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Investors unexcited by BlackBerry's free apps offer

Reuters
Oct 18, 2011 at 08:47am IST

Toronto: An offer of free games, translation software or other apps to compensate BlackBerry users for last week's prolonged outage left Research In Motion investors cool on Monday, and the shares fell 6 per cent. RIM declined to say if it would need to amend its earnings forecasts to account for the cost of its promise to give $100 of free apps to every BlackBerry smartphone user.

RIM is also offering a period of free technical support to businesses that use the gadget, which has steadily lost market share to Apple's sleeker, sexier iPhone. RIM's stock has dropped 60 percent over the past year. "RIM has responded swiftly but this won't undo the damage done to its reputation," analyst Geoff Blaber at CCS Insight told Reuters earlier on Monday. "This may go some way to appeasing customers but what's critical is that the problem does not repeat itself."

ALSO SEE RIM offers free apps to appease BlackBerry users

Highlighting the challenges, Apple said it sold 4 million of its new iPhone 4S in the three days after its launch last week. Tens of millions of BlackBerry users were left without mobile email and other messaging for up to four days last week after a failure at a RIM data center in England triggered a service disruption across five continents.

RIM fails to please investors with free apps offer

RIM has responded swiftly but this won't undo the damage done to its reputation, said an analyst.

Developers conference

RIM may reveal more about its strategy for countering the competitive challenge at a conference for application developers in San Francisco that begins Tuesday. RIM executives there are expected to unveil a major software upgrade for the PlayBook tablet computer. RIM may also provide a glimpse at next-generation smartphones using its QNX software, which already powers the PlayBook.

Long before last week's disruption, investor dissatisfaction with the management of co-chief executives Mike Lazaridis and Jim Balsillie had led a wave of speculation about the future of the company. Activist investor Carl Icahn squelched one of those rumors on Monday when he told broadcaster CNBC that RIM is not on his radar screen. Last month RIM's shares rose on speculation Icahn would buy into RIM and agitate for change.

Even so, a smaller activist firm, Jaguar Financial Corp, has said it is gathering the support of large RIM shareholders to push the board to look at strategic options, including a sale or split-up of RIM.

Deeply grateful

Last week's outage intensified criticism of the chief executives, who were accused of responding slowly to the crisis and communicating poorly. On Monday Balsillie told Reuters the company wanted to make amends with customers. "This is our way of expressing appreciation for their patience during the recent service disruptions and a tangible way of telling them how deeply grateful we are for their continued business," he said in a phone interview.

Balsillie declined to estimate how much the offer would cost RIM and said he was unable to say whether RIM might have to revise its earnings forecast for the current quarter, which ends in late November. The financial impact could prove sizable if a sizable number of RIM's more than 70 million subscribers take up the offers.

Analysts have said compensation costs could reach into the hundreds of millions of dollars. If RIM were to pay back all carriers and customers for lost service it could knock between 3 and 5 cents off earnings per share in the quarter, according to BMO Capital Markets analyst Tim Long. That would reduce profit by $15 million to $26 million.

Clever move

Even so, Richard Levick, who runs a US consultancy that specialises in crisis management, praised the free-app offer but said RIM should have made the announcement last week. "I think it's a good start, but they are always late," he said. "They are always behind the curve."

Francisco Jeronimo, an analyst at IDC, said the offer was a clever move by RIM because it would help customers to discover the app service. He said the company was likely to have struck a deal with app developers to keep the cost down. "For RIM, this is an interesting way to attract users to the App World and incentivize them to search and download apps," he said.

The free apps on offer include games such as Bejeweled, and premium versions of a translation service and the music discovery tool Shazam. Users can download them from BlackBerry App World beginning Wednesday, with more to be added in the next four weeks. The offer runs until the end of the year.

"More important than the offer itself, is that RIM is showing goodwill and being humble," Jeronimo said. "They recognized the problem, apologised and now they are compensating their users."

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