Apple and Google Dominance Extinguishes Hope For RIM

NEW YORK ( TheStreet) -- Apple ( AAPL) is once again demonstrating to fans and critics alike why it is not only the most profitable mobile-phone maker, but the most valuable company ever.

Sadly for Nokia ( NOK) and Research In Motion ( RIMM), the iPhone 5 may not be the catalyst for their downward circling of the proverbial drain. RIM is already within the event horizon. Escape from the gravitational pull is unlikely, with Nokia not far behind.

How can we be sure RIM gets extinguished? After all, sales in several large markets continue to grow. Indonesia, for example, is a market where RIM continues to demonstrate effective merchandising. Sales in India at the start of 2012 have never been stronger.

But what the big print giveth, the fine print taketh away. Not all sales are alike. Selling large volumes of phones doesn't mean large profits. RIM had to cut prices in India, and, even after price cuts, sales may have peaked. In the lucrative North American market, RIM smartphone sales have fallen to under 10%.

In a growing market with many competitors, a 10% market share could be great. But in a maturing market, with two large dominant smartphone ecosystems -- those of Apple and Google ( GOOG) -- a third-place single-digit market share equals loss of critical mass.

Five years ago, critical mass didn't mean very much. Today, mobile phones are as much mobile computers as they are phones. IPhone and Android have 300,000 plus apps each, while BlackBerry has about 70,000. Granted some are worthless. But all else being equal, which phone do you pick? Or perhaps more importantly, which phone will the average consumer pick, if they don't already have a preference?

You can bet (as many short sellers have, based on the short interest in RIM) most consumers will continue to pick an Android or iPhone when the salesperson informs them that BlackBerry has about one third as many apps.

Because app developers add two and two as easy as the consumer, it becomes a vicious cycle of low consumer interest feeding low developer interest. We get the loss of critical mass so important to iPhone and Android.

Microsoft ( MSFT) may have the same issue, but unlike to RIM, Microsoft can continue providing free mobile software forever. For Nokia, time is the enemy. Without one hit after another, Nokia is destined to follow the path of Palm, without a Hewlett Packard ( HPQ) buyout.

Will the release of the seemingly never-arriving BlackBerry 10 revive RIM? No, even if the BlackBerry 10 is a great phone and a real value for the money, it still can't win.

For argument's sake, let's give the BlackBerry 10 reviews of five out of five stars. We can even go on to say it takes pictures better than iPhone, that messaging is better, signal strength is better, memory, battery life, you name it, it's better.

But one critical thing, which is out of RIM's control, won't be better. The critical mass needed for app development is absent. Even if RIM tries to discount its phones, it won't help because now Apple has an "old" product called the iPhone 4S that can be had for $49 or less, and Apple still makes money.

After Nokia's Lumia hit was released to great fanfare, it really didn't take long before AT&T ( T) was forced to discount the phone. What makes the discounting especially telling is that AT&T was the exclusive seller of the Lumia 900.

It wasn't other carriers like Sprint ( S) and Verizon ( VZ) that caused the competitive downward price pressure, it was other phones.

Because RIM has the ecosystem of messaging services, don't expect it to go out of business anytime soon. With a little over a billion dollars in cash after accounting for short-term liabilities, RIM is here for a while. It's certainly possible they last long enough to make a comeback.

How can you profit with RIM right now? Because RIM is relatively strong financially in the short term, and BlackBerry 10 will soon catch the media's attention, RIM is a great candidate for a covered call strategy. Option premium is high, and an investor can capture time premium. But as your time horizon lengthens, an increasingly cautious view is advised.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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