I was taken aback when I saw the RIM’s stock suddenly drop 17% last week. By all accounts, it had a strong Q2 results: Q2 revenue was up 37% y-o-y and 2% q-o-q to $3.53 billion on shipment of 8.3 million units. Net income was $475.6 million or $0.83 per share versus $495.5 million, or $0.86 per share last year and $643.0 million, or $1.12 per share in the prior quarter. Gross margin improved to 44.1% from 43.6% last quarter due to reductions in raw material costs and shifts in the product mix. The company ended the quarter with $2.5 billion in cash, up by $78.5 million over last quarter.

It gave a conservative forecast for the quarter ahead. I think the analysts were expecting bigger revenue growth. And this explains why the stock got beaten.

Looking beyond the immediate quarters, RIM faces several strategic challenges and threats — iPhone getting entrenched within the corporate enterprise which was RIM’s sweet spot, imminent price wars with Apple and Palm and the emerging Android phones likely to hit the market anytime.

Unlike Apple, RIM hasn’t made much strides with the App Store. Apple’s success is highlighted here. RIM’s App Store was launched only in April and has seen about 20 million downloads compared to Apple’s 2 billion downloads. It needs some serious work here and may be a cutting edge application. It also needs to pay serious attention to building an application eco system for business applications.

I think their deal with Verizon will be watched with interest as Verizon already has deals with Palm and Motorola’s Android. RIM is apparently coming up with several new models, but the competition is hotting up.

I think the next 2 quarters would be key for RIM to regain the momentum it seems to have lost. The opportunity is now.

A few months back one of analyst friends asked me whether it is possible for the mobile service provider to create their own App Stores and be successful. My opinion to him was they can do it or rather they should do it, else they have not even joined the battle for customer loyalty. The talk turned to Singtel which is one of the largest operator based out of Singapore and it has a global presence due to its joint ventures and acquisitions in many countries. I remember telling him that it should be one of the large operators who will have the reason to do it.

Now Vodafone has done it. Vodafone 360 is a mobile web service that provides music downloads, integration with Facebook and Twitter, and supports several handsets. In a way it is competing with Apple’s App Store, Nokia’s Ovi and other App Stores created by the mobile phone vendors.

Now Vodafone’s Telco 2.0 model (called efficient pipes) is nothing new. A lot of mobile service providers thought about that but shied away from taking the plunge. Now Vodaphone which has over 300 million consumers in over 30 countries has taken the challenge.

As Apple and Nokia increase their emphasis on the App Store and have made a success of it (Apple’s App Store’s success is chronicled here), the mobile service providers can’t afford to be silent spectators.

But whether the service providers with their current competencies would have the ability to build an App store and an application eco-system is a big question.

Recent acquisitions by Dell and Xerox have something in common. Both acquired companies which are far away from their core competencies in an effort to find stable growth. They acquired predominantly U.S. centric IT services firms. I explained my disappointment with Dell’s acquisition of Perot Systems here. Xerox recent acquisition of ACS also evoked a similar thinking in me. It is very difficult for a pure play product / technology organization to blend well with a pure play services organization. The organizational DNA are too different, growth trajectories are quite different, organizational processes lend itself to little synergy. In short, I am not very high on such acquisition moves.

Cisco is different.

Cisco announced an all- cash offer to acquire Tandberg for $ 3 billion. Tandberg — a Norwegian company sells smaller and less priced video conferencing systems. This is a perfect fit for Cisco’s more expensive TelePresence systems which has been a great success. I think this is a brilliant acquisition since Tandberg’s gross margins is 66% and has clients in US and Europe. This acquisition would enable Cisco to sell the Tandberg products to companies which cannot afford the TelePresence. With this acquisition, Cisco would dominate the video conferencing systems for some time. More importantly the acquisition came in quite cheap since Cisco just paid 11% premium over Tandberg’s closing price.

Cisco has always acquired companies that in some way or the other generated more Internet traffic creating in turn demand for its core business — the networking hardware business. The way it is going to unleash its Unified Computing strategy will of course be interesting and one has to wait and see how it provides the synergy to the networking hardware business. Cisco’s ability to shake off entrenched players in fairly established market segments will also be evident in a couple of years.

Over the last 5 years Cisco has acquired 40 companies — both big and small and they have helped Cisco plug the gaps in the technology and product roadmaps admirably well. They also have had little problems integrating them into the Cisco model.

