p.p1 Research in Motion future strategy, in order

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Report on Research in Motion: The Mobile OS Platform War
S. Malciute, J. Schmith, F. Dany
Copenhagen Business School
27th of November 2017
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1. Introduction
In early 2000s, Research in Motion with their Blacberry phone was the biggest names in the mobile
industry, however in recent years Apple’s iPhone and Android phones are taking the crown instead.
In this papper we will review lock in strategies of Research in Motion, Apple, Android and
Microsoft. We will discuss the reasons for success or failures of these brands. Paper will start with
analysis of Apple’s approach on increasing lock-in, moving on to Android’s opposite approach of
using open-source strategy and its’ effect on lock-in. Continueing on Microsoft’s decision of
entering the mobile OS market and their take on lock-in strategy. Finally, based on other brands
strategy analysis we will explain our proposals for Research in Motion future strategy, in order for
them to be able to compete in mobile OS platform war.
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1. Apple’s approach in increasing lock-in
Lock-in is created through switching costs that occur by swapping the product or service which is
currently in-use. Referring to switching costs as in regard to monetary expenditure, use of time
and applied work, those switching costs can be altered per libitum by any company that owns the
product or service, demanded by a customer (Shapiro & Varian, 1999). Several techniques can be
used to shape the switching costs in order to support the companies’ strategies and goals. By
establishing a strong lock-in system the applied lock-in strategy can for example assure growing
revenues and a loyal customer base. Three main lock-in techniques have been identified in regard
to Apple’s lock-in approach by applying Carl Shapiros and Hal R. Varian’s findings in this field of
studies (Shapiro & Varian, 1999).
1.1 Apple’s Lock-in Types
Durable Purchases: To make use of the durable product approach companies often sell qualitatively
strong products which are longtime durable, but have a relatively high price. Knowing that once a
customer purchased the product he won’t swap to another product very quickly (Shapiro & Varian,
1999). Apple’s ecosystem comprises almost all modern IT-Technology (Hardware and Software)
for the consumer markets, making users willing to lock-in to the whole ecosystem once they bought
one of the products as they will quickly realize the high-quality standard (Villas-Boas, 2017). In
addition to that, a lot of Apple’s peripherals exclusively work with Apple products. This
circumstance forces the user to buy Apple’s follow-on products as alternatives are almost not exist
(Villas-Boas, 2017). With each new product, the customer buys, her lock-in will automatically
increase as her switching costs grow. On top of that a lot of Apple’s software is included by buying
a product such as Apple’s office suite iWork which users would have to buy additionally when
switching products (Gil, 2017). Nevertheless, switching costs do not only occur on the product
level but also from the vendor perspective. Eventually every durable product will find it’s end and
the producer of this product must make sure that the customer stays locked-in, as the switching
costs are now inevitable to the customer (Shapiro & Varian, 1999). Apple approaches its customers
from different angles. The company offers inducements in form of additional products such as free
headphones when buying the new product at Apple (Mayo, 2017). Which can be defined as an
attraction approach by giving the customer the feeling of instant satisfaction, leaving the store with
not one but two products. Another method is that Apple reduces the price of the new product
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according to the condition of the old product. This method can be referred to as a rather economical
logical approach. A rather emotional approach might be the sustainable recycling policy (Moodie,
2017). The customer knows that there is taken good care of his old product if he buys a new one
at the same store. If the customer can be convinced and buys the product at Apple again the
complete lock-in is assured anew and can be further increased.
Another method of increasing lock-in that can be referred to is the utilization of updates (Shapiro
& Varian, 1999). Apple’s upgrades are free to use and are usually only publicized when they behold
something innovative for the user (Yegulalp, 2017). By this, Apple lets the user know that she will
always stay on top of innovation without paying an additional dime to her prime purchase.
Apple has an efficient after-market service which is for free to every customer plus Apple’s
guarantee policies are relatively user-friendly (Casey, 2017). These circumstances again increase
lock-in as they comfort the user in his usage of the product even if malfunction occur.
Brand Specific Training: Apple offers trainings directly in the store for free (Merrick, 2017). This
way particularly the generations that are not native with the usage of digital devices are getting
locked into its ecosystem, as they are unlikely to learn another OS (Shapiro & Varian, 1999). The
third lock-in type Apple uses is “Information and Database” (Shapiro & Varian, 1999). The Apple
cloud makes data automatically available, on all Apple devices in a well-organized manner
(Garden 2017). Thus, the stipulation to switch brand is lowered and the lock-in increased because
of handy data portability and therefore lowered necessity of changing the brand. Also, switching
brand is connected to an investment of time to drag the data out of Apple’s system and sort it in a
new system.
