Earlier this month, when I showed you the rise and fall of Nokia (NYSE:NOK) and Research In Motion (Nasdaq: RIMM), I noted how both companies that are now fighting for their lives saw smartphone unit shipments both peak during the exact same quarter: the fourth quarter of 2010.
Of course, Apple's (NASDAQ:AAPL) iPhone and Google Android played no small roles in the precipitous declines, but there's another important phenomenon at play: the Osborne effect.
A trip down memory lane
For a quick history lesson refresher on the Osborne effect, back in the early 1980s the Osborne Computer Corporation was enjoying robust sales of its personal computer, the Osborne 1. It was released in 1981 and considered among the first commercially successful portable microcomputers on the market.
In 1983, founder Adam Osborne preannounced a couple of new next-generation models, the Executive and Vixen, touting how much better the new machines were relative to their predecessor. Importantly, these computers were not ready yet and were yet to be manufactured, so prospective customers would have to wait before getting their hands on one.
Wait they did, and in the meantime sales of the existing Osborne 1 plunged and revenue dried up to the point where the company was forced into bankruptcy shortly after. Some tech historians say there were many contributing factors to Osborne's demise, with the product preannouncement being just one of many.
Regardless, early announcements of unfinished products that lead to plummeting sales is now affectionately known as the Osborne effect.
Back to the future
This is exactly in part what's happening to Nokia and RIM as we speak, and both incidentally had major strategic product announcements almost immediately after smartphone unit shipments peaked in the fourth quarter of 2010.
In February 2011, Nokia and Microsoft (NASDAQ:MSFT) made their love affair public, announcing a major strategic partnership that effectively abandoned the Symbian operating system in favor of the software giant's Windows Phone push. Nokia said it would "adopt Windows Phone as its principal smartphone strategy." This was just six months after ex-Microsoft exec Stephen Elop was named Nokia's CEO.
The first fruitful offspring of this union wouldn't be born for another nine months, with the Lumia 800 launching in November in the U.K. The first U.S.-bound device would follow shortly, with the Lumia 710 released on T-Mobile's network in January of this year. You can see in that graph what happened to smartphone shipments in the meantime.
Microsoft also recently gave prospective Lumia buyers even more reason to wait, when it said current devices wouldn't be upgradable to the next major version, Windows Phone 8, and that apps made for the new operating system would not be backwards-compatible.
There's no mystery left in our relationship
Research In Motion pulled a similar move a month later. The BlackBerry maker had acquired QNX Software in April 2010 from Harman International. This acquisition would be the foundation of its PlayBook tablet OS, with the device being unveiled less than six months later, in September 2010.
On an earnings conference call in March 2011, then co-CEO Jim Balsillie outlined not just one, but the next two major operating system upgrades: BlackBerry 6.1 and QNX. At the time, the plan was to launch BlackBerry 6.1 devices in 2011, with QNX-based devices following up in 2012.
BlackBerry 6.1 was subsequently renamed BlackBerry 7 and launched the following month at BlackBerry World. In June, Balsillie's better (or worse) half, then co-CEO Mike Lazaridis, talked up the planned switch to QNX:
And we're trying to very carefully navigate that transition. I think we've done probably the best job we could in the sense that we now have two very powerful platforms that are very perfectly evolved with the kind of markets they're going after and the kind of experience they're trying to provide. And plus, at the same time, we have an opportunity to really get into the high-end, high-performance platform that will allow us to have a, really, a common single platform in the future that encompasses smartphones as well as tablets.
It's almost as if he was begging consumers to wait, promising a powerful, perfected, high-end, high-performance, unified platform on the horizon. Little did consumers know at the time, but now BlackBerry 10 is slated for a 2013 launch after numerous delays, and assuming it's not delayed again. Current BlackBerry 7 devices also won't be upgradable to BlackBerry 10.
How long do the remaining BlackBerry loyalists have to wait?
You promised me, Apple
This is one of many reasons Apple is so notoriously secretive. With the levels of hype that Apple product launches garner, it would undoubtedly crush its own sales if it announced products even months in advance.
Instead, Apple slowly and silently draws down inventory in distribution channels, and then the upgraded product is available immediately (or nearly immediately) after it's announced. When marketing chief Phil Schiller unveiled the new MacBook Pro with Retina display last month, it began shipping same day. This mitigates the risk of getting stuck with unsold, less valuable, and "fundamentally evil" inventory sitting around.
Apple's not entirely immune. After all, its fourth-quarter "miss" with iPhone sales last year was attributed to consumers who postponed iPhone purchases amid the feverish media frenzy over a slightly later-than-usual iPhone launch. In that case, the media coverage was prompting consumers to wait.
Fortunately, the $76.2 billion in cash it had at the end of the previous quarter was just barely enough to get it by before the bill collectors came knocking. That, and it made up for it the very next quarter. And then some.
The final countdown
For Nokia and RIM right now, it's a race to see whether they can get their new products to market before they run out of cash as sales dry up. They're sitting on about $12 billion and $2.2 billion in cash, respectively, right now. Nokia also just saw its debt downgraded to junk status amid the uncertainty of its transition.
It's also worth noting that this phenomenon is much stronger in hardware sales, which are generally much more difficult or expensive to upgrade (if at all) after the initial sale compared with software. For Nokia and RIM, both companies are transitioning to new software platforms that previous hardware configurations are not compatible with.
Can they escape their self-inflicted Osborne effects?
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