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Network Dynamics and BlackBerry Messenger

2011 has marked a rough year for Research in Motion (NASDAQ: RIMM), a technology giant best known for making the Blackberry smartphone. In September, RIMM released disappointing earnings for the fiscal 3rd quarter of 2011. Revenues declined over 50% to 4.47 billion and profits fell from $797 million to $329 million compared to the 3rd quarter of 2010. The corporation’s poor performance is largely attributable to the decline in popularity of the once-bestselling Blackberry. As more consumers move into the smartphone market, RIMM has come up short to fierce competitors Apple, Samsung, and HTC. While Apple sells the well-established iPhone, Samsung and HTC have risen in popularity from their manufacture of the Google-based Android phones. In terms of market share, RIMM currently holds 10% of the worldwide smartphone market, a 33% decline year over year. Over the same time frame, Apple has maintained 14.5% market share, while Samsung’s market share reached 20%, up from a mere 8.8% one year ago, as reported by The Winnipeg Free Press. http://www.winnipegfreepress.com/arts-and-life/life/sci_tech/rim-takes-fifth-spot-among-global-smartphone-sellers-but-loses-marketshare-in-q3-133197143.html. What’s even more troubling for RIMM is the steep decline quarterly sales of new Blackberry models– a more forward-looking figure that reflects the company’s ability to attract new customers and retain users in the market for upgrades.

An interesting analysis of the situation is rooted in a Network Dynamics perspective. The root of this theory lies in the idea that when (Blackberry) users are connected by a network, it becomes possible for them to influence each other’s behavior and decisions. A so-called information cascade occurs when one ignores his/her private information and makes a decision solely based on others’ actions. A logical reason for one to copy others’ behavior is for the associated direct benefit effects – you will follow others’ actions if you can directly benefit from doing so. One of the strong selling points of RIMM’s Blackberry, especially among younger users, is the popular Blackberry Messenger (BBM) feature, an instant messaging interface exclusive to Blackberry users renowned for allowing users to distinguish delivered (unread) sent messages, from messages that have been read by the recipient.

The network dynamics of the BBM application certainly contributed to the Blackberry’s rise to prominence – the more people that have Blackberry smartphones, the more valuable the Blackberry is to BBM users. In a similar manner, network dynamics and information cascade may be contributing to this smartphone’s downfall. As an increasing number of customers abandon Blackberries for other smartphone devices and the number of users in the Blackberry network declines, the BBM application becomes less and less valuable because there are fewer contacts to communicate with. Looking at the bigger picture, this analysis implies that the lower RIMM’s marketshare in the smartphone industry, the lower the company’s future smartphone sales will be, assuming people consider BBM usage as a strong selling point.

It would be foolish to argue that the information cascade surrounding BBM is the sole reason for RIMM’s recent decline. Many equity analysts point to Androids’ and iPhones’ faster web browsing, better operating systems, more diverse selection of games and apps, among other factors in explaining RIMM’s struggling sales. Such claims are merited. Nonetheless, it is worthwhile to call attention to the information cascade/direct benefit analysis of BBM for a few reasons. Not only does the decline in market share contribute to lower sales, but in a downward-spiraling cycle, the lower sales will in turn result in an even lower market share. From the more optimistic angle, improvements in Blackberry smartphone models that lead to higher sales could eventually result in an information cascade with regard to BBM in an upward trend, allowing the company to bounce back at a faster rate.

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