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What Does ActiveSync Mean to Research In Motion’s Service Revenue?

By Chris Umiastowski on 20 Jan 2012 03:27 pm EST
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At CES RIM demonstrated Playbook 2.0 software and revealed that email (even consumer email) will be handled via ActiveSync, which is a Microsoft technology. By adopting ActiveSync to send email to the Playbook (and presumably all upcoming BlackBerry 10 devices), it sounds like the NOC isn't being used for email transport anymore.

This change is causing some people to wonder if RIM's service revenue may be at risk. The stock market has long loved the fact that RIM can collect service fees from carriers on a recurring basis. Every BlackBerry subscriber has traditionally generated a few bucks per month of service revenue for RIM. Users don't pay this to RIM directly. They just pay their bill, and RIM collects the fees from the carriers.

As you may or may not realize, RIM generates over $1 billion in service revenue per quarter, which is about 20% of their +$5 billion in quarterly revenue. It may only be 20% of revenue, but it's by far the most profitable revenue for RIM since service margins are huge. Hardware margins aren't so huge. If RIM lost these service revenues, the company would be unprofitable by most analyst estimates.

A big part of the reason that RIM stock is trading at near-record lows is driven by Wall Street's belief that this service revenue is not sustainable. After all, no other mobile platform has been able to duplicate these service fees, and given the competitive environment it's fair to ask what value-added extras RIM is bringing to the table. Something's gotta give, right?

When the BlackBerry solution first hit the market, email was THE killer app. Specifically, push email. RIM built its own relay as part of the NOC so that it could speedily give us our email fix. Where did you think the name CrackBerry came from anyway?

Because of this unique differentiation, RIM was able to convince carriers to pay for BlackBerry. We don't really know what the fee is today, but in the past RIM was able to get $7-9 per enterprise subscriber per month. For BIS users, I believe the fee drops to as low as $2 per month. But still, this $2 is hard for carriers to pass on to customers. So it hurts carrier profitability unless it also brings with it some hidden savings (which I'll touch on below).

And now, if RIM is switching to ActiveSync, what makes them different? Google licensed ActiveSync as the technology inside of Google Sync, which pushes Gmail to mobile devices. Microsoft uses it for Hotmail (and obviously Exchange Server). Is RIM just becoming a me too player on email? If so, why should carriers keep paying? At least that's the question I want to try to answer.

I haven't been able to get a clear answer out of RIM on this yet, but my assumption is that they are deploying ActiveSync on their own servers within the BlackBerry infrastructure. So the way I see it, they're just swapping out their own relay for a better technology.

Yes, you heard me right. I consider ActiveSync to be superior. For example, it supports proper two-way synchronization to Gmail accounts, something that the current BIS solution does not. And we shouldn't have to worry about the RIM relay failing anymore either. All they need to do is maintain a connection to the public Internet and Crackberry users get their email fix. I see this change as a good thing.

There are a ton of other questions left to be answered also. Will web traffic stop moving through RIM's relay too? What about Facebook traffic? Surely RIM will still need its own relay for PIN to PIN messaging, right?

The switch to ActiveSync, then, doesn't necessarily mean RIM is cutting costs in its NOC. And from what we've been told in Kevin's follow-up interview with Michael at RIM (video at top of story), the NOC is still essential in delivering many BlackBerry services, including BBM and Video Chat and will still play a role in email, taking care of account configuration. And for enterprise PlayBooks, and presumably BlackBerry 10 phones, BlackBerry devices managed by BlackBerry Fusion will receive an added layer of security for enterprise users above what ActiveSync provides. This sounds like something worth paying for.

RIM has always differentiated between service fees charged to enterprise customers versus regular consumers. I can see how they'll be able to continue collecting fees from enterprise users, but what about consumers? After all, the vast majority of BlackBerry subscribers are non-enterprise. Some rough math implies that RIM gets most of its service revenue from consumers, not enterprise accounts.

Can they keep collecting these fees?
We have to remember that part of the fee covers customer support. When your Verizon iPhone gives you a problem, Verizon handles the problem, not Apple. When your Android phone isn't connecting to AT&T, you can't get help from Google. It's the carrier's problem. With BlackBerry, carriers can escalate problems to RIM. This doesn't change and there is no reason RIM should offer this service for free.

