Environmental Scan:

Research in motion

(2010 – 2012)

Spring 2010Marketing Strategy

Table of Contents

Introduction……………………………………………………………………………………………………..3

Product Market Structure and Justification………………………………………………………4

Macro-Environment Trends……………………………………………………………………………. 6

Micro Environment Trends…………………………………………………………………………….. 11

Implications of Macro/Micro Environment Trends…………………………………………. 15

Conclusion……………………………………………………………………………………………………… 18

Appendices………………………………………………………………………………………………………19

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IntroductionThe purpose of this paper is to present a detailed Environmental scan, covering the next three years (2010-2012), for Research in Motion (RIM), the company whose portfolio is comprised of a single brand: BlackBerry, and all the services that revolve around it. Rather than focusing on a particular device under the BlackBerry hierarchy, the Strategy encompasses the entire BlackBerry “Umbrella Brand”. The methodology for this paper will be to first present the Product Market structure & define the Relevant Market, followed by a detailed analysis of the major macro and micro environmental trends, the strategic implications of those trends in terms of the Product Market Structure, Primary & Secondary Demand, Segmentation, Competitive Analysis and finally a conclusion.

Prior to presenting the strategy, it is first important to get a sense of the BlackBerry brand’s background and history. BlackBerry is a line of smartphones which was initially launched by the Canadian company Research In Motion (RIM) which first developed a two-way pager in 1999. The major features of BlackBerry devices include various wireless services such as “push e-mail, mobile telephone, text messaging, internet faxing and web browsing”. Because of its multi-functionality it is sometimes referred to as a “convergent device” (BlackBerry, 2009).

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Product Market Structure and Justification

Figure 1

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There are two factors to consider when identifying the relevant market for a particular brand/product. The first is the “managerial perspective” and the second is competition or the “degree of substitutability”.

At the first level of our Product Market Structure as illustrated above is the need for “communication devices for the consumer (B2C) market in the USA”, consequently we are taking a country specific approach to the entire BlackBerry Umbrella (rather than a particular model). Both of these factors mean that we are taking an Upper-management perspective. At the next level comes the product class which divides communication devices into “Wired” and “Wireless”, which are further broken down into the Product Form, Sub Product Forms and Brand Supply Levels.

In order to identify our relevant market, we also looked at the degree of substitutability between the product classes and forms. Starting from the Product Class level, it is clear that “Wired” communication devices can’t be considered as direct substitutes to the “Wireless” devices. Further down to the Product Form level, “Mobile Phones” have different functions than “Laptops” “PDA’s” etc… which also aren’t substitutes to mobile phones.

At the Sub Product form level, we needed to identify whether smartphones are a ‘stand-alone’ market or whether consumers consider “non-smart phones” when making their purchasing decision. In order to determine the level of substitutability, we carried out preliminary primary research through a poll of 20 people (10 current iPhone users and 10 BlackBerry users who bought their phone in the past 4 months). The result indicated that customers who made the decision to purchase a smartphone specifically, did not consider non-smartphones as a viable alternative (refer to Appendix 4 for the questions and summary results). As for the SSPF level of “touch” and “non-touch” smartphones, since the Blackberry Umbrella consists of models that fall into each of the two categories, we are considering both in our relevant market.

Based on this information we identified the relevant market at the “smartphones” level and all that comes under this category of the sub-product-form level (The framed area of our product market structure).

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Macro-Environment Trends

Economic Environment

GDP Forecast

According to forecasts by the IMF the GDP of the United States is expected to grow by 2.494% in 2013 to approximately USD 16,729.38 Billion (EconomyWatch, 2009). The forecasts on GDP Per Capita are also optimistic as they are expected to increase to 52,342.63 in 2013, from 46,442.64 in 2009 (EconomyWatch, 2009).

Emerging from the economic recession, or not?

Economic analysts are divided in terms of whether or not the US (and indeed the world) economy is on the road to recovery. There are certainly signs that the US economy is beginning to improve, particularly as world stock markets have steadily improved and many companies have posted improved earnings. According to a Fox News market report citing stock market analyst: “the good news is that this deep and long recession appears to be over, and with improving credit markets, the U.S. economy can return to solid growth next year” (Lieberman, 2009).

Social Environment

The “Greening” of technology

The pressure to create more eco-friendly goods/services is certainly not a brand new trend. However we believe that the push for greener technology will become far more pronounced in the next 3 years than it ever has been. Aside from the legal pressures to produce more environmentally friendly technology, social pressure is also likely to heighten as consumers become more and more aware and concerned about environmental issues/threats. This trend will also be reinforced by the efforts of special interest groups and NGOs like Greenpeace. Greenpeace has recently released a global survey of the most environmentally friendly tech companies (with Toshiba and Samsung being among the top ranked). In addition, “manufacturers like Sony Ericsson have already declared their plans to make all their mobile phones green by 2011” ("Mobilemaniac", 2010)

In its report, Greenpeace stresses the pivotal role of electronics companies in “cleaning up their act” because of the toxic nature of many of their components. The report states that “the presence of toxic substances in electronics perpetuates the toxic cycle – during reprocessing of electronic waste and by using contaminated secondary materials to make new products” (Greenpeace, 2008). This is likely to raise particularly high pressure on companies such as RIM (Research in Motion) because of the need to responsibly deal with these issues. In particular it is likely to lead to massive overhauls in design because

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“Design can and should be a major contributor to achieving green objectives, given its key role in product development and specification” (Adhikary, 2008).

