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March 5, 2007
Investing in RIM: A Bet Against the Internet?
Marty Algire just drew the following December comment of his to my attention. Provocative and savvy stuff, doubly so with RIM in the news for its option-related restatement.And as a Gmail mobile user, which, for my practical purposes, has already disintermediated RIM, I buy the thesis -- but timing is a bear. These things have a tendency to take far longer than you think, even if once broken they then fall apart quickly:
I recently met with a tech analyst who going on about how awesome RIM was and how they use all this proprietary firmware and he sees their market cap going towards 40B (CDN) in '07.
That got me thinking about RIM's technology. RIM's core technological investment is in turning mobile GSM/CDMA/TDMA/etc... networks that were designed primarily for voice to work more like the Internet so other types of data can be sent over them, e.g. email. They completely nailed this. But there is a lot of expensive overhead to keep this working, e.g. synchronization servers at each corporate customer, and a multi-acre data center in Waterloo to re-route messages to wireless carriers.
However, those voice based networks are going away. They're being replaced by wireless networks (licensed and unlicensed spectrums) that natively support IP applications. There will be no more need to overlay RIM's technology on top.
Some early signs of this trend:
- Several startups are working on Skype over mobile wireless networks. This is a bellwether, the 'voice' part of the network is clearly going away when users start using voice applications on data networks (as per VOIP trends on wireline networks).
- Web based email providers like Gmail are already providing mobile versions of their web interface. Corporate users can access their corporate email via Outlook Web Access Light (just like you use OWA on your PC when you can't get VPN, OWA Light is a web interface better suited to mobile handsets). These web interfaces provide a great user experience, and offer the lowest possible cost to implement.
Within 3 years the analysts will be heckling RIM for the costs of supporting a legacy technology and no differentiation against web based applications over standard data networks.
As Eric Schmidt said at Web 2.0 "we have a saying around Google - don't bet against the Internet".
Investing in RIM is a bet against the Internet.
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Ah, a fine but useful distinction.
to erik's point. mobile operator's networks are not the internet. this is a major point of distinction. you mention "skype" for mobile operators - well only if it is allowed, since you cannot make a call unless you are authorized to use the network. a SIP service still requires authorization of from the (U)SIM. this, i suspect, is why Skype is late with their mobile product and why they are now trying to use the Carterfone decision to make operators open up their proprietary networks - as some media wag put it (regarding skype's proprietary client) the Operators reply is "after you, sir."
frankly this whole cheaper minute thing will be interesting for about 24 months. this is all just a race to the bottom. ultimately minutes will be almost free. just like wireline long distance was once expensive now it is cheap as chips. the jaja(s) of the world are nothing more than a more sophisticated and automated version of long distance callback cards. they are interesting as a fad but where is the business model.
in regards to RIM - i have never really gotten the model (especially the thing about messaging all going through waterloo) Operators like it because it is not threatening to their core networks.
I agree that the whole cheaper-by-the-minute thing is a waste of time. It is a race to the bottom, and a game that ends badly for all concerned.
That said, I do buy the argument that better mobile access to mail -- Gmail being my favorite example -- increasingly disintermediate's mobile mail from RIM's expensive legacy infrastructure. That is the crux, I think, of Marty's bear case for RIM, and it is case that people underestimate. Ask any big Blackberry user about it, and they'll dismiss the whole idea of mobile interfaces as mere toys.
i think the bear case is one that has been due for a long time but never seems to get here. I think its only a matter of time. Here in the UK and Europe their are more choices in terms of email clients and devices. frankly i am surprised that they have been able to flog the devices this long - hats off to their channel people. but to your point - the times are a changin.
You're not betting against the internet.
You're betting against the cellular carriers implementation of the internet.
Open platforms and systems are not something that are within the cellular carriers current core competence.