Another aspect that helps RIM is the company's view towards partnering with carriers. We believe RIM pays carriers 10% of all app sales, which explains why they cut the share that vendors get from 80% down to 70% back in 2010. Apple doesn't pay carriers anything. Some industry pundits think that Google shares app revenue with carriers, but it's not clear.

I think it's fair for RIM to expect a monthly fee for their service if they are sharing revenue with carriers. But right now, given app sales volume and pricing, I cant' see the carrier commissions coming anywhere close to the fees they pay RIM to manage the BlackBerry service. So I can see how carriers would continue to pressure RIM down on pricing.

My guess is that the service fees RIM gets for providing the core BlackBerry services will continue to shrink. I don't think it will shrink particularly quickly, but RIM will need to make up for the difference through volume or alternative fees.

The move from RIM's own relay to ActiveSync, in my mind, really doesn't change anything. But it may give carriers one more reason to open the doors on this discussion.

Reader comments

What Does ActiveSync Mean to Research In Motion’s Service Revenue?

55 Comments

buy an iphone or android phone - check your emails.
buy a blackberry - pay 5$ per month to check emails.
i think it's worth it, but alot of people think twice before buying a berry. and too much people seem to choose the droid..

That $5 seems to be hidden in the cost of a service plan fee.

For example, a Berry 1GB data plan and iPhone data plan was the same at Rogers when I signed up.

After exploring different options (carriers and devices) I think it's 'buy iphone or android phone -> pay for expensive data plan -> check your emails', and there is also buy a BlackBerry -> choose from 3 flavours: unlimited email and IM, unlimited IM, Twitter, and Facebook; or full data plan -> pay for cheaper plan -> check emails if email or data plan chosen.

What carrier would that be? Certainly no carrier in the US has a discounted data package for BBs that is any less than for another smartphone platform, and some carriers continue to insist on an additional fees for Blackberry.

Chris, you missed on the data compression part which is huge for the carriers and enterprises that is primary reason they pay RIM, Even with Active sync RIM is bound to do data compression via NOC. Also with activesync and NOC it opens up a lot of scope for RIM to market their services on other platforms say IOS and Android as part of Mobile fusion.

I like the sound of that. And it would consolidate the rumors about RIM licensing out technology while remaining intact.

How will this effect the security of my BlackBerry? I am not an enterprise user however I love the Blackberry Business model of Security first. Other phone mfg. don't care as much, In my opinion.

indeed... you can do a lot of damage to android device without requesting any special rights from device user / with unsigned code.

on blackberry this is almost impossible,

who cares about data compression on wifi???

the way I see it, either they license BBX, or they make top-notch hardware themselves that runs BBX.

period.

You had me at proper two-way Gmail sync. Data compression would be nice, but at least on Telus I am forced into a plan with 500MB or more anyway so it doesn't really matter. I'm not really sure what else is lost. Sounds like a great move to me.

So glad it is Active Sync because it allows you to access your subfolders on Microsoft Outlook; something I have always wanted but never had on my Blackberry phone.

Maybe I'm missing something, but I can access my subfolders on my 9850 ... and from what I understand BB7.1 OS isn't using Activesync yet. Is it the difference between BES/BIS (I am fairly new to the BIS structure.)

RIM needs to be smart about this platform.

1) They have awesome hardware.
2) They're developing an awesome new OS.
3) They have the NOC / infrastructure.

Gaming is a new and powerful digital economy with very little in the way of mobile greatness. There are Nintendo 3DS and Sony PS Vita's out there, but not much more.

This is a great opportunity for RIM to use the NOC / infrastructure in a creative new way by making the BlackBerry platform a viable gaming platform.

Sony has their ps store, RIM has appworld. Sony has a gaming infrastructure, RIM technically does too, they just don't know it yet.

RIM has an advantage over Nintendo's and Sony's because of their relationship with mobile carriers globally - and the NOC

So, they already have the majority of the ground work and puzzle pieces in place, and are in a perfect position to shock the world with a huge dive into the "gaming pool". Do they have anything to lose? Nope. Do they have something to game, I mean gain by entering the "gaming market"? Of course they do.

It would quite frankly be silly of RIM not to consider this opportunity to revolutionize the world of gaming, just like they did with the first smart devices.

The NOC is still a potential differentiator, provided rim uses it wisely, like they always have for their current business, just expand it for new business.

