When Steve Jobs died, tech writers, investors and gadget fans everywhere wondered whether Apple AAPL-Q would lose its magic touch. More than a few of Apple’s rivals wondered whether they would ever get theirs back. To them, Apple has been the great humbler, the innovator that burst their arrogance and confidence, shredding their value along the way.
Two industry giants in particular got T-boned so badly by Apple that their long-term survival is in question. They are Research In Motion, RIM-T maker of the BlackBerry, and Finland’s Nokia NOK-N (both, incidentally, run by Canadians). You could argue that Microsoft also deserves to be on the list, but its decline started well before Apple put the iTunes, iPhone and App Store juggernauts into motion.
For RIM and Nokia, their peaks would come shortly after the 2007 launch of the iPhone. In the last year alone, they have lost almost half of their stock market value. Apple is up by a third over the same period, taking its five-year gain to 400 per cent.
It’s simplistic to blame the downfalls of RIM and Nokia on the launch of the iPhone itself. To be sure, the iPhone was sleeker, easier to use and more versatile than any comparable smart phone. But if the iPhone did not exist, someone eventually would have invented it. Given time, it could have been RIM or Nokia; each had the capabilities to build a phone with Internet and multimedia capabilities and, indeed, were doing so. It’s just that theirs suddenly seemed primitive when the iPhone landed.
The iPhone itself was only half the story. Apple’s genius was to make it a platform that could feed off a vast ecosystem that included iTunes and a stunning array of apps, from the Angry Birds game to carbon footprint calculators (the list has reached 500,000, should you have some free browsing time this weekend). The ecosystem is like a perpetual motion machine. Its sheer size attracts more and more app developers, who in turn make the ecosystem deeper and richer and ever more attractive to customers.
RIM makes some fine smart phones. Nokia, with new partner Microsoft at its side, may do the same in the next year or so. What they don’t have, and may never have, is a content marketplace as compelling as Apple’s. Developing one would require a set of skills well beyond the ability to create a handset with an 8-megapixel camera and voice-recognition software. It’s not clear that RIM, Nokia and Microsoft have these skills. Note that Microsoft owes its success to Windows and Office. Its online and smart phone presence has gone pretty much nowhere in spite of years of grinding effort.
RIM and Nokia have been trying to play catch-up since the iPhone and Google-based Android phones came on strong. The effort is not working and their market shares are in freefall. RIM used to be the top choice among business users. The latest data from comScore put its share of the U.S. smart phone market at 19.7 per cent in the three months to August, down from 24.7 per cent in the previous three-month period. Only five years ago, almost half of that market was RIM’s.
Nokia’s deterioration has been equally rapid. It became the world’s biggest mobile handset maker in 1998, a position it may or may not hold any more, depending on which survey you believe. What is certain is that its once-commanding lead in the smart phone market is gone. In the last quarter, Apple and Samsung devices were better sellers. Nokia’s overall handset sales fell 20 per cent while its smart phone sales fell 32 per cent. The slide is doubly embarrassing when you consider the overall market is rising at double-digit rates.
Both companies still have their strengths. RIM has a loyal customer base and BlackBerry Messenger is a hit among young users. Nokia has a global distribution network second to none and its sturdy, low-end “feature phones” remain the device of choice in the developing world.
Nokia could survive as a weak third player, behind Apple and the Android manufacturers. With its market share all but eradicated in North America and plunging in Europe, it will no doubt concentrate on Asia and Africa, where it can undercut Apple on price and compete with Android on brand. It may be a takeover target; Microsoft has been touted as a possible buyer.
RIM’s future is even less certain as the iPhone continues to outgun it on product design. It is gambling that the BlackBerry brand will continue to carry a lot of weight in corporate IT departments. That’s a big gamble because it appears that individuals, not employers, are increasingly making the purchase decisions. Meanwhile, RIM’s PlayBook, its answer to Apple’s iPad, is going nowhere. RIM too might be a takeover target.
On Tuesday at a tech fair in Finland, Nokia boss Stephen Elop said “the iPhone did something disruptive. It introduced a new level of experience … that all of a sudden everything else was measured against.”
It was a great compliment to Steve Jobs and Apple. Mr. Jobs died the next day, but left Apple in great shape. It appears that Nokia, RIM and Apple’s other diminished rivals will measure their products against the iPhone for some time. The lesson: Build ecosystems, not just phones.
