I wrote last month about a potential hostile take-over of Research in Motion (RIMM) by Microsoft (NASDAQ:MSFT). The thesis was this: Microsoft cannot risk losing in the mobile market, and buying the undervalued RIM was one of the cheapest ways it can permanently secure the 3rd place position.
Since that article was published, RIM has climbed significantly and Microsoft followed the broader market downwards.
I continue to believe that the takeover scenario has a non-trivial chance of occurring within a 1-3 year timeframe. As each day passed while RIM CEO Thorsten Heins and his executive team continue their meticulously choreographed launch of BlackBerry 10, and as Microsoft falters and makes mistakes, that scenario becomes more likely. As a long term shareholder of RIM, I urge RIM's management and board to put a plan in place to defend against such a hostile bid from happening before BB10 has time to prove itself as a platform.
But I digress... Today I want to look at this from a different angle.
Microsoft has bet everything on the brain-child they called Windows 8, a hybrid that is supposed to join the mobile and desktop computing worlds together, leveraging Windows' huge (actually, gargantuan) desktop install base and ecosystem, and helping Microsoft gain a mobile foothold in the coming "post-PC era".
Even before its release, critics argued that while this is a good idea on paper, Microsoft must, unequivocally, avoid any user interface "state break" issues. It was absolutely critical that the designers of the OS get it right on the transition of UI between traditional Windows and the so-called "Metro".
Well, it appears that they didn't. To say there was a lukewarm reception by the user community would be an understatement.
Is this something that will blow over, a la Windows ME and Window Vista (which were later redeemed by Win XP and Win 7, respectively)? Or are we seeing, for the first time in decades, an opening in the PC market for new players?
Although it is true that growth in the PC market has slow or stagnated (including desktops and laptops), it is still a $160 billion/year global market that Microsoft very much depends on as the cash cow that bankrolls its other ventures. A fundamental shift to mobile computing is happening - there are no doubts about that - but Microsoft, in its bid to gain a foothold in the mobile space, risks expediting the exodus from the Windows OS by failing so badly in the traditional PC stronghold.
The difference between today and the era of Win ME and Vista is that back then, the mobile space was tiny in comparison, and there were little other credible alternatives. Nowadays, given the popularity of the mobile ecosystems, it is very plausible that one of the major players will exploit this chink in the armor to enter the PC market in a big way. This leaves less time for Microsoft to correct their mistakes with Windows 9 or 10.
Apple (NASDAQ:AAPL), while maintaining a dichotomy between their mobile (iOS) and desktop (OS X) operating systems, managed to increase Mac's share of the US PC market to a significant 13% earlier this year, in no small part due to the "halo effect" from Apple's wildly successful iOS and the corresponding ecosystem lock-in.
Microsoft CEO Steve Ballmer may have made a mistake by not copying Apple's successful model of first keeping iOS and OS X separate, and then slowly introducing convergence to the user-base, feature by feature.
As OS X evolved to Lion to Mountain Lion, Apple added features familiar to iPhone users such as the notification bar, full screen mode, and the App Store. Who knows what kind of unified architecture this will eventually lead to, but at least the users are not shell-shocked all at once.
Also coming from behind is the least expected contestant of all - Research in Motion.
RIM CEO Thorsten Heins has said that they are aiming for "No. 3" in the mobile phone market. But behind this facade of humility, he has some truly audacious ambitions. Recently in an interview with New York Times:
[Thorsten Heins] said RIM is pitching the new phone to corporations as a replacement for desktop and laptop computers in the offices over time. He sketched out a scenario where BlackBerry 10 phones will act as a building passes for employees who, once at their desks, will connect their BlackBerry to a keyboard and display.
"You will not carry a laptop within three to five years."
Are we on the verge of another sea-change? At this point, I don't think anyone is expecting Microsoft to lose significant PC market share to RIM. But even if Microsoft only stumbles a little and lets RIM shave a few tiny percentage points off the enterprise PC space, it will have a staggering effect on RIM's income statement.
Of course, all of this is moot if the first BlackBerry 10 devices in January do not turn out to be a raging success. The entire future of the platform, in fact, depends on the success of its first phone.
So much is riding on BB10's launch, just as so much was riding on the Windows 8 launch. Any small mistake will be felt for years to come for either firm. But based on the track records of their respective CEOs, I have much more confidence in Heins' ability to pull this off than Ballmer's.
And when he does, Thorsten Heins will legitimately go down in history as the Hero CEO that RIM's long-term shareholders desperately needed.
Disclosure: I am long RIMM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.