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2. Open-source influence on lock-in and influence on Android establishment in the mobile
OS market
In 2012, taking almost 50% of total US smart phone market share by operating system and with
majority of smart phone manufacturers onboard, Android established one of the leading positions
in the mobile OS market (Maccormack, Dunn, & Kemerer, 2013). Since Google published the
Android operating system as open-source, a number of manufacturers adopted and launched
Android OS powered devices and quickly a majority of US wireless providers had Android phones
available in stores (Maccormack, Dunn, & Kemerer, 2013). It is clear that open-source played part
in Android’s growth and success. As well as, it allowed Android to compete at the time with one
of the major leader companies in the US smart phone market – Apple, which had strong lock-in
approach.
2.1 Android Open-source effect on lock-in
Not everyone agrees with Apple’s rigid lock-in system, so Android’s open-source operating system
directly competes by addressing different target groups and offering more options (Maccormack,
Dunn, & Kemerer, 2013). Realizing the diversity in an open-source ecosystem a consumer is more
likely to question Apple’s lock-in system.
Open-source has a little to none effect on Lock-in since the product is less controlled by a single
entity and more so of an alliance between the handset manufacturers and Google. Further the
partners can customize the OS according to their needs so they become less reliant on Google
(Maccormack, Dunn, & Kemerer, 2013). Open-source create great opportunity to quickly improve
engineering and manufacturing skills. This is a great opportunity to grow mobile market, create
competition between various manufacturers and speed up advancement of technology as well keep
smooth transition from earlier generations of machines, which helps to reduce switching costs
(Shapiro & Varian, 1999). The main advantages of open-source compared to proprietary for
consumers are:
• No lock-in to single vendor – consumer can choose Android powered devices between
various vendors.
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• No lock-in to specific wireless provider – Android devices are available at all major
wireless providers stores and consumer can choose between different providers and plans
offered.
• Lower switching costs – consumer can easily purchase complementary devices that are
universal to majority of Android devices and consumer can switch from one vendor smart
phone to other and it will require minimum to no time to learn the new interface or software.
• Diversity in prices for Android devices, makes Android products accessible for wider
audience.
Taking in to account that Google has no control over what changes are done to Android OS,
diversity in products often coming with a payoff such as less security in an open source system or
low-quality performance (Maccormack, Dunn, & Kemerer, 2013). However, having access to such
broad audience creates brand specific training lock-in on Android OS. Considering it would require
minimum effort after switching Android devices from one vendor to other, to learn new interface
since foundation of the OS is the same.
2.2 Open-source contribution to Android’s establishment in mobile OS market
Giving a strong product to the market for free, Google allowed the market to develop high
competitiveness particularly in regard to Apple. Additionally, it gave direct and easy opportunities
to those who wouldn’t agree with Apple’s conditions such as app developers and users who want
different carriers (Maccormack, Dunn, & Kemerer, 2013). Thereby addressing other target groups
and wider audience.
The choice of open-source has had positive impact for Google since:
1. Android was made available for free making it cheaper to use than competing systems and
a viable choice of operating system for both entry level and premium devices.
2. The free licensing has boosted adoption, which have created positive externalities and a
diverse app ecosystem.
On a less positive note, the open approach has allowed for a less uniform costumer experience,
since Google doesn’t impose minimum requirements for hardware, quality or control the
implementations of Android done by third parties (Maccormack, Dunn, & Kemerer, 2013). This
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have led to consumers perceive Android products’ quality to be inconsistent. Nevertheless, opensource
made major contribution to the overall growth of mobile market.
3. Microsoft’s decision and strategy of entering the Mobile OS market from the
perspective of lock in
When Microsoft launched their first mobile operating system (OS), Windows CE in 1998, they
sought to expand their position in desktop computing to the mobile category by developing a
“slimmed-down operating system that could be used in” (Maccormack, Dunn, & Kemerer, 2013,
s. 11) what Bill Gates referred to as “PC companions” (Maccormack, Dunn, & Kemerer, 2013, s.
11). Microsoft didn’t produce the mobile hardware, and thus needed hardware partners to make
the OS available. For that reason, they licensed the OS to “original equipment manufacturer for
use wherever they saw fit” (Maccormack, Dunn, & Kemerer, 2013, s. 11) and thereby took a
relatively open approach to hardware control.
By entering the marked for mobile OS, Microsoft sought to utilize its existing install base (Shapiro
& Varian, 1999) by offering an extended use case within the windows eco system in the mobile
category. This minimized users’ perceived switching cost, as they would already be familiar with
the interfaces and functionality from their desktop. In addition, the move (if successful) would
increase customer lock-in to the Windows eco system overall. The lock-in would increases on two
parameters:
1. Information and databases
As users use more Windows products they will rely deeper on that architecture over time,
and continuously store more information in Microsoft’s proprietary file formats. This
increase customer lock-in, as the number of files that are incompatible with other OS’s will
increase over time, which increase the switching costs of the costumer if they wish to leave
the platform, since they would have to convert the files in order to be able to access them
on another OS (Shapiro & Varian, 1999).
