android as it is.)

AVI GREENGART, research director for consumer devices at Current Analysis

First off, rumors of RIM's death have been greatly exaggerated. Sales and profits may be down, but RIM is still a top volume seller of smartphones and RIM is still profitable. However, RIM is facing unprecedented challenges. Even in the best of scenarios it faces a rocky transition from its current aging OS to QNX – and simply offering QNX won't be enough, RIM has to make it attractive for consumers to buy it instead of iOS or Android, and needs developers to support it. RIM has made the transition worse with executive management that make statements that defy belief and other times defy comprehension. This can't be good for investor confidence. If the stock drops enough, the company will undoubtedly be in play.

RIM has three main assets a buyer might be interested in: the brand (which is not nearly as tarnished as some pundits seem to think; a BlackBerry is still the iconic device for productivity); RIM's NOC-based enterprise security infrastructure; and BBM, which is driving 67% sales unit growth outside North America. Given that list, Dell is a much more interesting suitor than Microsoft. Dell has been focusing its handset business outside the U.S. already where BlackBerry/BBM would be an accelerator, and BES would make a nice complement to its server and service businesses.

KEN HYERS, senior analyst at Technology Business Research

I think RIM brings a lot to the table for a tie-up between the two, but for now RIM will resist an acquisition by Microsoft. RIM will have to feel more pain before it’s willing to consider the unthinkable. But if RIM's sales continue to shrink, they’re likely to rethink their position regarding a merger.

Some enterprise surveys that we’ve been doing show a growing trend of companies allowing employees to use their own devices to access internal corporate data, and this is accelerating the trend away from Blackberry as employees pick Android phones and iPhones over RIM devices by ever widening margins. I think Microsoft is in a good position to benefit from this trend as well, since the new Windows Phone 7 OS is quite user friendly and the Microsoft brand is trusted by IT managers, making an appealing combination for the workplace. Blackberry phones, on the other hand, despite having a highly capable email system, have a user interface that is probably the least user-friendly of any major phone OS, which is contributing to consumer flight from the devices. As employers continue to allow more employees to choose their own mobile devices, RIM’s share will continue to decline.

There could be a place for the Blackberry maker in either Microsoft or Dell’s portfolio, but it would be an expensive and potentially distracting purchase. RIM’s value for a potential acquirer is in BES and its software, not its handset business. Dell could potentially integrate BES into its Mobility Services’ Mobile Device Management solution, and Microsoft could integrate it into Exchange.

One other thing to keep in mind is that it’s not obvious that the enterprise is Microsoft’s main mobile focus anymore. They’ve gone down that road in the past, and haven’t taken a commanding position in enterprise. Windows Phone is clearly much more consumer-focused than past efforts by Microsoft, and it’s in that segment that they are hoping for the strongest growth. It’s just not obvious that they would want to expend the dollars and the effort required to acquire RIM right now – it’d be a pretty big distraction at a time when they are fully focused on executing on their current vision and on the Nokia partnership.

KEVIN FITCHARD, senior editor at Connected Planet

For me the big question is whether Microsoft interest—assuming that there is any—lies in RIM’s enterprise reach and messaging platform or the BlackBerry devices itself. Microsoft might be tempted to become a device vendor, giving it an enterprise-focused handset flying the Windows banner. The danger is that any gains Microsoft achieves from offering its own devices would be lost on the licensing side of the business.

We’ve been through this before. As Nokia took more and more control over Symbian, the operating system’s other licensees fell off, eventually leaving Nokia as Symbian’s sole champion. Microsoft doesn’t want to alienate its partners, and competing directly against them is a good way to do it. Microsoft might keep BlackBerrys focused solely on the enterprise space as a way to appease its partners, but I doubt those WP7 licensees want to cede the enterprise space either. One of the big reasons they probably picked up WP7 is to gain share among business users.

There seems to be only two options for smartphone software vendors today. Stick with software and license it as Google and Microsoft both do today. Or become a vertically integrated vendor, making your OS privy to your own devices like Apple, RIM and HP. Attempts to do both have failed. Sure, Google made a few Nexus phones, but those were really just showcase devices, not a serious attempt to challenge Android’s licensees. Nokia and RIM’s previous attempts to license software or services went nowhere. There’s no big incentive to support your licensees and as Palm demonstrated way back when there’s more of an incentive to acquire your licensees if they’re successful.

