VDC Research: Enterprise & Government Mobility Market Blog

Whither RIM?

Following the recent ‘missed quarter’ by RIM there has been much chatter about the future demise of the company and its widely deployed BlackBerry at the hands of Apple’s iPhone and devices running on the Google-backed Android platform. While the articles bring up many valid points – iPhone’s encroaching RIM’s enterprise stronghold, RIM lacking a strong touchscreen solution, RIM’s App World metrics - the desire for sensationalist reporting may have kept the reporters from addressing some of the more important issues. More to the point: there remains much to be bullish about RIM.

BlackBerry’s core value proposition revolves around its best in class – in terms of security and manageability – enterprise wireless email and messaging solution. This has and continues to resonate with enterprise customers. BlackBerry is viewed as the Gold Standard in sectors – especially where security and compliance mandates are tight – such as government, financial services and healthcare. While RIM has done well to maintain and expand its position in these core markets, it’s value proposition has recently been challenged by individually liable (IL) devices entering the enterprise.  During the recession enterprises have been increasingly receptive to the idea of supporting their employee’s personal device for some enterprise applications (email, messaging, etc.). Moreover, enterprises have succumbed to the pressure from individuals to support popular consumer devices such as the iPhone. This has loosened RIM’s vice grip on the enterprise segment and has created challenges for RIM as the company generally performs best in accounts where it is the only device.

These challenges have shown up in market share figures as – according to our research – BlackBerry’s share of the enterprise segment in North America is expected to decline from just over 50% in 2009 to just over 40% by the end of 2010. The primary beneficiaries here will be Apple – capturing 22% of the enterprise market by the end of 2010 – and the various Android-based devices. However, even as BlackBerry’s market share declines, overall shipments and new subscribers are expected to grow, driven by the continued strength in Smartphone demand.

RIM clearly needs to address the IL issue more effectively – it has been targeting the consumer market with mixed results for some time now. However, according to our research, the share of corporate liable devices is actually expected to increase slightly in North America. Conversely the share of IL devices purchased from ‘approved list’ is expected to give way to IL devices purchased from ‘any list’. In other words we are seeing a splintering in the enterprise between highly controlled and regulated environments and those that are more open to multiple platforms. RIM’s position in the former is unquestioned. What it needs is a more effective answer for the latter.

The fact remains that the Smartphone opportunity is massive with growth continuing unabated. While hardware innovation – such as Apple’s multi-touch interface – can define and reward vendors, this market is not (entirely) about hardware. It is about delivering appealing services and user experiences. The killer applications for RIM and its BlackBerry platform have been wireless email and BlackBerry Messenger which offers some of the strongest real time communication and presence capabilities (through GPS location integration and proximity sensing). RIM needs to build on these platforms to extend a broader range of services in a broader range of environments.

RIM is addressing this and several of its recent acquisitions are targeted squarely at both improving the user experience on the BlackBerry and also extending RIM’s reach beyond the traditional Smartphone. More specifically, last August 2009 RIM acquired Torch Mobile to support its WebKit-based browser development – a major hole in its portfolio. The browser was officially released earlier this year at MWC. (OK, this is more catch-up than trial blazing). More recently RIM acquired QNX Software Systems from Harman International. One of QNX’s leading markets for its Neutrino embedded OS is the automotive sector. This acquisition has the potential to significantly enhance the integration of RIM’s BlackBerry platform with in-car computing, navigation, entertainment platforms (check out VDC’s Embedded Practice’s blog post on this transaction).

Another – more traditional – opportunity for RIM to lead is the creation of the de facto enterprise mobile software application channel.  The fact remains that with all the success of Apple’s App Store, its most successful apps are for gaming and other entertainment/consumer applications. No viable channel exists today to address enterprise applications. While much of this is tied to issues relating to back-end integration requirements and customization requirements evident with so many enterprise mobile applications – enterprise organizations are clamoring for ways to more efficiently distribute and manage mobile applications. Getting the developer community excited about BlackBerry development opportunities will be critical here. BlackBerry has taken a step in the right direction with its recently enhanced development tools (especially the HotSwap simulator which significantly reduces development time).

RIM clearly has its work cut out for them. Apple, Google and others are nipping at their heels and are intensifying their enterprise play. However, considering RIM’s loyal customer base, broad global partner network and best in class services it would be reckless to write them off.

Mobile Software Distribution: The Next Great Challenge

There are no effective distribution channels for enterprise mobility software. Connecting the challenge many enterprise mobility software vendors have had scaling their business with the lack of a capable sales, market development and distribution channel is certainly oversimplifying things. However, the issue is not trivial.

One historical challenge has been the propensity for enterprises to custom develop and integrate - either internally or through third parties - their mobile software solutions. This - in part - has limited the need for more effective mobile distribution options. However, that is clearly changing.