Security threats

Although the issue of viruses, spyware and other malicious files stems from technology, their implications are far more significant in terms of their social impact. As the decision to “go virtual” in almost all areas that have traditionally been physical (including banking, shopping etc.) has become more and more widespread and less of a fringe option & more of a necessity, cyber criminals have taken advantage of the new landscape that has emerged. According to a statement by Google’s Head of Android Security, “[cyber] attackers can already hit millions of victims with a smartphone attack, and soon that number will be even larger” (McMillan, 2009). The article also states that “[although] hackers have generally steered clear of mobile devices [in the past]…because mobile phones haven't traditionally stored a lot of sensitive data…this is set to change” (McMillan, 2009).

More Educated Workforce

According to the findings of the Pew Research Center, enrollment in tertiary education institutions in the US has peaked to reach “an all time high” in October of 2008 (Fry, 2009). Their report cites the economic recession as the major reason because it has driven many young people to strengthen their credentials due to there being fewer jobs in the market. Many older people have also returned to pursue post-graduate studies for the same reasons (Fry, 2009). The impact of this for the next 3 years is that it is likely to create a more educated workforce. Since traditional smartphone buyers tend to be educated professionals (e.g. BlackBerry), this is quite a relevant trend to the smartphone market.

Technological Environment

Complete mobile convergence?

Among the jargon used by people in the telecom industry, “convergence” is among the most popular and widely used. Essentially it means that mobile devices are fast becoming a tool for all electronic needs (much like an electronic “Swiss knife” of sorts (ZTE, 2010)). According to T3, a prominent UK-based tech magazine:

“Smartphones will be able to replace traditional media, such as television and newspapers, enabling the users to access the latest information anytime. In addition… [users] can also use their phones as an electronic wallet” (ZTE, 2010).

This statement represents convergence at an even more extreme level, which is likely to occur in the next 3 years. The advent of the “mobile wallet”, mentioned as a subsequent trend, which is already operational in the Far East (namely Japan) is a prime example of what convergence may bring to the US market in the next 3 years.

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Death of the non-smartphone

Will there still be a place for the simple no frills non-smart phone, essentially a device that is meant for just making and receiving calls? This will remain to be seen, however based on the current research evidence, we expect that the non-smartphone will eventually be phased out completely to make way for smartphones. This is apparent from the websites of major mobile phone OEMS such as Nokia, BlackBerry, Samsung and HTC. With all their newly released phones, and new releases for the past year or so, being smartphones non-smartphones seem to be on their way out. Already the boundaries have become increasingly blurred in terms of being able to distinguish smartphones from non-smartphones. Where does the line for non-smartphones end and the line for smartphones begin? We realized this when searching for a standard definition of a smartphone.

Internet on the go

This particular “trend” may raise some eyebrows! Surely the spread of internet on the go is not a new trend for the next 3 years because it seems to have already become the norm in this age of BlackBerrys and iPhones. The reason it is included as a trend is because it is set to become much more pervasive and expand considerably over the next 3 years. According to research firm IDC, “[despite the fact that] PC is [currently] the dominant means of gaining access to the internet, IDC expects the number of mobile devices accessing the internet will surpass the number of online PCs by 2012” (Marketing Charts, 2008). This clearly represents a new paradigm shift in how the internet will be used and where the content will primarily be targeted. The internet has not simply migrated as is to the mobile world, but rather has, and will continue to, adapted considerably. Nearly all major websites have now created a ‘mobile version’ (adapted to fit the smaller screen). We see this trend continuing and perhaps becoming even more extreme.

Mobile payment technologies

There has been intense debate over whether mobile payment really is the trend of the future. While many industry analysts feel mobile payment solutions are set to grow rapidly, many are skeptical and believe issues with security and consumer adoption will hinder this new technology.

Over the past few years, many different mobile payment solutions have cropped up in the Far East and in some parts of Western Europe (see Appendix 2 for a brief case study from Japan). The convenience of being able to use one’s mobile phone for payment on-the-go to pay bills, purchase digital goods and even physical goods seems to be a promising concept. We believe it represents the next step in mobile convergence (see earlier trend) as mobile phones are fast becoming a one-stop source of all personal and business needs. The next step in this convergence may very well be mobile phones functioning as virtual wallets.

According to research firm Juniper Research, “the gross transaction value of payments made via mobile phone for digital goods and physical goods will exceed $300 billion within next 5 years” (Wilcox, 2008). In other words the monetary value of purchases made via mobile payment technologies is expected to

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grow five-fold by the year 2013.Their report, entitled “Mobile Payment Markets: Digital & Physical Goods 2008 – 2013” predicts that mobile payment will gain prominence over the next five years. Report author, Howard Wilcox states that, “North America and Western Europe are just starting to realize the potential of a mobile web presence as a fourth channel to market” (Wilcox, 2008). The highlights of the report are:

“Global annual gross transaction value will grow over 5 times by 2013” (Wilcox, 2008).

“The ticketing segment will be driven by consumer usage on rail, air and bus networks as well as sports and entertainment events, representing over 40% of the global transaction value by 2013” (Wilcox, 2008)

“The top 2 regions, Far East and Western Europe, will represent over 60% of the $300 billion per annum global mobile payment gross transaction value by 2013 for digital and physical goods” (Wilcox, 2008).

“While Western Europe is currently dominated by digital goods and services sold via SMS, Far East and China region (specifically Japan) is already well established in physical goods sales over the mobile web” (Wilcox, 2008).

Advancements in touch-screen technologies

The introduction of the Apple iPhone redefined the world of smartphones and more specifically had a profound effect on touch-screen technology. The iPhone’s touch-screen is arguably the most robust in the market. Most other major smartphone manufacturers raced to launch their own touch-screen phones, with varying degrees of success. The trend for the next 3 years is likely to be a continued development and incremental (or radical?) enhancements in touch-screen technologies. A few weeks back, a Yorkshire (England) based firm developed a new material for touch screens called Quantum Tunneling Composite (QTC). This proprietary technology is designed to allow devices to have “pressure-sensitive touch-screens and keys” (Palmer, 2010).This technique was developed through the use of quantum physics and sophisticated technology. The implications are “that the pressure-sensitivity could lead to a "third dimension" in touchscreens” (Palmer, 2010), in other words rather than just controlling the interface through which direction you scroll, you also control it through how hard you actually press/scroll.

