Research in Motion As Takeover Target?

An article in the Globe and Mail discusses the current state of Research in Motion (RIM) and its current stock price, marketshare, activities, etc. The story implies the possibility of RIM becoming a takeover target, given its $49 stock price (TSX:RIM or NASDAQ:RIMM). The current price gives RIM a market cap of about CA$26 billion dollars, which is reasonably healthy. There are companies with cash on hand that could buy RIM outright, not using shares or raising debt, even allowing for some kind of share premium on the price. Does buying RIM make sense, though.

As a brand, the BlackBerry name and its current customer base carry a lot of recognition and value. If someone isn’t referring to smartphones as “iPhones”, they invariably speak about BlackBerries. People know what they are, they generally recognize them when they see them, and many business people will buy one when starting a new venture, or when going out on their own, without really thinking too hard about it, because it is an easy decision. The product has a very good reputation, offers solid of somewhat pedestrian mobile features, and is still something of a standard for mobile computing, at least in the enterprise market.

As a business, RIM is a bit more of a question mark. They are lead by very smart people, and have a talented team. Where RIM has stumbled lately has been with their marketing efforts. For RIM, their biggest and best customers are enterprise users, but RIM always seems to be reaching (and missing) when it tries to communicate with the consumer. RIM’s presentation about the PlayBook didn’t seem to know if it wanted to be a typical product announcement to the masses, or a presentation to its developer community. Worse, showing a product that is still around 6 months away looks a bit like desperation. RIM is no longer in a position to freeze the market by pre-announcing a product the way it might have a few years ago. All RIM has done is ensure that people forget the thing is coming, until it finally shows up. In the mean time, RIM continues to turn out other variations on smartphones (touchscreen, traditional keyboard, clamshell) with little apparent plan on how to market or position these products. There isn’t any sort of “design language” behind the products that give them a unified feel, and in the end, their product mix feels like a bit of a hodge-podge, a motley collection of bits that are only unified in name.

Technologically, RIM has a number of challenges, all of their own making. They have long made customers buy new handsets to get the latest version of the BlackBerry OS. BlackBerry 6 has just recently been released, and now they announce the PlayBook, which runs yet another, different operating system than BlackBerry. They have made it difficult for developers by switching supported programming languages. They have created a barrier to the one group of developers you know they want, iPhone/iPad developers, by making their development tools Windows-only (a hint: iPhone developers use Macintoshes, as do many Android developers). As an outsider, it isn’t clear where RIM is going with their operating systems. If I want to target the largest group of BlackBerry users, I need to support 2-3 operating systems (some combination of Blackberry 4, 5 and 6). If I also want to support PlayBook, I will need to support its operating system as well. Add to that mix iOS and Android, and that can be as many as 6 operating systems for an app, each with different programming languages, frameworks and API’s. Developers are going to spend their time and development dollars to target the largest markets with the fewest barriers to entry. RIM could find itself being one of the “also rans” in this regard.

It is possible RIM could get its act together. I don’t honestly believe they will do it with their current leadership of Lazaridis and Balsillie. These are two very smart men, and you have to commend them for building RIM to be successful so far. While Nokia may have technically made the first smartphone, RIM is the one that defined the initial standard for what a smartphone should be. But from the way things have progressed, the founders seem determined to stay on a course that simply mimics where they have been. I don’t see RIM addressing the developer issues to try to actively encourage more to come over, like some stability and a reasonably clear roadmap of where the platform is going. I don’t see them doing much of anything to improve the ecosystem to make owning a BlackBerry outside of an enterprise environment exciting or enticing.

So, what about a takeover? Who would benefit from owning RIM? Who could potentially change their direction and put them on a positive path? Buying them wouldn’t be cheap (I would guess that an all cash deal, or cash-and-stock deal, would probably be somewhere around $CA30-32 billion when all is said and done. Compare this to the US$1.2 billion that HP paid to buy Palm, and RIM does like pretty pricey).

