Research and Development – or Lack Thereof
What have you done for me lately? That's the question every investor needs to ask of a target company. Since past success is no indication of future performance, investors should focus on the next big product or service coming down the research and development pipeline. Will it be smart, strategic and sexy enough to increase sales and market share, or will the company's lack of vision give an edge to the competition? That's the risk of R&D.
Witness the sad tale of BlackBerry and its parent company Research In Motion (RIM). The iconic BlackBerry device, with its nifty keyboard and push messaging system, ruled the U.S. smartphone market in the early 2000s. BlackBerry held more than 50 percent of smartphone market share as late as the first quarter of 2009 [source: Elmer-DeWitt].
But even as sales of the sleek Apple iPhone began to gather steam, BlackBerry failed to develop a robust new operating system and interface to compete with the rest of the touchscreen pack. Its entrance into the touchscreen market, the 2008 BlackBerry Storm, was panned by critics for sluggishness and bugs, and virtually ignored by consumers [source: Cha]. As of late 2012, BlackBerry's U.S. market share was down to a depressing 1.6 percent [source: Austen].
As an investor, look for a company with a proven track record for strategic innovation, but remember that one or two breakthrough products isn't enough to sustain the company forever. You can lower the investment risk by betting on companies with a deep inventory of fresh ideas.