The direct impact of this QTC is that several smartphone manufacturers will utilize this technology including Samsung and a Japan based company called Nissha (Palmer, 2010). In the longer term this suggests the continuation of a trend towards advancing touch-screen-technologies.

“Cloud” Computing

According to one source; ““Cloud computing” is a technology based on the rapid development of the Internet; the cloud is a computing architecture characterized by a large number of interconnected identical computing devices, which greatly reduce users’ dependence on the performance of the

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terminal facilities” (ZTE, 2010). Essentially, the concept of cloud computing is that electronic data is no longer restricted by being on a single stand-alone device (e.g. a desktop computer). Google has already taken strides in developing this concept with plans to launch an operating system that completely relies on storing data online.

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Micro-Environment Trends

Market/Customer (end-user Environment) Changes

Consumer confidence

According to a recent New York Times monthly poll, “consumers’ confidence [in the US] took a surprisingly sharp fall in February amid rising job worries” (Associated Press, 2010). Despite past figures that have shown three consecutive months of progress, suggesting that consumer confidence was beginning to return to pre-recession state, this research highlights that the negative consequences of the downturn may continue to impede consumer confidence, possibly for the next 3 years.

Green consumers

In relation to the social trend towards the “greening of technology”, consumer behavior (at the more personal level) is likely to transform. Green consumers are likely to emerge in the context of the smartphone industry in the US. As pressures mount for companies to become more environmentally friendly, consumers may take this into consideration when purchasing a smartphone (e.g. the company’s track record, components and materials that do less damage to the environment).

Discretionary thrift

According to an article in the Harvard Business Review, one of the major “trends and trajectories” likely to impact buyer behavior in the aftermath of the recession is the emergence of more significant “discretionary thrift” (Willmott, 2009). This essentially means that consumers are likely to be more careful (thrifty) in their expenditures and spend more “wisely”. This particular trend is significant because it suggests that consumers may not be willing, or able, to return to their pre-recession purchase behavior, favoring more calculated and prudent purchases.

Mercurial consumption

The same article in the Harvard Business Review discusses a trend that existed “In the prerecession boom” whereas consumers “became agile -- and fickle – shoppers” (Willmott, 2009). The article states that this trend is likely to continue, and become ever more present, in the post-recession climate. Consumers are more likely to “quickly abandon any choices that somehow fall short” (Willmott, 2009) and this has serious implications for brand loyalty.

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Distribution Channel (intermediary customers) Changes

The relationship between smartphone OEMs (such as RIM, Nokia & Samsung) and Telecom operators (or carriers) has undergone massive changes and is in constant flux. One likely trend in this relationship for the next 3 years is likely to be a shift towards “unlocked” devices as opposed to carrier-specific deals. Carrier specific deals involve exclusive agreements between OEMs to provide a new smartphone device that only functions for a specific carrier, under a specific payment plan. An example of this is “Apple provid[ing] exclusivity for the iPhone to AT&T… and over-subsidiz[ing] the cost of the iPhone” and a similar agreement between “Sprint and Palm” (The Mobile Triangle, 2009). The trend towards “unlocked” devices that can operate on any and all networks is likely to be spearheaded by Google’s “open handset alliance” and the movement towards open source mobile phones (see the subsequent competitive trends section under Micro-environment). Operating on the basis of a closed agreement is also unlikely to be a feasible long-term strategy as competition and the drive for market share become more pronounced.

A general trend for the next 3 years in terms of physical distribution is likely to be an even wider proliferation and availability of smartphone devices through more retailers and channels of distribution. This trend has already taken off in the market, the prime example being BlackBerry which was initially only available to purchase directly from a telecom operator (such as AT&T) but is now increasingly available in retail stores and through new channels (e.g. online through e-tailers like Amazon.com).

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Competitive Environment Changes

Google Android

One of the most significant developments in the competitive environment for smartphones is the entry of Google’s Android operating system and the subsequent development of what has been dubbed the “Open Handset Alliance”. Google acquired a small start-up firm in 2007 that had developed a new open source operating system for smartphones. This was taken further as Google worked to enhance the interface, and more recently in the development in the “Open Handset Alliance”, “a consortium of 47 hardware, software, and telecom companies devoted to advancing open standards for mobile devices” (Android (operating system), 2010). Some notable members are mobile phone OEMS like HTC, Samsung and Sony Ericsson, as well as carriers such as T-Mobile, Vodafone and US based Sprint (Open Handset Alliance, 2010).

Although this development has technically occurred in the past, its impact will certainly be quite profound for the next 3 years. It represents a shift towards open source software. Open source software is defined as “software for which the source code is freely available” (Android (operating system), 2010), thus allowing any developers or tech enthusiasts to constantly add features and enhance/customize the system. Aside from representing this trend towards open source, it also represents a clear example of “co-opetion”; competitors actually cooperating with one another to further a certain trend or open up standards to one another.

The central role of “Apps”

One of the key differentiating features of a smartphone is the ability to download third party “apps” (applications) that function seamlessly with the device. There has been a massive proliferation of third party content for phones since the release of Apple’s iPhone, paving the way for a plethora of other online “stores” such as BlackBerry’s “App World”, Nokia’s “Ovi” and Google’s “Android Store” (IGroupAdvisor, 2010). Apple has done for mobile apps what it had done several years earlier for digital music downloads, establishing a robust and powerful user interface and a sound business model for digital content. This trend is set to continue for the next three years, however it is expected that the rate of transformation in this area will become even more rapid.