Given that HP just bought Palm, I believe they are out of the picture. They have enough to do without trying to subsume RIM as well. I’m not convinced HP could do much to address the shortcomings of the brand, the product and the platform anyways. It isn’t really clear what HP is going to do with Palm that is radically different than the less-than-promising course they were already pursuing.

Apple could certainly afford them, but I don’t see much benefit to Apple in picking them up. Apple has the same or better technology, is much better at industrial design, and already has a strong product line. Sure, Apple is weak on the enterprise side, but that isn’t a big concern for Apple right now. While RIM’s solution, BlackBerry Enterprise Server, could help, Apple could probably build their own with equally good results, certainly at a cost of less than CA$30 billion dollars.

IBM is a potential suitor. IBM doesn’t have a mobile story, and some of the ways IBM and RIM work technologically could make them a reasonable fit. Both have a strong presence in the enterprise. RIM’s attempt to penetrate the consumer market runs counter to IBM’s effective abandonment of that segment. The price is a bit steep, but IBM’s stock, thanks to a string of good quarterly numbers, is in a position where it could be used as part of the purchase price. IBM could potentially make a go of it, and there is a lot of money still to be made sticking to the enterprise, and leaving the consumer market to others. This wouldn’t be a play to build global, general marketshare, but to focus on continuing to own the enterprise market, and building on that base.

Other competitors, like Samsung or HTC, may also be candidates to purchase the company. Both have a strong presence in the consumer market, and adding RIM would give them a better enterprise solution. The one issue, though, is having to add yet another operating system and technology platform to their stable. I don’t see these as likely candidates, more like longshots.

Google is another longshot, and not a place where I see RIM fitting in. Google has already committed to Android, and their brief foray into the hardware market appears unlikely to be repeated. Again, Google could build their own versions of much of RIM’s server-side technology for a lot cheaper than buying it.

Microsoft is a company that could easily afford to buy RIM for cash, and given Microsoft’s proclivity in buying companies and not taking full advantage of them (or having a real plan for what to do with them), this is a possibility. A large portion of RIM’s enterprise users are also big Windows users, so having RIM in the fold might make some sense, even if only in a tangential way. I’m not sure that this makes sense for Microsoft, but that doesn’t always stop them from pursuing “opportunities” anyways.

An oddball choice would be Oracle. Although they are still digesting the Sun purchase, having RIM might be something of interest. It gets them a foothold in the mobile market that they would control, and they don’t already have a family of mobile products that would compete with what RIM has. It doesn’t really help the consumer part of the RIM story. But, it would potentially play well into Oracle’s enterprise presence, and give Oracle a platform for offering other data-driven services, this time for a mobile audience.

Another oddball is Amazon. They are already in the hardware market with Kindle, and they have indicated they are going to open an Android app store. Having BlackBerry may be a way for them to expand the smarts in the Kindle, particularly since the Kindle and the PlayBook share some commonality with a Linux-based operating system under the covers. Amazon could provide the basis for a rich ecosystem similar to iTunes, and they have a very, very strong brand for consumer marketing and sales.

In the end, I don’t see any clear and obvious candidates that would want to buy RIM, and I’m not convinced that they would even be a takeover target right now. On the surface, IBM, Oracle or even Amazon might be the better choices. Any one of them buying RIM is a bit of a stretch, but being taken over by a company that already has a nearly-complete mobile story just doesn’t seem to make sense to me, given the challenges of integrating the products and the business. This isn’t a situation where RIM needs a saviour (like Palm did to stand a chance at survival). RIM will continue to stagger along, retaining a chunk of the enterprise market and stumbling about in the consumer market. RIM may have something up their sleeve that would unify the BlackBerry and new PlayBook, provide a rich ecosystem to consumers, and a consistent and exciting platform for developers. No matter what, RIM isn’t going away any time soon.