Everybody knows gaming is where it's at, people want to be able to game on the go, play online games where ever they want, seriously.

Eventually even the workplace will become gamified. No jokes here folks, farilla gorilla.

Peace
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in the time of your life, live so that in that good time, there should be no ugliness or death for yourself or for any life that your life touches, seek goodness everywhere

+1
I want to go head-to-head in NFS Underground with my friends out East. Ignore the fact the game doesn't have head-to-head, the next version will once they figure this out!

I'm not sure what the confusion is about, unless the RIM rep is misleading us in this video, it seemed clear to me that AS is simply replacing there current transport system, and the NOC will still do everything it does now for BIS/BES. AS is simply the new highway to get the data to the NOC.

So we get both the advantages of AS, that we have been missing plus keep all of RIM's NOC services as well. Looks like a win/win to me if implemented correctly.

And since RIM continues to offer all subscribers the same NOC services there is no reason for RIM to lose that revenue.

CS

At the very least RIM would be losing revenue by having to pay MS for AS. A win for MS and consumers. I wonder how much MS is getting out of that monthly fee?

But why bother with forcing email/PDA traffic through the NOC? ActiveSync built into the handset OS allows the BB to communicate directly with the mail servers, removing a potential point of overhead and potential point of failure.

Plus, with a direct ActiveSync connection, data no longer would have to pass through the NOC and be subject to any inspection or storage by RIM - meaning your data doesn't exist on their systems as well as on your phone and your email server.

because they are saying that by going through the NOC, data will always be encrypted when using Mobile Fusion. Also other services like video chat and other data (attachments) would use the NOC for data compression and BBM social app traffic I would guess.

Personaly I'm happy with RIMs level of uptime. Is's still 99.9% up and thats good for me. The last outtage was long though.

The biggest factor for me is the cell service. Its bad so the performance is as good as it or WIFI signal. I am better served by the NOC than by my carrier.

New Ad campaign nobody will understand called "The NOC Rocks" - and a series of mysterious "new age" religion ads will start appearing on tv's globally.
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in the time of your life, live so that in that good time, there should be no ugliness or death for yourself or for any life that your life touches, seek goodness everywhere

A big part of the reason that RIM stock is trading at near-record lows is driven by Wall Street's belief that this service revenue is not sustainable.

Best example of ex post justification I've read in a long time....

The new phones will have BBM, they will need the NOC, plau RIM can leaverage the NOC for a lot of cloud services. So as I said Wall Street is just trying to justify it's insanity on RIM or it is filled with a bunch of morons, and actually having taught hundreds of people who now work on Wall Street... it's both.

This may or may not be part of the reason for this decision, but the current BB push email paradigm is not really applicable to the Playbook. It is not an "always on" device (as opposed to the phones). It may be turned off most of the time. It is possible that RIM does not have a robust back end solution for this situation in-house, it is a completely different can of worms.

I actually believe this is their only solution for a WIFI only device, Future smart phones and 3g(4G) tablets should be able handle RIM email service. One can only hope RIM would actually shred some more light on this soon. Bad press piling up again *sighh

Chris, one of your better articles. As RIM's market share dwindles in U.S. It is losing bargaining power. Most U.S. Carriers are peddling Android devices. RIM's service revenues will start to shrink in my opinion. As you mentioned, the stock price is discounting the harsh reality. Some here at CrackBerry.com have argued that NOC is a hindrance to RIM. If it can't be leveraged for cloud services, then NOC's usefulness is dwindling.

Well said. RIM has clung to their email sync solution to sustain service revenues to the detriment of the customers. They should have been rethinking how they can provide services and maintain service revenue and profitability in different ways long before now.

Continuing to charge a NOC tax probably isn't it. \

There are so many ways they can use their top tier NOC to provide cloud services or hosting that could not only help maintain service revenues but even enhance them, if they embrace the change rather than deny it.

i wont claim i understand all this technical mumbo jumbo but if it means better features while still maintaining push capabilities and security then i am all for it.
in terms of rim getting lower ,argins, thats just how business is nowadays. u cant expect fat margins with stiff competition. rim just has to step up their game and increase their revenues by selling more phones and apps.

