The Squeeze On BlackBerry

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."

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.

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.

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."

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