Cisco has $35 billion in cash which means further acquisitions are on the way. I only hope they don’t go with the flavor of the month and acquire another U.S. based IT services firms !

Unit 4 Agresso has now teamed up Salesforce.com — the poster boy of SaaS to create FinancialForce.com that will produce SaaS based accounting, and financial management applications.

Well SaaS has been growing, but CFOs are mostly conservative and would not want to the data to be in the cloud. Hence the success of Financialforce.com will be keenly watched.

Now there are several interesting issues that come about with this joint venture.

For a start, it seems that Salesforce.com is a minority investor. Salesforce.com’s presence will undoubtedly create higher visibility for SaaS based financial applications. Hence other vendors will follow suit giving the SaaS proposition a greater momentum. Enterrpise software vendors who offer products in the mid market space like Oracle, Microsoft and SAP will have to respond quickly to this trend.

But with this association, Salesforce.com also seem to be sending mixed signals to its App Exchange partners who use the Salesforce.com’s Force.com platform to build new applications. Well, they could build an application only to realize that Salesforce.com might one day compete with them. Recent acquisitions by Salesforce.com in many of the App Exchange parnters’ businesses have not made Salesforce.com popular with many of the partners. Yet, there’s no compelling SaaS platform currently.

It looks like Salesforce.com needs to clearly clarify its positioning, strategic goals and its partnering model.

The 76-year-old woman walked down the hallway of Clearview Addictions
Clinic, searching for the right department. She passed signs for the
"Heroin Addiction Department (HAD)," the "Smoking Addiction Department
(SAD)" and the "Bingo Addiction Department (BAD)." Then she spotted
the department she was looking for: "Facebook Addiction Department
(FAD)."

It was the busiest department in the clinic, with about three dozen
people filling the waiting room, most of them staring blankly into
their Blackberries and iPhones. A middle-aged man with unkempt hair
was pacing the room, muttering, "I need to milk my cows. I need to
milk my cows."

A twenty-something man was prone on the floor, his face buried in his
hands, while a curly-haired woman comforted him.
"Don’t worry. It’ll be all right."
"I just don’t understand it. I thought my update was LOL-worthy, but
none of my friends even clicked the ‘like’
button."
"How long has it been?"
"Almost five minutes. That’s like five months in the real world."

The 76-year-old woman waited until her name was called, then followed
the receptionist into the office of Alfred Zulu, Facebook Addiction
Counselor.

"Please have a seat, Edna," he said with a warm smile. "And tell me
how it all started."
"Well, it’s all my grandson’s fault. He sent me an invitation to join
Facebook. I had never heard of Facebook before, but I thought it was
something for me, because I usually have my face in a book."
"How soon were you hooked?"
"Faster than you can say ‘create a profile.’ I found myself on
Facebook at least eight times each day — and more times at night.
Sometimes I’d wake up in the middle of the night to check it, just in
case there was an update from one of my new friends in India. My
husband didn’t like that. He said that friendship is a precious thing
and should never be outsourced."

"What do you like most about Facebook?"
"It makes me feel like I have a life. In the real world, I have only
five or six friends, but on Facebook, I have 674.
I’m even friends with Juan Carlos Montoya."
"Who’s he?"
"I don’t know, but he’s got 4,000 friends, so he must be famous."
"Facebook has helped you make some connections, I see."
"Oh yes. I’ve even connected with some of the gals from high school —
I still call them ‘gals.’ I hadn’t heard from some of them in ages, so
it was exciting to look at their profiles and figure out who’s
retired, who’s still working, and who’s had some work done. I love
browsing their photos and reading their updates. I know where they’ve
been on vacation, which movies they’ve watched, and whether they hang
their toilet paper over or under. I’ve also been playing a game with
some of them."
"Let me guess. Farmville?"
"No, Mafia Wars. I’m a Hitman. No one messes with Edna."
"Wouldn’t you rather meet some of your friends in person?"
"No, not really. It’s so much easier on Facebook. We don’t need to
gussy ourselves up. We don’t need to take baths or wear perfume or use
mouthwash. That’s the best thing about Facebook — you can’t smell
anyone. Everyone is attractive, because everyone has picked a good
profile pic. One of the gals is using a profile pic that was taken,
I’m pretty certain, during the Eisenhower Administration. "

"What pic are you using?"
"Well, I spent five hours searching for a profile pic, but couldn’t
find one I really liked. So I decided to visit the local beauty
salon."
"To make yourself look prettier?"
"No, to take a pic of one of the young ladies there. That’s what I’m using."
"Didn’t your friends notice that you look different?"
"Some of them did, but I just told them I’ve been doing lots of yoga."
"When did you realize that your Facebooking might be a problem?"
"I realized it last Sunday night, when I was on Facebook and saw a
message on my wall from my husband: ‘I moved out of the house five
days ago. Just thought you should know.’"
"What did you do?"
"What else? I unfriended him of course!"

