RIM to license BlackBerry OS? Analysts think not

Mike Dano

Amid the recent swirl of rumors that Samsung might buy BlackBerry maker Research In Motion (NASDAQ:RIMM) (which Samsung has categorically denied), at least one investment banker floated the idea that RIM would instead license its forthcoming BlackBerry 10 operating system in place of an outright sale of the company.

According to Barron's, Jefferies & Co. analyst Peter Misek has said there is a "90% probability" that RIM will license BlackBerry 10. "We see a licensing deal announced within the next 3 months with actual BB 10 handsets out in CQ4. ... We see RIM licensing BB 10 and charging $10 per device. We believe this is the main way RIMM will be able to maintain its services revenues and build ecosystem momentum. We believe Samsung and HTC would do this to gain access to the RIM sub base. diversify away from sole dependence on Android, and create more enterprise exposure. BB 10 is effectively an Android derivative and therefore many bridges are possible."

It's an interesting concept, given RIM's struggles in the market of late. And there are arguments for such a move: It would give vendors such as Samsung and HTC a hedge against Android; it would give BB10 licensees reach into BlackBerry strongholds like Indonesia; and it could help expand the BlackBerry ecosystem beyond RIM hardware.

So there's a 90 percent probability of RIM licensing its OS?

"I don't think anyone is going to buy into the BlackBerry operating system," said Eddie Hold, vice president of the Connected Intelligence division at NPD Group. Hold admitted he still carries a BlackBerry because of the gadget's reliable email and calling connections (though he said he carries a separate smartphone for apps, gaming, movies and all that other stuff).

"I'm struggling to come up with any company that would have an interest in doing that [licensing RIM's BlackBerry 10 operating system] in the face of competition" from Android and other platforms, concurred Informa analyst Andy Castonguay.

The arguments against RIM licensing its BlackBerry platform are numerous and persuasive:

First, RIM itself has argued that its integrated approach to hardware and software sets it apart in the market (much like Apple (NASDAQ:AAPL)), and a licensing effort would undercut that argument. Indeed, RIM has already attempted to make a business out of licensing its core email functionality through a now-shuttered program called BlackBerry Connect. Vendors including Palm, Nokia (NYSE:NOK) and Motorola were once among those selling BlackBerry Connect-capable phones--at a time when RIM was one of the leaders of the nascent smartphone market. But BlackBerry Connect faltered due to concerns by RIM rivals that supporting the program would undercut their own smartphone sales efforts.

Second, a licensing scenario presumes that RIM's BlackBerry 10 operating system is worth licensing. Based on consumers' lackluster reaction to RIM's PlayBook tablet, which runs what likely is an early version of BlackBerry 10, I think there's only a slim chance that RIM's BB10 is the homerun the company is hoping for.

Third, RIM has said it won't release BB10 devices until late this year, and it's unlikely RIM would license its new platform before it sold its own BB10 devices. I'd be surprised if BB10 licensees could wait more than a year to sell their own BB10 devices--a year is an eternity in the tumultuous smartphone market.

Finally, perhaps the most compelling argument against a BlackBerry licensing play is the tepid demand in the market for additional smartphone operating systems. In the past 12 months alone close to a half dozen platforms have fallen by the wayside: webOS, Symbian, LiMo, MeeGo and potentially Samsung's bada (Samsung said it is considering merging bada into Tizen). Why would any major manufacturer want to pay to use RIM's BlackBerry OS when there are free alternatives (Android) and those that cost (Windows Phone). After all, the world's largest handset maker, Nokia, is struggling to create a third smartphone ecosystem behind Android and iOS. How is there room for a fourth?

"There's nowhere where that RIM operating system fits in. There's no room for a fourth one." NPD's Hold said.

Interestingly, there remain a number of options for RIM beyond selling the company and licensing its operating system. As Informa's Castonguay pointed out, RIM has had significant success in the enterprise space due to its NOC-based approach to corporate email and device management. If the company were to focus its efforts there--and possibly expand into the business of selling device management technologies to wireless carriers for smartphone or M2M applications--RIM could find a more sustainable and steady business.

To be clear, RIM is down but not out. There's still a significant minority of the world's population content with BlackBerry. And RIM's BB10 platform could be the hit the company is hoping for. I suspect we'll get a better look at the company's plans during next month's Mobile World Congress trade show in Barcelona, Spain.

But a 90 percent chance of RIM licensing its BB10 platform? That I find hard to buy. +Mike Dano