As OEMs (Original Equipment Manufacturers) such as BlackBerry and Nokia have realized, establishing a presence in the lucrative apps market is a “do or die” decision, they have started to expand in this field. It has become more than just a luxury as the presence of certain apps has become monumental in the success of many devices (such as the iPhone). Apps can be divided in terms of 1) Communication (includes social networking, instant messaging etc.) 2) Gaming (even major video game publishers such as Capcom have realized the value of this platform and have begun to break new ground) and 3) Novelties (these include one-hit wonders such as “virtual lighters” or flashlights). A massive explosion in terms of the number and variety of new apps flooding the virtual marketplace is expected, and a a robust applications store is likely to be a vital prerequisite in purchasing a smartphone.

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Degree of Competition

As we have said before, the SmartPhone market is an example of a Consolidated Industry market. Meaning there are few dominating companies within the market. However, since the market is a relatively new one, more companies are expected to emerge. The reason behind this is the fact that other cell-phone manufacturers such as Sony-Ericsson, Motorola, Sagem, LG, Samsung and the wide array of Chinese manufacturers are likely to jump on the bandwagon in an attempt to have a piece of this market and the profit it is generating. This has already occurred with Nokia, which has been successful in the fact that it has the highest market share world-wide (however this is not the case in the US market).

This has been reflected upon in an article by Reuters titled “Smartphone competition to bite in 2010 after Q4 boom”. The author acknowledges the large increase in market size and states that the Smartphone market will witness fierce competition as new entrants will flood the market. Analyst Geoff Barber states "An influx of new players, an oversupply of devices and aggressive pricing will strain profit margins," however he also states that "Those with a tightly integrated device and service offering -- like Apple and RIM -- will be the winners in 2010” (Virko, 2010)

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Implications of Macro/Micro Environment Trends

Implications on Product-Market Structure

One of our major predictions in the technological section of our environmental scan is the “Death of the non-smartphone”. If this does indeed come about in the next 3 years, it would completely alter the Product Market Structure we defined earlier. Rather than having a division based upon “smart” and “non-smart” phones, the SPF would be divided into “Higher-end smartphones” and “Lower-end smartphones” (see Figure 4 in Appendix 5 for a visual presentation of the ‘new’ PMS that would emerge as a result). The boundaries of our Relevant Market would also broaden significantly; although the level of sophistication in every device will still raise important distinctions between available choices, ultimately everyone purchasing a mobile phone would be in the market for a smartphone. Also the number of competitors in the Brand Supply level will increase and will be explained further in the “Implications on Competitor Analysis” section.

As more Americans attend and complete their tertiary education, the overall level of ‘professionals’ in the US is likely to increase over the next 3 years. This is likely to Increase the size of the relevant market, since more potential customers would be going into the market for smartphones either because of the nature of their jobs, or simply because they are more attune to new technology now that they are better educated. Although this trend is likely to come about in the longer term, it will cause some reasonable changes over the next 3 years.

Implications on Primary Demand

One of the predictions for the next 3 years in terms of social changes was that the push for greener technology is likely to become more pronounced (as part of a wider push towards being more environmentally friendly). Willingness to buy is likely to be influenced by the “green factor” more profoundly as a result of this development. It is foreseeable that a new type of buyer, specifically of tech products such as smartphones, will emerge. This new buyer will weigh the “green factor” much more heavily in their purchase decision. For instance; when confronted with a device that is known to contain environmentally hazardous materials or is manufactured by a company that does not use best practice environmental standards, this buyer may decide not to purchase the product altogether. It may go even further in terms of boycotts, damaging publicity etc. On the other hand it is important to note that it is probably unlikely that all consumers will feel the same way about this issue (see the following section on selective demand). Based on our environmental scan, competition within the smartphone industry is expected to increase significantly. This competition is likely to lead to a price war sometime in the next 3 years, making it

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possible for more customers to purchase smartphones (even those who are traditionally price sensitive) (Reuters, 2010) (Smartphone Price War on its way, 2010). The implication in this case is on buyer’s ability to buy. Technically, more users would be capable of purchasing a smartphone. This trend goes hand in hand with the “death of the non-smartphone” implication mentioned under the “Product Market Structure” section (see above) because if non-smartphones are indeed phased out, customers will have no choice but to purchase a smartphone and therefore there will be appropriate price points for all mobile users.

The perceived risk of owning and operating a smartphone is likely to increase substantially over the next 3 years. The primary driver of this risk is likely to be the “Security risk” trend outlined under social changes (in the macro-environment), essentially the risk of being a victim of cyber crime, identity theft etc. This risk is likely to be amplified by the mobile payments trend outlined under technological developments. This is essentially because of the fact that more mobile users will have sensitive financial information (e.g. credit card numbers, account information), and therefore the security risk is likely to carry a much heavier weight in customer’s purchase decision. However developments in security and preventative technologies are also likely to ‘keep-up’ thus counterbalancing this trend to some extent.

Implications on Selective Demand

Perhaps the factor of environmentally friendly smartphones, “zero emission, zero waste” in production, may become a determinant attribute in the next 3 years (for some buyers). The reason we are arguing that it would not become a determinant attribute is because the issue has certainly not gained wide acceptance in the context of mobile phones. Other products such as home appliances on the other hand have had a different outcome (e.g. refrigerators required to be “CFC free”, an optional attribute which later became a defensive attribute). Perhaps in the longer term (longer than 3 years), the green factor may become a determinant factor.

It is likely that having preloaded anti-virus/malware programs on smartphones will become a defensive attribute (rather than an optional attribute) over the next 3 years. In order to even be considered by customers, OEMS may need to provide protection from the growing cyber threats as smartphones become one of the major gateways to the internet. The trend of the smartphone becoming the primary web device also goes hand in hand with this development in pressuring all OEMs to include this vital feature.

