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The Squeeze On BlackBerry

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DQI Bureau
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Mike Lazaridis and James L. Balsillie, the co-CEOs of Research in Motion Ltd.

(RIM), have plenty of reason to feel on top of the world. After 20 years spent

in the quiet university town of Waterloo, Ont., developing technology to deliver

wireless e-mail, their BlackBerry gizmo is an outright phenom. What the iPod is

to mobile music lovers, the BlackBerry is to workers on the go. For the fiscal

year ending in February, company sales should more than double, to $1.35 bn, as

net profits soar from $52 mn to around $300 mn and the number of global

BlackBerry subscribers leaps from 1 mn to 2.5 mn. The stock price has quadrupled

in the past year, to $84. Amid all the hoopla, the chief executives calmly

explain that they never doubted that they were on the right track. "We

beavered away for years," says Balsillie. "We never knew when the

market was going to pop, but we never worried much that it would eventually

happen."

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Now companies across the tech industry are marshaling their forces to squash

the BlackBerry. The rivals include Nokia, Dell, Hewlett-Packard, palmOne, Good

Technology, Seven Networks, a passel of Asian device makers, and, yes,

Microsoft. In the US alone, researcher Yankee Group estimates, the market for

corporate wireless e-mail totals 35 mn workers. This means that a mouthwatering

90% of the market remains untapped. "This category is just getting started,

and people don't want RIM to own it," says Danny Shader, CEO of Good

Technology Inc., a startup that offers e-mail services on a broad range of

devices and operating systems at a lower price than RIM.

SECOND ACT 



“Lazaridis and


Balsillie gear up


for explosive growth”

Mounting competition is leading the two Canadians to shift their strategy.

Rather than focus on defending the supremacy of the BlackBerry as an e-mail

machine, they're adjusting to a world in which the vast majority of handhelds

for e-mail and more will be made by their competitors. RIM's gambit is to

stake out leadership in software and services while protecting its hardware

niche. The goal is to turn the BlackBerry service into the leading standard for

corporate workers on the move.

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Ticklish Task 



The company has established ties with more than 70 phone carriers around the

world that offer BlackBerry subscriptions to corporate customers and pay

BlackBerry between $5 and $10 per subscriber to direct the flow of data between

devices and networks. At the same time, RIM has licensed its BlackBerry

messaging software to a host of competitors, including PalmSource, Nokia, and

Motorola. The company has also worked to widen its scope beyond e-mail,

hammering out agreements for mobile data services and news from the likes of

Bloomberg Financial Markets, SAP, and PeopleSoft. For instance, an SAP program

allows salespeople to tap into corporate networks on their BlackBerrys for

account and order information. The goal is to keep broadening these mobile

offerings-a key for expanding RIM's market for server software and

subscriptions.

The first results of RIM's transition will start to be seen over the next

few months, when around a dozen handsets using RIM's licensed technology are

scheduled to roll out, including a pricey full-keyboard phone from Nokia, the

i500 Palm-powered smartphone from Samsung, and Motorola's MPX Pocket PC with a

novel sideways keyboard.

Still, navigating this shift is one tricky job for Balsillie and Lazaridis.

They must balance their need to cooperate with key customers of RIM's software

and services against their desire to compete with the same companies in e-mail

devices. At the same time, there's the risk that as e-mail becomes a standard

feature on all sorts of phones, the divisions between RIM and the rest of the

mobile-phone world will fade away. Ron Garriques, chief executive of Motorola's

cell-phone division, says that phones with keyboards, while a small slice of the

market today, are "becoming more interesting over time."

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Sowing BlackBerrys

Research in Motion has a huge lead in wireless e-mail with its popular BlackBerry devices. Now, as competition heats up, it's trying to make its technology the market standard. Here's RIM's strategy:

License Software



Key to gaining a wider audience is licensing the BlackBerry software to cell-phone and handheld computer makers. Nokia, Samsung, and Motorola are beginning to roll out devices that run its software.
Work with Carriers



RIM, which doesn't have its own direct sales team, depends on wireless companies to sell its devices and those that use its software. It has signed up 70 carriers to push its products and plans to sign up 70 others in the next year.
Offer Software and Services



RIM is adjusting its software to make it easier for companies, ranging from SAP to Bloomberg, to offer their own services or software applications on a BlackBerry device.

Perhaps the greater challenge is in software. RIM's developers in Waterloo

must come up with the world's best systems to handle global corporate

communications on every type of mobile machine. "Right now, people love

BlackBerry because of the experience," says Yankee Group analyst Eugene

Signorini "Can replicate that on other devices?"

Adding to the uncertainty, RIM is embroiled in a bitter patent dispute with

NTP, a small, privately held firm in Arlington, Va., that holds a number of

patents. NTP first filed a complaint in the U.S. District Court for the Eastern

District of Virginia in November, 2001. Last year the court ruled in NTP's

favor, a decision RIM appealed. A ruling is expected soon. Separately, the U.S.

Patent Office is reviewing NTP's claims. Analysts say that if RIM loses, the

court could force it to pay a licensing fee to NTP for eight years until the

patents expire. The court last year set a royalty of 8.55% of US sales, which

would cause 2006 earnings to drop by 18%, estimates Michael Wallace, an analyst

at UBS.

RIM is also racking up stupendous growth in hardware. In September the

company unveiled a new $200 smartphone, the 7100. A departure from the

traditional Pop Tart-size BlackBerry, the 7100 looks more like a traditional

telephone and competes directly with palmOne Inc.'s Treo. Sales of all of RIM's

handsets, affectionately known as "crackberries" for their

addictiveness, are expected almost to triple in this fiscal year. This would

drive hardware revenue to 76% of the total in the 2006 fiscal, up from 58% last

year. Even in an industry where collaboration between competitors is grudgingly

accepted, RIM's aggressive pursuit of two distinct businesses may spark

dust-ups with competitors. Staying ahead in both hardware and software remains a

major challenge, but these Canadians are as convinced as ever that they're on

the right track.

By Heather Green in Waterloo, Ont., with Cliff Edwards in San

Mateo, Calif., and Roger O. Crockett in Chicago In BusinessWeek. Copyright 2004

by The McGraw-Hill Companies, Inc

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