i work as a tech support in for a major mobile provider. and here is what you guys should know:
1- data compression: this is a major topic not to be taken lightly. many companies are investin huge money to find ways of compressing data for a reason. too many people have smartphones. soon there will only be smartphones. the LTE network brings high speed to everyone and do not forget that more and more people are using phones as modems/hotspots. the number of calls we get for data overage and high international data roaming - as you know many people travel with their phones - is simply huge. this cost the clients huge amount of money and the carriers even more as they pay a lot for every call they get, credits they apply and churn risk that causes. and believe me, blackberry users use waaaay less data that iphone and a hell less than androids.
2- the ease that setting up / troubleshoot email issues for a blackberry is not to be compared with iphones for example. RIM gives great tools to us to fix clients issues and assist them. AND they give great web tools (BIS) to clients to manage their emails. Some of you might not realize that companies don't all use BES. many of them have a tech who manages 20-30 employee's BIS.
if I was the owner of the company that I work for, I'd be happy to continue paying for RIM because if it takes 2 min for me to add an email and test it on a client's blackberry, it takes at least 10 min to walk an "average" customer in setting up email on his iphone. not to mention the issues with the smtp serverS that people don't need to worry about with RIM

Excellent point, once again the fools on Wall Street are talking and betting out of their asses. Basically you've got a bunch of MBAs betting all companies are going to drop BB and go to iPhone or Android, and they are not giving a thought to the issues you raise here.

I'm sure some MBA managers will make the decision to switch to iPhone over the objections of IT officers and a few months later it will be wholly F what did we do?

But hey it's America we don't care if productivity goes in the toilet as long as our phones look good. We don't care if our kids learn nothing in school as long as they pass!

Makes sense. RIM chops up and blocks big emails, funnels your internet to a crawl, etc. Saves bandwidth, carriers kickback $.

On the enterprise side, I don't see any particular change in RIM's service revenue. In one of the clips from CES, Michael Clewley explained that the NOC is used to add a level of security to ActiveSync on the PlayBook: BlackBerry infrastructure is used to tunnel the ActiveSync communication, adding BlackBerry encryption and compression.

It's frustrating that RIM hasn't set out a roadmap for the future, and that explanations like this come out in dribs and drabs.

Going to ActiveSync brings some real advantages to RIM. For example, employees will be able to use ActiveSync-based BlackBerry phones even if their employers do not support BES.

In countries with high-speed wireless networks, data compression is less and less important for personal phones, because more and more of the data consists of films and music, which cannot be practically compressed any further.

In some other countries, RIM'S data transmission infrastructure is becoming a liability for RIM, as governments demand access to the message and BBM data, and (in the case of Indonesia) demand the installation of a local NOC.

So RIM may have good reason to move some or all of its non-enterprise data transmission on to the telco's network.

I presume RIM will still find some way to make users pay for BBM, as well as new cloud services that are apparently under development. According to explanations at CES, the NOC is still being used for non-enterprise PlayBook email, in that the NOC is used to simplify email setup and configuration.

if i am reading your comment right verrybestr it sounds like the time will come where the BlackBerry devices will be able to be added as an account via Active Sync on an Enterprise Server that does not support Bes/BesX? i sure hope this is true because my company announced that they are discontinuing the Bes relationship and those of us who owns BlackBeery will have to switch devices to continue the Outlook relationshio we have with e-mail, contacts and calendar. i dint want to give up my Bold 9900!!!!

http://forums.crackberry.com/blackberry-bold-9930-9900-f235/company-disc...

Great article.

Does anyone know if RIM is paying royalties/licenses for their current "Push" email?

Maybe using ActiveSync the cheaper option for royalties/license at this point.

RIM invented & built their NOC Push email themself so they won't be paying any Royalties for it. By adding ActiveSync they will be paying M$ something, though I bet it's a lot less then the Android guys....what was it that M$ made off of Android last year? 370+ Million?

Do you think if EVER RIM releases a 3G/4G Playbook, it will be applicable to their NOC model?

I am really speculating here, but I think it is the push email model that does not work well with a tablet style device, not the NOC itself.

In the traditional BB environment, each individual message (or part of it) is delivered to the handset as soon as possible, often within seconds.

In the tablet scenario, nothing can be delivered to the device while it is off or suspended, and users expect to see an up to date view of their mailbox soon after turning on the device.

Because of this, I find the bridge based email client much more practical than the "native" or web based solution, for users who own both a Playbook and a BB phone.

yeah, i agree with Kevin's saying, "i don't care how it works as long as it works..." i don't really care of having the NOC or the ActiveSync for email transport, i believe RIM has all its judgements & adjustments before deciding to adopt the AS for its email transport system.