The trend whereby smartphones will become the primary device used to access the internet is likely to influence selective demand. As internet-based functionality becomes a must for all smartphones, factors such as push email functionality (of the same standard as BlackBerry) will shift from being a determinant attribute to become a defensive attribute. This particular change is already beginning to take hold as direct email functionality is no longer just a function for a few smartphones.

Having a dedicated “App” (applications) store is likely to shift from being an optional factor to being a competitive factor, as most major competitors are now entering this arena (android store, ovi etc.).

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It is likely that the decision-making process will be even more information intensive and involve a great deal more “problem solving”. When people purchase a smartphone they would be purchasing more than just a device for communication and/or entertainment, they would be purchasing a tool without which they could not function in a day and age that depends on it for almost all transactions (e.g. for using the subway, for purchasing groceries, for completing a bank transaction, for paying bills etc.).

Implications on Segmentation

The technological trend towards mobile convergence is quite likely to lead to a far higher number of “catch-all” consumers (see Appendix for segmentation variables). Rather than primarily focusing on one particular function (e.g. entertainment), this segment of users would need their smartphones to be an all-inclusive tool, capable of providing functionality in all areas (e.g. in communicating effectively and in a variety of ways, in securing personal information, in providing entertainment).

Implications on Competitor Analysis

The development of the open handset alliance, and the continuation of Android’s progress (as well as the general progress of the open source movement) is likely to have a significant influence on the level and nature of competition in the smartphone industry.

The “phasing out of non smart-phones” described by our report is likely to fuel competition to an even greater extent. This is mainly because most of the players in the non-smart phone industry also compete in the smartphone industry and are likely to ramp up their efforts when non-smartphones are phased out. The unmet capacity for smartphones will be met by a surge of smartphone manufacturing and a hurried attempt to gain a foothold with new customers upgrading to more advanced devices.

Based on the projected trends, the basis for competitive advantage for the next 3 years is likely to differ substantially. Firstly competition will be primarily on the basis of price (given the price war likely to occur). New innovations in technology, particularly relating to the trend of mobile convergence, (e.g. mobile payment technologies) are likely to become the basis for competitive advantage in the next 3 years.

Implications on Market Measurement

Despite the lack of solid figures, it is clear that the aforementioned trends will have implications on Market Measurement. It is expected that both the level of industry sales and company sales are set to rise over the next 3 years. Industry sales for smartphones are set to rise as the non-smartphone SPF is phased out. Put simply, the volume of sales for smartphones will increase in order to accommodate the needs of buyers who have traditionally purchased non-smartphones.

The impact of the trends on company sales is not as clear-cut. Although the increase in industry sales is likely to bring about healthy growth in BlackBerry sales, the level and intensity of competition is likely to raise significant uncertainties in terms of BlackBerry’s market share and competitive position. The

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overall effect on company sales however is likely to be growth, by virtue of the significant growth that will occur in terms of industry sales.

ConclusionThe commentary and analysis provided thus far have generally indicated that the market for smartphones is as dynamic and progressive as it is uncertain. The Product Market Structure and Relevant Market have been identified and illustrated. The environmental trends explored, relating to economic, social and technological factors have provided some valuable insights into how the macro environment is set to change over the next 3 years. The major trends in terms of BlackBerry’s task environment have also been identified under the micro-environmental analysis. In general the most significant macro-factors are technological, which is understandable given the high-tech nature of the product. More specifically, the trends of mobile convergence, the disappearance of the non-smartphone and the growth in mobile payment technologies are considered the dominant trends in terms of likelihood but also in terms of potential impact. In terms of micro-trends, the most significant category is the competitive environment, in particular the emergence of Android and the open handset alliance.

The implications we have identified will primarily influence the definition of the relevant market, primary demand and selective demand. The disappearance of the non-smartphone sub-product form and the emergence of the “high-end” versus “low-end” distinction are the primary developments in terms of the Product-market structure. Primary demand will be influenced primarily by the “greening of technology”, competitive pressures and perceived risk which all directly influence both the willingness and ability to buy smartphones. Selective demand will undergo changes in terms of the decision-making process as well as the importance of smartphone attributes.

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Appendix 1

Primary Demand

1. Buyer Identification o Buyer Characteristics

Location: USA Demographics: Middle to high income, not gender specific, the average

Smartphone user is a 35-year-old, educated person with a family. 54% have a college degree, while 61% have children. (John, 2009)

o Buying Center Influencer: Peers, Carriers, family members Gatekeeper: Carriers Deciders: end-user Buyers: end-users, gift giver

o Customer Turnover: From our primary research we found that people are not moving out of the relevant market because none of the smart phone owners considered buying non-smart phones during their purchasing process. The number of people moving into the relevant market has increased from 11% in 2008 to 17% in 2009 (Percent of U.S. Phone subscribers). (Lendino, 2010)

2. Willingness to buy o Related products/services: The choice to buy a smartphone is highly dependent on the

carriers compatible with it. Signal strength and performance of each carrier varies for different locations, and so people tend to purchase smartphones based on the strength

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Buying Center

BuyersEnd-usersGift Giver

Gate KeepersCarriers

Retailers(sales representatives)

InitiatorPeers

End-userDecidersEnd-user

of the phone/carrier combination in the area that they live, work and commute most in.