2. Durable products
The more the user invests into the Windows eco system, the less likely they are to leave it
as the different devices complement each other, and thus ties the individual investments
closer together. This means that even though the investments in individual products
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depreciates over time, the total investment will still be at a significant value as the user will
have to replace the entire system to achieve a similar functionality on a different platform
(Shapiro & Varian, 1999).
Microsoft’s decision to enter the mobile OS marked seems like a rational decision at the
time, as it makes sense to pursue a strategy which increases Windows market dominance and
customer lock-in. Although one could argue, that it was a flawed decision to develop Windows
Mobile as a “PC Companion” rather than to see it as a completely different device. As noted by
Microsoft’s competitor Netscape “Microsoft was hell-bent on dominating the entire information
infrastructure of the world” (Maccormack, Dunn, & Kemerer, 2013, s. 12), but unfortunately it
didn’t go according to plan.
In 2007, Steve Jobs launched the IPhone which fundamentally changed the smart phone industry
to a more consumer oriented direction with a tight focus on user experience, new technology and
later on an app store. Microsoft was slow to keep up, and didn’t introduce a similar experience
before late 2010 (Maccormack, Dunn, & Kemerer, 2013) which placed Microsoft in the position
as laggard on the market. One possible explanation for the reluctance to embrace a consumer
oriented smartphone experience could be the fact that Microsoft saw mobile as an extension of the
desktop. In 2011 Microsoft announced a partnership with Nokia, in an attempt to ensure quality
hardware for the platform by moving Nokia from their own Symbian platform to Windows Phone
exclusively (Maccormack, Dunn, & Kemerer, 2013).
The slow response of Microsoft led to poor market penetration, which made the platform
unattractive for developers, as the size of the network was too small compared to other platforms.
This led to Windows Mobile having substantially smaller app store library than competing
platforms. By April 2012, the Windows Mobile app store contained about 80.000 in comparison
to the approximately 430.000 and 500.000 apps of the Android Play store and IOS App store
(Maccormack, Dunn, & Kemerer, 2013). The same tendency is visible in the market shares where
Windows phone accounts for 3% globally in the end of 2012 in contrast to Android at 69,7% and
IOS 20,9% (Statista, 2017).
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In 2016 Microsoft sold Nokia (Microsoft News Center, 2016), which is now producing phones
with Android, and in 2017 Microsoft officially discontinued Windows Phone (Spence, 2017) –
thereby ending the era of Microsoft in mobile.
4. RIM future strategy to compete in the mobile OS market
Currently, Apple and Google increase degree of consumer lock-in and switching costs and the
further they go the harder it will be to concur or even compete with these giants. As Android serves
the market for users with rather open source interests and Apple sources the market as an integrated
ecosystem (Maccormack, Dunn, & Kemerer, 2013). Although RIM have a decent share of the
mobile US OS market at around 16% in the end of 2011 it doesn’t seem to be enough for
Blackberry to compete head to head with Android or IOS given that the they both hold much larger
market shares (Maccormack, Dunn, & Kemerer, 2013). As the majority of the market is already
served RIM should rather look at the long tail of the market and find a promising niche. The
company has gathered experience in that kind of markets over the past years and might be able to
develop sustainably from there.
For example, it could specialize in a highly secure ecosystem which would be offered towards
governments and companies with a critical interest in secure ways of communication. This way
also a lock-in strategy could be applied by promising durable product with high security standards.
These standards can only be obtained by staying in the system of RIM in regard to both hardware
and software.
RIM could choose to focus on a niche segment such as corporate solutions like the ones that laid
the foundation for RIM, but that market is too being pursued by Apple and Google. Apple have for
instance entered a partnership with IBM to service Corporates better with integrated solutions.
From where RIM is at it doesn’t look like they are on a safe path towards the future as they lost
their leading position within smart communications and were to slow to catch up.
RIM could benefit from a larger network and app ecosystem, so it would definitely be worth to
consider discontinuing their own OS and focus on a customized version of Android with RIM apps
to deliver specialized services in the future. That would make RIM a part of a much larger network
than the one they are on at the moment, and thus make their product more attractive to consumers.
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However, it would also mean that they would have to write off their investments Blackberry OS
and loose its control over the platform. In addition, that move might reject loyal customers while
reducing the switching costs away from Blackberry OS after the switch to Android making RIM
more exposed to competition from other manufacturers.
Conclusion
Apple and Google’s Android are the two leading brands in current mobile OS market and these
brands continue to increase lock-in, by using two very different, but succesfull strategies. Due to
the scale and accomplishments of these companies, other brands struggle to enter the market and
Microsoft had a very unsuccessful attempt and never achieved such popuparity as Apple or
Android. As well as RIM was not able to keep up with competition and in order to gain popularity
they once had, they need to achieve larger network and app ecosystem. RIM could achieve this by
discontinueing their OS and using Android to their advantage and re-enter the market by focusing
on specialized services.
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