Consider it a battle less for hearts and minds than for thumbs and ears. That's what may ensue between Apple (AAPL) and Research In Motion (RIMM), judging from recent Wall Street analysis and the performance of the companies' shares and marquee products.
Apple's iPhone is expected to sell 10 million units by the end of 2008. Meanwhile, RIM has 12 million subscribers, and its iconic BlackBerry is selling at a rate of about 4 million units a quarter. Shares in Apple have been trading near a record $200, while RIM reached a split-adjusted record of $137 in November.
Target markets for the iPhone and BlackBerry are starting to overlap as well. The iPhone is a media consumer's dream, playing movies and music with ease. But it's not as finely tuned for the corporate user; large companies have resisted letting employees use iPhones on corporate networks, and IT consultant Gartner (IT) has advised corporate clients to avoid the iPhone for now. Still, analysts speculate that Apple is working on a corporate-friendly version of its e-mail software or that Apple will announce that it's working with a third party to handle the job.
Meanwhile, BlackBerry devices are taking on more iPhone-like trappings all the time. The BlackBerry has long been the staple of corporate users who focused mostly on e-mail and calendar features, but RIM has recently been aiming for high-end consumers who might buy the device for play as much as for work. BlackBerrys now boast cameras that shoot both still and video images. They also play music. Now, RIM is rumored by analysts and gadget blogs to be working on a new device, the Blackberry 9000, that sports a touch-sensitive screen—making it look an awful lot like an iPhone. RIM declines to comment on future products.
So are Apple and RIM on a collision course? Opinions vary. Blogger Henry Blodget of Silicon Alley Insider has argued that war between the two tech titans is already under way. RIM still sells most of its devices to corporate users. Yet in the most recent quarter, about 1.3 million units, or 34% of the total, went to what RIM calls "non-enterprise" customers—small businesses or consumers buying a BlackBerry for themselves. That alone amounts to more BlackBerrys than the 1.1 million iPhones Apple sold in the same period, Blodget argues. Like it or not, he says, the companies are scrapping over the same customers.
Other analysts see it differently. The battle is less Apple vs. RIM, they say, and more a contest pitting RIM and Apple against established phone vendors like Nokia (NOK), Samsung, and Motorola (MOT). Smartphones, which combine such features as e-mail, navigation, and Web access, will grab an ever-growing slice of the billion-unit-plus handset market in 2008. "I don't think Apple and RIM are heading for a showdown in 2008," says Andy Hargreaves, an analyst at Pacific Crest Securities in Portland, Ore. "I think the market for smartphones is growing fast enough, and smartphone adoption is low enough, so far that both will be huge share gainers. Apple and RIM are two companies that get it right now, and they're both going to do well." In a research note published Dec. 21, after RIM's most recent earnings report, Bear Stearns (BSC) analyst Andy Neff wrote: "The battle is not RIM vs. Apple, but smartphones versus conventional handsets."
If that's the case, Motorola (MOT) will need to watch its back.
Having tied its smartphone strategy to Microsoft (MSFT) with its Q phone line, Motorola hasn't generated much traction, while the popularity of its once red-hot RAZR line of conventional handsets has cooled substantially (BusinessWeek.com, 11/30/07). Once No. 2 in the world handset market behind Nokia, Motorola has recently fallen into third place behind Samsung. (BusinessWeek.com, 12/26/07).
Nokia is getting ready for the fight, too. In December the company announced a tieup with Universal Music Group (VIV.PA) that will put a music-download service on many high-end Nokia phones. Other labels, eager for negotiating leverage against Apple, which operates the hugely popular iTunes Store, are expected to follow suit. (BusinessWeek.com, 12/04/07).
Handset makers will get an assist in any battle with Apple and RIM from Android, Google's (GOOG) free smartphone operating system. Long thought to have been working on a phone of its own, Google revealed that instead it's creating operating-system software that it will share, for free, with mobile-phone vendors. The first handsets to use it aren't expected to ship before the second half of the year. That means Apple and RIM, both with high-profile device launches planned for roughly the same time, will have to share the stage with Google and its many hardware partners, which include Motorola, LG Electronics and HTC.
So whether the main competition is between Apple and RIM or more generally between smartphones and traditional cell phones, consumers—and their thumbs and ears—will surely take note.