(Miller, 2009)

o Usage problems: Product features: According to the J.D. Power and Associates 2010 Wireless

Call Quality Performance Study, the increase in number of smartphone customers leads to a decline in the overall carrier performance. With the rapid increase of smartphone users in the USA, people have been facing more dropped calls, voice distortion static/interference, failed call connection on the first try, echoes, no immediate text message notifications and no immediate

voicemail notifications. (Call Quality Declining As Smartphone Usage Surges, 2010)

o Perceived Risk Physical Risk: Smartphones are known for their extraordinary features but

people are also gaining awareness of the health risks associated with these phones’ radio frequency emissions. According the the EWG (Environmental Working Group) “newer smartphones tend to have higher radio emission levels than older phones.” (Lobby Group Warns of High Smartphone SAR Levels, 2010)

Security Risk: People have become more aware of the security risks associated with using smartphones. Since they are run using similar operating systems as computers, they therefore face the same security risks of identity theft, spyware, viruses and malicious software. (Smartphones at risk from malware, 2010)

Economic/Financial risk: Even though the prices of smartphones have been decreasing, they are still more expensive than the regular cellular phones and are considered an investment.

3. Ability to buy o Cost: Smartphone prices are being driven down and are much lower than they

used to be. This is not solely because of the short lifecycle of the fast paced tech industry, but also because of many manufacturers’ aim to diversify into the personal users segment in addition to their original corporate users

segment. (Smartphone prices will go below €100 this year, 2010 )

o Spatial availability: Smartphones are highly available and can be purchased from any electronics store or telecommunications service provider, as well as several online and conventional retail stores across the USA.

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Selective Demand

Decision-making process

The decision to purchase a smartphone is significantly complex and information intensive. The process can be characterized as extensive problem solving because of 2 major factors:

1. Highly technical: because of the high-tech nature of smartphones, potential buyers are unlikely to have detailed knowledge of certain features (e.g. processer speed or display quality)

2. High involvement: for the most part, smartphones are not a regular purchase and usually relatively expensive. Therefore the customer is often engaged in making sure they make the right choice (related to the concept of perceived risk)

The danger of presenting a single decision-making sequence that applies to all smartphone buyers is that it is unlikely to capture or represent their diverse needs. The following sequential model presents a highly rational, highly active decision-making process. One major shortcoming of the model is that it assumes that the decision to purchase a smartphone is primarily rational.

Figure 2: Smartphone decision-making process

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Step 1 "Trigger event": decision to replace current phone or purchase an additional one

Step 2 Identifying the "primary function" sought after

Step 3 Search for alternatives

Step 4 Setting budget/price-range

Step 5 Evaluation of alternatives

Step 6 Purchase decision

Step 7 Post-purchase evaluation

Step 1: A “Trigger event” is any factor which leads a customer to consider purchasing a new smartphone. The “event” does not necessarily need to be something extreme or noteworthy (e.g. the old phone breaking), it can simply be a decision to ‘update’ to a newer phone, the testimony of a peer, the requirements of a new job etc. The trigger event may not necessarily mean replacing the old phone; it may simply be to purchase an additional one.

Step 2: The “primary function” is the essential tool a customer is looking for in their new smartphone. According to Michael Mace, former VP of Product Planning at smartphone maker Palm, customers make a conscious (or subconscious) decision as to what the primary use of their smartphone will be. This can be one of three broad uses (but it is important to stress they are not mutually exclusive):

1. Pure Communication: this function is centered on the communications aspect of the device. This is supported by “advanced phone feature that’ll help [users] communicate better [such as] E-mail, short messaging, IM [and] video calls” (Mace, 2007)

2. Information: this function is based on office-like features and is supported by features such as “databases, larger screens, reading PC documents, word processing” (Mace, 2007)etc.

3. Entertainment: this function relates to the capacity of the device for entertainment features and/or applications. It includes features such as support for “music, games and video” as well as support for 3rd party applications (Mace, 2007)

The reason for including step 2 in the process is that it significantly influences the sources of information used in the following step as well as the actual choice-set.

Step 3: Seeking information on alternative devices to purchase. It is important to note that this step may be precluded if the customer already knows which phone he/she will purchase (because of peer testimonies, experience with a particular device etc.). This step is often carried out with the support of online “review websites” (such as cnet.com) and online customer testimonials.

Step 4: It is difficult to pinpoint when “setting a budget” actually occurs in the purchase decision. That is why this step is presented in the middle of the process. A customer may have some idea of how much they are willing to pay before looking at alternatives, or perhaps after they have seen the choices available.

Step 5: Alternatives are compared/contrasted and the customer weighs their value relative to the prices charged for them. There is no ‘set’ way in which this actually occurs and can vary considerably between customers.

Step 6: The physical purchase is made.

Step 7: The customer evaluates the smartphone as they are using it and interacting with its various functions.

As mentioned throughout the model, the steps are in no way prescriptive or necessarily sequential. It would be valid to say that a person may make a much simpler decision based on the views of their peers, essentially going from the “trigger event” immediately to the purchase decision.

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Product Attributes

Determinant attributes:

Built-in IM (instant messaging) program

High mega-pixel camera

Multi-touch touch screen

Style (aesthetic appeal)

Defensive attributes

Push-Email functionality

Reputation of company

Large high-color display

Reasonable price of data plan (e.g. BlackBerry service unlimited)

Size (slim, not bulky in pockets)

Full Web browser

Speed of applications (loading, standby time etc.)

Digital music player

Weight (lightweight)

Standard issue applications (e.g. phonebook, organizer, alarm clock)

Optional attributes:

Environmental reputation of manufacturer

Loaded-on anti-spyware/malware program

Applications store – downloadable “Apps”

Motion/proximity sensors

Complimentary products (e.g. carrying case, straps)

Extra loaded-on applications (e.g. games, social networking)

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Segmentation

Assigning specific demographic characteristics to smartphone buyers would be unrealistic and unlikely to add any useful information to better understanding the market. Instead, we chose to use behavioral variables to segment our market in terms of the primary benefits sought by buyers. The segmentation bases we present have been generally agreed upon by more than one industry source. The different segments also correspond with the “primary functions” outlined by our decision-making progress (step 2). The 4 major segments of smartphone buyers are:

1. “Communication enthusiasts”: “These are extroverts who live to communicate with other human beings, and they’re often in people-facing jobs like sales and business development. These people are willing to pay for any advanced phone feature that’ll help them communicate better. E-mail, short messaging, IM and video calls” (Mace, 2007). These users are identified as those most likely to purchase a BlackBerry or Palm smartphone.

