RIM tries to put its problems behind it and push on to success

Rethink IT, Jan, 2005 by Caroline Gabriel

Research in Motion (RIM) is one of those start-ups that constantly defies the odds. It came fiom nowhere in the enterprise handheld market, taking on Palm and Compaq, with its BlackBerry email device, which is the leading PDA in the US and has a fanatically loyal base of users despite its limited functionality compared to the emerging new breed of smartphones and super-PDAs. Slow to adopt wireless and other key technologies, it nevertheless appealed to the US heritage in pagers and locked many large corporations into the server-based software on which its BlackBerry system runs, ensuring itself a software business even when its hardware devices are eclipsed.

It has not only surprised with its longevity in the cut throat enterprise mobile email market, but also by retaining a high share price and the attachment of shareholders through a barrage of legal actions surrounding its patents, including one, which was lost just before Christmas, that threatens to end in an injunction against the BlackBerry itself.

Despite these uncertainties, the challenge from far larger rivals in both hardware and software, a very late move into Europe, and the shift of the enterprise to new applications beyond email (see article on page 22), RIM still managed to turn in a healthy first quarter net profit of $55m, reversing last year's loss of $8.2m, in its most recent results. Revenue more than doubled to $269.6m from $104.5m. The number of BlackBerry subscribers jumped 270,000 to 1.34m during that quarter and it saw strong upgrade patterns among existing users as it introduced features such as color screens.

In the quarter, 68% of the company's revenue was attributable to BlackBerry device sales, while 19% was from service fees and 9% was from software licenses. This percentage will shift significantly over the coming year as RIM derives more and more of its revenue--lawsuits willing--from licensing its server software to third parties and former rivals, rather than selling its devices, which are increasingly looking low-spec compared to competitors, and will have to engage in a price war to retain the attentions of the wireless carriers and enterprise integrators. So far, these have been pleased with the high average revenue per user that the focus on data and email generates, and with the loyalty of the customer base to the BlackBerry's particular form factor and interface, but we believe these advantages will soon be eclipsed by other PDA and smartphone makers.

THE FIGHT TO SET SOFTWARE STANDARDS

Not so the software, whose facilities are now available on many other platforms, giving RIM a new goal--to be the owner of the de facto standard for the booming market of mobile enterprise email and messaging middleware systems, a sector that is expected to grow from $700m in value in 2002 to $1.6bn in 2007, according to IDC. This will be a fierce fight, despite RIM's headstart. For instance, Sybase unit iAnywhere ousted RIM from the top spot in the mobile middleware/email access market in 2003, partly because of its broad range of offerings and applications, from micro-databases to support for WLan hotspot access and customer relationship management systems.

Figures are not yet available for 2004, but RIM is likely to have hit back, based on its signing of licensing deals with erstwhile competitors from Nokia to Palm, and its move into Europe.

However, the market for enterprise-focused mobile email and messaging is becoming overcrowded, and a showdown between the server giants and the specialists is imminent.

As well as Sybase, IBM has launched Lotus Workplace Messaging, which includes an email server for mobile workers with wireless devices. It is targeted initially at employees who have not traditionally had any workplace email, such as factory workers and shop assistants, but IBM also sees demand from staff who have desk-based email but are often on the move.

Such moves made it essential, at the start of 2004, that RIM accelerate its licensing program, and it has been highly successful. First it ported its software to Windows and the smartphone operating system Symbian OS, and launched its licensing scheme, BlackBerry Connect. Later it signed up Palm, netting all three of the main PDA/smartphone platforms apart from its own--a strong base to start signing up licensees among the enterprise focused device makers and integrators.

KEY PARTNERS

And among its first vendor partners was Nokia, which badly needed a robust email server to counter Microsoft's strength in this area, as part of its move into the enterprise space. Although the Finnish giant says its progress in rolling out BlackBerry compliant phones has been slowed by the uncertainty created by the patent battles, and has adopted a multipartner approach that also includes RIM rivals Good Technology and Nokia's own acquisinon of Eizel Technologies, it remains a vital partner for RIM.

In October. Nokia said its Series 80 line would now come pre-loaded with the BlackBerry software. The Nokia devices based on the Series 80 platform are generally targeted at business users and include the 9500 Cummunicator hybrid phone/PDA, some models of which also support Wi-Fi. Such SymbianOS-based handsets will now be able to connect to the BlackBerry service, which can be integrated with one or more email systems.