Over the weekend, the Wall Street Journal published an interesting interview with Eric Schmidt – CEO of Google and a great tech visionary. Disclosure: I am a great admirer of Eric Schmidt.

The interview comes at an interesting juncture when Android seems to be on a roll powering 200,000 devices a daily and slated to be the dominant operating system on the mobile platform. Yet, of late, the media has been critical of Google, probably taking the cue from a weak stock price. Add to that the mindshare belongs now to Facebook.

Notwithstanding the negative media reports on Google, Eric in this interview shares several new insights about where Google is headed. Some of his insights and quotes are interesting:

Asked to comment on Android being given free as compared to the fat margins made by Apple he says:

"You get a billion people doing something, there’s lots of ways to make money. Absolutely, trust me. We’ll get lots of money for it."

"In general in technology," he says, "if you own a platform that’s valuable, you can monetize it." Example: Google is obliged to share with Apple search revenue generated by iPhone users. On Android, Google gets to keep 100%.”

That difference alone, says Mr. Schmidt, is more than enough to foot the bill for Android’s continued development.

Google’s real challenge though it dominates the search business:

The real challenge is one not yet on most investors’ minds: how to preserve Google’s franchise in Web advertising, the source of almost all its profits, when "search" is outmoded.

The day is coming when the Google search box—and the activity known as Googling—no longer will be at the center of our online lives. Then what? "We’re trying to figure out what the future of search is."

Now that’s what being visionary is all about – not reacting to Wall Street but figuring out the future before Wall Street has had the chance to position you. Maybe he’s taking the cue from Andy Grove’s philosophy of Only the paranoid survive.

 Google’s intriguing aspect of Search 2.0 can be summed neatly as he says:

"We know roughly who you are, roughly what you care about, roughly who your friends are." Google also knows, to within a foot, where you are.

Mr. Schmidt leaves it to a listener to imagine the possibilities of this social search and what its implications could be. In fact, Google is acutely aware that we are on the cusp of a new phenomenon called “Social search” which may be powered by the Facebook phenomena.

Google the creator of targeted advertising believes that it will dominate the category raises the bar:

"The power of individual targeting—the technology will be so good it will be very hard for people to watch or consume something that has not in some sense been tailored for them."

Finally, Eric presents the most intriguing and scary possibility of the future when he says:

"I don’t believe society understands what happens when everything is available, knowable and recorded by everyone all the time," he says. He predicts, apparently seriously, that every young person one day will be entitled automatically to change his or her name on reaching adulthood in order to disown youthful hijinks stored on their friends’ social media sites.

"I mean we really have to think about these things as a society," he adds. "I’m not even talking about the really terrible stuff, terrorism and access to evil things."

"The significant problems we face cannot be solved at the same level of thinking we were at when we created them."   –  Albert Einstein.

No one will deny that our problems have become more complex. Yet very few of us put any emphasis on our thinking frames or improving the repertoire of thinking that we bring to bear on our problems. I have often wondered whether we have significantly lagged in building our perception tools. Part of the reason is we often tend to view the problem from a single lens and ignore other perspectives which I attempted to bring across through a story here.

Recently the Edge symposium invited several thinkers to ponder over a great question on “What scientific concept would improve everybody’s cognitive toolkit?”. Some of the answers were:

Path dependence:  This refers to the notion that often “something that seems normal or inevitable today began with a choice that made sense at a particular time in the past, but survived despite the eclipse of the justification for that choice.”

Einstellung Effect, The idea that we often try to solve problems by using solutions that worked in the past instead of looking at each situation on its own terms.

Focusing Illusion, Which holds that “nothing in life is as important as you think it is while you are thinking about it.”

Fundamental Attribution Error: Don’t try to explain by character traits behavior that is better explained by context.

I can safely say that we all can become better thinkers if we even just went through some of the proceedings of the Edge symposium which is available here.