Friday was a terrible day for Research in Motion’s (RIMM) shareholders and employees. The stock’s 21% pummeling was the culmination of a series of bad management decisions that date back to first time the word iPhone was uttered in January of 2007. RIMM’s management snickered at the announcement. After all, RIMM was king of the mobile hill. It had a legion of fanatical customers. Its market share was growing like weeds. All was good.
Four years later, management still believes it’s 6 months away from a viable response. In the mean time, I carved out a few bucks on the short side. Not nearly as much as I should have, but I am ready to move on to the next casualty in the smartphone wars.
Here are a series of tweets that I tweeted after the RIMM conference call:
I received several responses back, but none were ready to accept my thesis. Matter of fact, my thesis sounds bizarre. Android is a state of the art OS. Its users are fanatical about it and it’s growing like weeds. Sounds familiar. All is true, but Google’s secret sauce is under attack. Android manufacturers love it, because it’s a much better OS than they could design and the price is right – $0. Google gives Android away hoping to make money from ads.
Well – free is not free anymore. HTC pays Microsoft (NASDAQ:MSFT) a $5 fee for every Adroid device it sells as part of a patent settlement between the two companies. Microsoft has also filed a lawsuit against Motorola (NYSE:MMI) claiming their devices infringe on nine patents. Microsoft is also pursuing patent deals with other Android manufacturers including Acer and ASUS.
Oracle (NYSE:ORCL) is also getting into the mix. A filing from Google hinted that Oracle wants more in damages than Android has earned in its entire existence. Hot off the press – an Oracle expert claims that Google may owe up to $6 billion. If Microsoft delivers on its upcoming Windows Phone 8 OS – these lawsuits may push many Android OEMs into Steve Ballmer’s arms.
If Larry Ellison and Steve Ballmer don’t inflict enough pain – Google is doing a pretty good job itself. Solar initiatives and driverless cars will all prove to be superfluous expenses. Worse yet it’s entire mobile revenue/expense structure is upside down. Although Android is growing like wildfire, Google’s share of profits is not growing proportionally. It has effectively become the software R&D department for Android manufacturers in exchange for a hope that an end user will click on an ad.
Google’s Wallet mobile payment service continues its “hope for a click model.” IMO, the amount of money that it has/will spend is not commensurate with its return. Its desktop search advertising cash cow has allowed Google to maintain its current business model. However, desktop search is under attack as different discovery models emerge.
Every analyst and their grandmother downgraded RIMM on Friday. That horse is out of the barn. Where were they 6 months ago? Check my archives. I felt like a lone wolf 1.5 years ago. Google is still in the barn grazing. I don’t expect it to shed $500 in the next few days. This is a long term play for me.
Disclosure: Short Google. Position subject to change at any time.