RIM Got Almost Everything Wrong

The core switch failure that rocked Research In Motion and left its millions of BlackBerry users with slow or inaccessible email for up to three days could have cost the company as much as $350 million (£224m), or one month of subscriber fees, according to financial analysts.

RIM’s infrastructure went haywire 10 October, in its Slough data center, only to have it spread across Europe, the Middle East, Africa and Asia, and eventually include Brazil, Chile, Argentina, Canada and the United States. Service was fully restored across all countries by 14 October.

Did RIM do anything right?

RIM declined to name the core switch manufacturer, noting that it “works with multiple vendors and it is premature to discuss root cause until a full analysis has taken place.”

Declining to throw its gear makers under the bus may be one of the few things the company did right in handling the situation.

Noting that RIM’s user base is questioning RIM’s traditionally rock solid reliability, Jefferies & Co. analyst Peter Misek said RIM may lose as much as $350 million (but probably less), as RIM has over 70 million subscribers with an average monthly fee of $5.

“We believe refunding more than a month’s worth of fees is unlikely,” Misek said. Moreover, any monies paid would seem to be inconsequential in light of the damage to the company’s brand worldwide – and so far RIM is offering free apps in compensation.

“In our view, this opens the door to competitors as corporate CTOs and IT departments may now be more open to explore other options besides the BlackBerry standard,” Misek added.

That’s good news for Apple’s iPhone and Google Android handsets, which are already gaining traction in the enterprise. Misek said RIM’s new BlackBerry OS 7 handsets, the 9900 and 9930, are already seeing slow sales in October after early adopters purchased those phones in September.

It doesn’t help that Apple is offering its 3GS iPhone free on contract, or that low-cost Android phones are rising up worldwide to nibble at RIM’s subscriber base and market share.

“While no time is a good time for a massive system failure, the time of this failure given RIM’s position in the current market with dropping market share and everyone looking at them with a magnifying glass means that this failure has much higher visibility than it might have gotten a couple of years ago,” industry analyst Jack Gold told eWEEK.

Still, Forrester Research analyst Stephen Mann said RIM couldn’t have mismanaged customers’ expectations more poorly if it tried.

Is RIM good enough to buy?

“Communications have been lacking and one could argue that their tone has been terse – a far cry from customer-focused,” Mann wrote on his corporate blog. “Surely the modern service-savvy customer, whether corporate or not, is not prepared to be treated in this way. In many ways, RIM has not only now fully opened the front door to its competitors it has also invited them in and provided them with a pipe and slippers.”

Against this black backdrop, RIM will soldier on. Its BlackBerry DevCon Americas conference starts today in San Francisco.

Susquehanna Financial Group analyst Jeffrey Fidacaro said RIM is expected to launch a major upgrade to its QNX operating system, the platform behind the BlackBerry PlayBook and the company’s forthcoming “super” smartphones, as well as the QNX developer platform.

This upgrade, already delayed from its intended summer launch, will bring native BlackBerry email, contacts and calendar applications to the PlayBook and sync them with BlackBerry Enterprise Server. Consummation of this engineering feat will let analysts know just how credible is RIM’s plan to port QNX to smartphones in early 2012.

It will also signal to potential acquirers that RIM can handle the technology integration between BlackBerry and QNX, added Misek, noting that Microsoft, Facebook, Amazon and others may be looking at RIM as a target.