2. “Entertainment enthusiasts”: “These users are younger people (late teens and twenties) who want to keep their fun lifestyles even as they enter the workforce. They’ll pay extra for enhanced entertainment features -- music, games, video, fun messaging” (Mace, 2007). These users are more likely to purchase an Apple iPhone or a Nokie N90

3. “Information enthusiasts”: “The information enthusiasts will pay extra for features that extend their memory and help them work with information. Databases, larger screens, reading PC documents, and running lots of third party apps” (Mace, 2007). These users are most likely to purchase a Nokia E90 smartphone.

4. Catch-all users: The reason we chose to include a 4th category is because of the increasing need for “mobile convergence” (mentioned under technological developments in the environmental scanning section).

The likelihood of leakage, overlap and blurring boundaries is quite significant for these variables however the insight they provide us into the differing benefits sought by different buyers in the smartphone market offer a robust and progressive view of segmenting the market.

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Competitors Analysis

The main competitor to Blackberry phones is Apple’s iPhone and this is essentially because of market share (Apple and RIM are the market leaders). Other brands like Nokia also compete at this level for example the model N70 has been competing fiercely with Blackberry Storm & iPhone.

The degree of competition in the smartphone industry can be characterized as “high Rivalry among industry firms”. Under this level of competition, companies desperately need to keep up with competitors, particularly when it comes to technological innovations and breakthroughs. A recent example of this is the almost ‘mad flurry’ of mobile OEMs trying to develop a touch-screen phone to be an “iPhone killer”, immediately after Apple’s release.

Market Profiling (Porters Five Forces applied to the “Smartphone” industry)

We will begin by defining Porters five forces and then apply it to Smartphone’s market, Porters five forces are:

1. Threat of New Entry

2. Rivalry Among Existing firms

3. Pressure from Substitutes

4. Bargaining Power of Buyers

5. Bargaining Power of Suppliers

Threat of New Entrants (Barriers to entry)

1) Product differentiation – In the market of Smartphone’s’ there is a low level of product differentiation because all brands nearly come up with the same functionality. Example: iPhone is a touch phone with internet, email and applications. From a technical standpoint, Blackberry Storm essentially has the same capabilities.

2) Pace of Industry Growth and Profit Potential – Based on statistics and graphs you have seen in the paper you can see that there is a high pace of growth in the industry and as well as a high potential for profitability.

3) Capital requirements – the capital requirements to enter the market are relatively high because of the manufacturing facilities and equipment you need to produce the sophisticated internal components of smartphones (for the majority of OEMs, most of the technology is in-house and proprietary e.g. Apple’s iPhone).

4) Required expenditures in R&D – A great deal is spent on R&D in tech industries in general, smartphones are certainly no exception. Companies need to constantly keep up with new innovations.

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Rivalry Among Existing Firms

1) Number of Competitors – The number of competitors in the smartphone industry is quite high, particularly with OEMs who have not traditionally produced smartphones also entering the arena (e.g. Samsung)

2) Rate of Industry Growth – There is a high rate of industry growth which greatly amplifies the level of rivalry as competitors vie for a greater share of the growing market.

Pressure from Substitutes

Although we have identified earlier that the degree of substitutability between smartphones and other communications devices (e.g. laptops) is not high enough to warrant including them in the relevant market; it is important to look at their potential for substitutability. Substitutes can “satisfy the same need” so for smartphones they may include:

1) Netbook/Tablet PC – this is a device which is smaller than a normal laptop, it can perform as well as any laptop and also has most of the characteristics of a smartphone. Apple’s iPad is a prime example of a tablet PC bordering on smartphone convenience and functionality.

2) Laptops– Laptops can act as a substitute for a smartphone because of the availability of internet everywhere (portable internet modem which uses 3G, so literally any place where you can use your smartphone you can also use internet on your laptops

Bargaining power of Buyers

1) High Number of suppliers – Customers have more choice than ever before in terms of which brand of smartphone to purchase. This means that buyers (consumers) hold almost all the power.

2) High switching power – Buyers may have the flexibility to switch to a new make/brand of smartphones, however it is also important to consider the switching costs of needing to learn the interface and functionality of a new phone. For many users, the decision to stick with what is familiar is what drives them to purchase the same brand.

3) Integration – This varies significantly from one OEM to another. Apple for instance is known for producing most of its parts in-house (proprietary technologies), by combining both hardware and software components.

Bargaining power of Suppliers

1) Characteristics of supplied product – The suppliers of core components (e.g. Intel providing the processer chip for a Nokia device) normally have high bargaining power because of the uniqueness and importance of the compoenent.

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2) Large number of suppliers – The number of suppliers offering certain core components (e.g. processer chips) is generally quite low, which raises their relative bargaining power.

3) Buyer not important – Most of the large OEMs (such as Nokia or Samsung) are critical buyers for their suppliers, mainly because of the volume and regularity of their purchases.

Competitors Profile

Apple

Apple, the current market leader in smartphones in the US market, has made a massively successful debut into the smartphone industry. It has leveraged its reputation of user-friendliness and youthfulness built up by its Mac and iPod brands and managed to achieve massive success in the market with its innovative touch screen phone, the iPhone.