Would Microsoft ever consider becoming a vertically integrated vendor like Apple, shutting out other licensees? It’s highly doubtful considering the huge deal it signed with Nokia, but if it were to be so bold, RIM would be the wrong company to buy. The BlackBerry has huge penetration into the enterprise, but it’s a bit player in the consumer markets. If Microsoft were to go it alone, it would need a handset arm with enormous reach. It would have to buy Nokia.

RICH KARPINSKI, editor-in-chief at Connected Planet

The notion of that it is somehow important that Blackberry is an “enterprise” solution or brand is a quaint one – and quite dead. IT these days must support the phones and platforms the execs--not to mention line-of-business employees--want. They can’t dictate platforms any more. Has any other vendor really stepped up and built the enterprise-class messaging and NOC-based security infrastructure to replace what RIM built, as Avi mentioned? Not really, though of course Microsoft has all the pieces in the back-office if not the winning platform (yet? never?) in users’ hands.

It’s also interesting to see Blackberry’s iconic form factor fade into the sunset. Outside of the Droid Pro (“pro” I assume in that it duplicates the hardware style of the Blackberry), you just don’t see the Blackberry keyboard style being emulated any longer.

I agree also with Kevin that Microsoft has made its bed now with Nokia, a Blackberry purchase would only confuse matters.

Finally, what does all of this mean for CP readers: telecom service providers and mobile operators? They liked Blackberry for its help in getting early smartphone devices into the hands first of extremely high-value enterprise users and then, with versions like the Bold, into consumers’ hands as well. Before data plans were flying off the mobile virtual shelves, Blackberry messaging plans offered better margins with much less network impact. Today’s smartphones and tablets complicate the device-operator relationship in so many different ways (mainly by generating so much more network data traffic), that I’m sure operators will look back nostalgically at the good old days – and good old days they will soon be – when they did business with a device maker whose business model wasn’t designed flood their networks, route around them and turn a buck on their backs.

MICHELLE MAISTO, contributing editor at Connected Planet

Microsoft's at the beginning of something big with Nokia that I think both companies believe will pan out. I'd be shocked if they broke their focus or diverted resources before they had a chance to test their new strategy.

I'd also be a little surprised to see Dell go for RIM, though it could be a good, smart fit. Dell, which has fumbled and bumbled on the consumer devices front, is aggressively, and successfully, focusing on the enterprise, and purchasing RIM could enable them to continue that focus while enhancing its ability "to participate ... in the highly profitable, $100 billion smartphone and connected mobile device market"—as HP described its motivation for purchasing Palm in July 2010.

That said, while RIM's limping, I don't think they're out of the game. They have a plan--which very well may be a good plan--but they're testing everyone's patience with the time it's taking to execute it. And even when that plan finally does come to fruition, they're going to need to surprise everyone with some great-looking devices--which they've failed to do in the past at clutch moments. Some of our readers have expressed such a strong affinity for their BlackBerry handsets that it's not a matter of shopping for a smartphone but for the latest BlackBerry, and I think they're not alone. RIM has a base of true-blue fans, even as enterprise IT eases up on pushing BlackBerrys. I don't expect RIM to win or come out on top, but I do expect them to stay in the game.

AVI GREENGART, research director for consumer devices at Current Analysis

1.    If history is any guide, Microsoft definitely would consider destroying its licensing business and build its own hardware: it has done so already with Zune, which killed off Plays For Sure. Microsoft also tried/failed to create a messaging-centric phone brand using the integrated model (KIN) which would have competed with its Windows Phone licensees. Of course, you'd think Microsoft would have learned by now that it isn't usually good at this sort of thing. Even though the Zune HD is arguably a better music player than the iPod, and the Zune Marketplace assets are extremely valuable for both Xbox and Windows Phone, the Zune itself has not sold well. The KIN… that story didn't end well. It would be a terrible idea to buy RIM and abandon -- or even try to supplement -- Windows Phone 7. But just because something makes no sense doesn't mean we can categorically rule it out.

2.    RIM's brand image may still be tied to productivity, but the BlackBerry is actually a bigger consumer product than an enterprise one. As of last year, the majority of RIM's subscriber base were not connecting through a BES, and an even higher percentage of all new subscribers since then are consumers. RIM's enterprise business is not growing, its consumer business in North America is shrinking, but its consumer business outside the U.S. is positively exploding. Investors aren't happy because the lost North American sales were more profitable than the entry level Curves being sold to in Latin America and Asia, but don't kid yourself, RIM mostly sells BBM phones to consumers. I'm not a financial analyst, but I have to assume that its valuation takes this into account, and anyone buying the company just for the enterprise base will require a steep discount.

What do you think? Add your thoughts in the reader comments below. TKS.