VDC's most recent enterprise mobility channel research reveals a couple of trends with respect to mobile software distribution:

1. Hardware margin erosion is forcing channel organizations to focus more on software and services;

2. Enterprise mobility hardware vendor's channel programs increasingly include ISV (independent software vendor) tracks - a historically hardware agnostic community;

3. Enterprise mobile software vendors/ISVs are significantly increasing their investments in their channel programs in attempts to scale their business; and

4. Wireless carriers are expanding their efforts to white label third party mobile software development platforms in an effort to simplify enterprise mobile application development.

Improving mobile software solutions availability and accessibility is clearly a priority for many constituents across the enterprise mobility value-chain. However, most will acknowledge that they still have a long ways to go. What about the 'app store' model for enterprise mobile software applications? VDC has long contended - and continues to believe - that, while hugely success for consumer applications, the 'app store' does not represent a viable channel for enterprise mobile applications.

Why? The need for back end system integration - a critical need when evaluating enterprise mobile applications according to our research - is perhaps the most glaring issue. Others include the need to custom design solutions (defining fields for forms based apps, for example) and other unique enterprise device and security management needs.

However, the app store model - with some modifications - may actually fill a unique need (for a specific application set and target user) in next generation enterprise mobility distribution models. This would take the share of a 'enterprise-focused' application store (the need for a separate storefront away from consumer apps will be critical as most business application developers suffer from lack of visibility in current mobile store fronts). The target solutions would be simpler applications/point solutions targeted at small to mid sized organizations. Some of the key requirements for this to be successful would include:

1. Processes and policies to track the download process and enforce/guarantee employees install the target application;

2. Tools that provide governance over which devices are permitted to download the applications;

3. On-line training and technical support services;

4. Integrated inventory and policy management services; and

5. Ability to create custom enterprise portals that enable organizations to push custom developed applications to target users.

Clearly this addresses only a sub-set of the issues plaguing enterprise mobile software distribution. However, as enterprise applications become simpler to design and use we would expect them to also to become simpler to distribute and deploy.

Enterprise Mobility Channel: Top Line Improvements…Bottom Line Concerns

VDC Research’s Mobile and Wireless Practice recently fielded a survey among Enterprise Mobility channel organizations to gage their expectations for 2010 and measure their performance in 2010. The general consensus among respondents (over 100 organizations responded to the survey) was that the worst was behind us and that the outlook for 2010 was increasingly optimistic.  More specifically, after experiencing a contraction in excess of 15% in the first half of 2009 and between 5-10% during the second half of 2009, channel organizations expect their revenues to grow by an average of 7.2% during the first half of 2010 (over H1 2009). While organizations will likely not return to pre-recession levels until late 2010 or early 2011, the change in outlook is motivating organizations to increase their investment in their organization’s infrastructure and market development programs.

Now for the not so good news. While VDC contends that this is not altogether surprising and may be a one-time occurrence in response to the challenging business environment it is nonetheless concerning. Channel organizations reported an across the board decline in hardware resale margins of over 50% and in some cases over 70% during the second half of 2009. What makes this perhaps more shocking is that during the most severe market conditions – the first half of 2009 – channel margins appeared to hold somewhat steady with historical trends. Whereas during the second half of 2009 – as the market began to show signs of life – channel organization’s bottom line performance cratered.

So what does this mean? While two quarters of data does not make a trend, this writing has been on the wall for a while now. While our research indicates that channel organizations agree that they need to focus on new sources of revenue streams – read services and software – more will be required for channel organizations to truly succeed and separate themselves in this already crowded market. Enterprise mobility channel organizations do not have a great track record when it comes to expanding their footprint or scaling their businesses. However, that is exactly what will be required going into 2010. Not to be overly dramatic, but the shelf-life of ‘business as usual’ has expired. There is not enough green-field business and too much competition for this model to sustain itself.  Channel organizations will need to be more agile at identifying and prioritizing emerging applications that map well to their profile. Furthermore this means a much more application oriented business model that leverages next generation services such as ‘pay as you go’ managed services and hosted applications. Status quo is not an option.

Keeping Pace with the Enterprise Mobility Solutions Market in 2010

By the end of 2010, the enterprise mobility market will have experienced the most change that we have seen in the past decade.  2009 budgets for enterprise mobility solutions – often one of the last segments of IT budgets to be crimped - were cut.  This exacerbated an already price and margin challenged mobile platform segment and has given managed services and hosted applications considerable traction.

Even before the latest recession, a number of core vertical markets and installation environments were slowing down, offering less margin, and forcing attrition in some supplier community segments.  We expect that this will continue and perhaps even accelerate in 2010.

Three years ago, application software became the first, and most important, solution element to be specified by users.  Today, wireless service is increasingly cited as the number one facet of an enterprise mobility solution to be specified; pushing traditional hardware platform, solution AND ISV providers aside marginally, or in some markets, materially.

These forces above, and others, are making channel architecture and partner decisions much more important. To help companies operating in, or targeting the enterprise mobility market analyze and compare their options - VDC is once again, planning to publish our Enterprise Mobility Solutions Service.  This market research will address the broad range of technology developments and consumer trends which we see unfolding in the enterprise mobility solutions market in 2010 and beyond.

We encourage you to contact us to learn more about this research, which is currently in our founding sponsorship period and provides early subscribers some significant benefits.