HOWEVER, i do believe, the NOC won't be left out. well, we know, berries are well known for their data efficiency (something that droids & iphones or even WP DON'T HAVE!!!!) and no matter how many berries are on the network, they're designed to consume as small data amount as possible, which means.. if you're heavily using BBM or email, i don't think you need 3G or H+ that much, coz.. berries can stand on EDGE/GPRS while still providing a truly push system. therefore, i believe that the NOC and AS will be integrated & work in harmony for a better efficiency & reliability.

HIT IT RIM!!!

As you stated in some of your previous posts (when someone mentioned sale to Samsung), RIM's yearly revenue is 5-8 billion. What does this mean? Either your were wrong with your maths then or now...

Using a NOC matters when you have more than one email accounts because it will do all the work for you and only bug you when there is a change. It does save battery life since you don't have to keep 10 different IMAP/Activesync connections alive, but if you have just one email account, I don't really see the point.
So, I'm glad RIM is moving to Activesync, but I hope they're going to use a mixed model where they connect to your accounts and notify you of changes, but then let the apps talk to the individual servers directly.
If anything, RIM's email, contacts and calendar clients with all their limitations due to the fact that they get their info from RIM's NOC have been more of a hindrance. No folder support, no standard security features (S/Mime and PGP), no standards based sync support for each account.
Google is doing a better job with their suite, but their job is easier since they manage the apps as well.

Regarding compression for emails, just enable it in your IMAP server. You want it for your browser, use a proxy, some carriers do that anyway.

I disagree that the NOC is a hindrance. You don't have to use the built-in clients if you need additional features. It is relatively easy to develop clients based on the BB platform's services that work with standard or proprietary servers/proxies, to support the features you listed. You would not even have to keep 10 different IMAP/Activesync connections alive - as you mentioned above, the push service can be used for that more efficiently.

Why would small businesses pay thousands of dollars to develop their own email clients + go through the trouble of maintaining the app?
And developers are not allowed to sell competing products that use RIM's APIs, so the ball is in RIM's camp to build a better product.

If there was demand for this type of product or service, developers would probably fill it. As for not being able to sell competing (or, in this case, complementary) products, do you know of any specific examples, outside of consumer apps sold through App World?

Looks like a nice application.

The blog posting says "We submitted an application to RIM in February 09 to join the ISV Alliance Program in order to be able to use the RIM SDK".

If I remember correctly, you did not have to be a member of the ISV Alliance program in 2009 to use the SDK or sign your app. You only had to purchase the code signing keys from RIM, without submitting an actual app. Am I mistaken about this? Or did RIM also reject their request for the code signing keys because of this product?

I don't have all the details, but 6 months ago, things had not changed, they could not get their app signed.
Do a search for Activesync in Appworld -> 0 results. That tells me that RIM is not willing for those apps to be made easily available on their platform.

What will this mean for BES though? How will RIM be able to offer all the different policies that are not necessarily part of the ActiveSync landscape? Also, for BES users, that means no more syncing of notes with Exchange, and depending on how much they dumb it down, possibly no syncing of tasks either. So, maybe good for BIS users and some IMAP functionality, but does it really help their business clients (who are the bread and butter)?

you make it sound like activesync is free. there is the license fee that is taken out from the device manufacturer and passed back to microsoft. there is the increased data usage that is passed on to the consumer. the average activesync email is 10 - 30 kb in size,while the blackbberry messages are 1-2kb in size. activesync doesnt support a lot of things such as memo sync andltitude of control policies that are available over bes

The supporting technology within ActiveSync clearly does have enhanced functionality over RIMs solution but lets remember RIM have the only REAL Push technology out there.

You need a way for the server to communicate to the device for true push and the RIM APN set-up on mobile phones allows this.

All other push is really clever pull

We are moving away from Blackberry devices specifically because they don't support ActiveSync. We changed mail servers and the BES support is pretty poor, so our solution has been to go with more Android and iPhones. I have 50 phones using Astrasync to cover the problems with BES and our mail server. It works, but its way easier to maintain the iPhones and Androids. I personally have stayed with my Blackberry. I'm hoping ActiveSynce could someday be made available to older devices too.