Nokia

Nokia is the oldest, and still the most dominant, player in the global mobile phone market. This Finnish giant has released phones at every conceivable price point and has made a successful foray into the smartphone market with many successful models such as the N series and the business-oriented E-series. Nokia has lost significant ground to Apple and BlackBerry because of sluggish competitive reactions and sub-par product releases.

HTC

This brand has always competed with Blackberry, HTC makes the devices and then puts different operating systems on it from which it can be Windows Mobile. Lately, HTC has been at the forefront of taking the new Android operating system on board (developed by Google). HTC also produced the new “Google Phone”, the Nexus One which is considered by analysts to be a serious contender in the smartphone market.

Competitors Strength Grid

Here are Strengths and weaknesses based on the current competing models in the market and these comparisons and reviews are based on major tech-review website cnet.com

Smart Phone Strengths Weaknesses

Blackberry Bold Cheapest Among competing phones

Best messaging based on AT&T lineup

High in number of features

No touch function

Smaller screen than other competing phones

Low battery life time

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Easy to function

A lot of applications

High performance

Lightest in weight

Blackberry Messenger

Apple iPhone 3GS 32GB 32GB memory

Many applications

High quality screen

High performance

High battery life time

iPod

Heavy

Biggest phone in dimension

No messenger software like “Blackberry Messenger”

HTC Nexus Google Has AD2P Bluetooth function for “wireless headset music”

Strong operating system

High battery life time

Good at web browsing

No wireless Lan

Lack of Features

Heavy

Large dimensions

Nokia N79 Keyboard & touch function

All functions needed

High price

Slim

High price

Complicated interface

Heavy

(Cha, Nokia N97 Mini unlocked Smartphone Reviews, 2010 )(Germanon, 2010)(Cha, 2009)

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The competitor strength grid is done using the scores from Cnet and these reviews and scores are done by people who have used the phone which means they are very accurate. These scores are also relative to the “strengths and weaknesses” of each product.

Unfavourable Favourable

1 2 3 4 5 6 7 8 9 10

Features NK IP-HT BB

Design NK BB-HT IP

Price HT NK IP BB

Performance BB-IP-NK HT

Overall score NK IP-BB-HT

BB=Blackberry IP=iPhone NK=Nokia HT=HTC (BB-IP: this means they are on the same score exactly)

Perceptual Mapping

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High Price Low Price

Hig

h Fe

atur

es

Low

Fea

ture

s

BB=Blackberry IP=iPhone NK=Nokia HT=HTC

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NKHT

BB

IP

Broa

d

Low Cost Differentiation

Competitor’s actions:

The next step that competitors are willing to take is to “improve” upon their weaknesses. For instance Apple may improve their product by including an “Apple messenger” software which is like “Blackberry Messenger” that is associated with the phone’s serial number; this is where RIM’s advantage is.

Research in Motion’s actions:

Based on the above variables, RIM may take steps towards improving their offering, compared to their competitors. For example the battery life, a feature which is currently lacking relative to competitiors, may be extended. Pricing is another area of major concern, perhaps efforts should be taken to provide the same or better features than competitors whilst maintaining the same price level.

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Nar

row

Nokia(not smart phones) BlackBerry

Apple

Vertu

Dior

Appendix 2

Mobile Payment Technologies – Case Study in Japan

Note: Most mobile payment solutions are in the Far East.

Japanese Telecom Operator KDDI:

The following description of the service is taken directly from their website (http://www.au.kddi.com/english/ezweb/index.html):

“Osaifu-Keitai® offers e-money, credit card and point card features”:

“e-Money” “Credit cards” “Train & air tickets” “Point cards” “Special coupons”

All the other information about the service is only in Japanese, so unfortunately the details cannot be provided.

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Appendix 3This appendix details some information regarding the supply of BlackBerry smartphones in the market with projections for the next few years.

Below is a graph detailing the change in market shares between September and December 2009 in the market for Smartphones.http://arstechnica.com/gadgets/news/2010/02/google-makes-biggest-gain-in-smartphone-market-share.ars

This graph shows that RIM (RIM) has a massive share of the market and is followed by its biggest competitor (Apple) in a comfortable 16.3% margin. The graph also shows, however, that while Apple’s share has grown by 1.2%, RIM’s share has shrunk by 1%.

The SmartPhone market is an example of a consolidated industry market, which basically means that it is dominated by a few large firms which work hard at differentiating their products from their competitors. Therefore, even a small change in market share such as Google’s 2.7% increase is viewed as a big step towards a more dominant market share. Likewise a small drop is not viewed as a small matter.

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It is in our view that supply shortages would be an unlikely incident to come up on RIM’s records for three reasons:

1- Market Dominance: It is clear from the graph above that RIM enjoys a significant share over the market which enables it to produce at high quantities with a high probability of selling out its products

2- Specialization: The BlackBerry brand takes up large focus from the company. Since apart from ‘Interactive Pager’ (a relatively small brand) it is the only other brand supplied by the company.

3- Young Market: The market for SmartPhones is a relatively new market, which influences the ease of predicting the direction and magnitude of changes in demand (which are ultimately the determinants of changes in supply). This is exact reason why we differentiate between this case and the case of PS3 and Xbox in the gaming industry. The two market leaders did have a large share, however the market was not young, which resulted in supply shortages as a result of the global crisis.

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Appendix 4The primary research carried out for the purpose of identifying the relevant market was essentially a one question poll. Smartphone owners who had purchased their devices in the last 3-4 months were asked whether or not they also considered non-smartphones (as an alternative) in their purchase decision. This was to help gauge the degree of substitutability between the two sub-product forms (smart and non-smart phones).

The two leading smartphones on the market, iPhone and BlackBerry, a total of 20 respondents were asked (10 who owned a BlackBerry and 10 an iPhone). The results indicate that out of all respondents, only 1 person also considered a non-smartphone as an alternative.

Figure 3

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Appendix 5Figure 4

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