BlackBerry in motion

rim

Blackberry In Motion

The firm that made its name selling mobile email into the enterprise sector is moving into the consumer space, proving necessity really is the mother of invention.

With the BlackBerry, Canadian smartphone manufacturer Research In Motion (RIM) managed a rare feat: The creation a brand so strong that widespread consumer awareness of the product and its primary function-that of enabling mobile email-was years ahead of the curve in terms of uptake.

It would be fair to say that during the firm’s halcyon days at the turn of the century, RIM actively avoided targeting the consumer space. Yet its iconic terminal’s use in the enterprise sector popularised a mobile function that few before or-if we’re being honest-since have deemed particularly vital. Its use at one stage seemed so compelling that the media latched on to the pun Crackberry to describe the device’s addictive qualities.

The smartphone landscape has shifted considerably since the BlackBerry was launched in 1999. A lot more players have entered the fray and large enterprises no longer automatically turn to RIM to provide wireless email connectivity for their executives. There is a lot more choice in the marketplace and so RIM has been slowly shifting its focus.

Moving into its 2008 fiscal year, RIM completed its first billion-dollar quarter and revenue for Q3 of FY08 was $1.67bn, up 22 per cent from $1.37bn in the previous quarter and up 100 per cent from $835.1m in Q3 of FY07. The revenue breakdown for the quarter was about 80 per cent for devices, 14 per cent for service, four per cent for software and two per cent others.

The company cited continued handset demand and diversification of its user base as having driven its success. For the first three quarters of FY08, over 9.4 million devices were shipped in total and the total BlackBerry subscriber account base at the end of the third quarter was about 12 million.

“Q1 results were great at the top line, but greater than expected increases in marketing expense cause earnings before interest and tax, and earnings per share to come at the bottom of the range,” wrote Richard Windsor, analyst, Nomura. “5.4 million units were shipped at an average selling price of $341, which underpinned revenues of $2.2bn.”

Windsor believes RIM is experiencing some scale problems, however. “Further growth in device shipments requires greater diversity in both form factors and operator variants. We [Nomura] do not believe that RIM’s system has been architected with this in mind and so R&D is likely to continue to rise as shipments grow,” he noted.

RIM’s products and services have continued their strong performance across multiple market sectors, including enterprise, small and medium business and the consumer market. The firm has made a concerted effort to challenge the traditional consumer phone vendors amid record demand for the email handsets although this ultimately means it will also have to compete increasingly with devices such as Apple’s iPhone.

According to Windsor the BlackBerry user interface has improved in “leaps and bounds” over the last year, but developers struggle to get to grips with the code. “Without a clearly defined structure it is very difficult to build flexibility into the system,” he wrote. “This means that form factor variants and operator requirements have to be built from scratch each time. We [Nomura] think that it will not be until there is a proper flexible platform that operating leverage will improve margins. A platform rebuild to allow this flexibility could take some time.”

RIM’s product offerings over the past 18 months have shown that it is serious about turning its attention to the consumer sector with a number of more sleek, attractive and feature-rich smartphones.

For example, the BlackBerry Pearl, launched in September 2006, received rave reviews and has been successful with non-corporate subscribers. Updated versions were launched in 2007 and the BlackBerry Curve (BlackBerry 8300) added to this more consumer-oriented stable. In addition, the BlackBerry 8800 was launched as a mainstream multimedia-enabled smartphone and has been viewed as a response to Apple’s iPhone.

During the 18 months to end-2007, RIM launched 15 new handsets, excluding models with modified versions, according to Informa Telecoms & Media: 11 were for GSM networks only (one for WCDMA), three for CDMA only and one dual CDMA/GSM. Each of these devices runs RIM’s proprietary OS.

The Thunder has a touch screen combined with haptics vibration technology, standard BlackBerry software, a category-selector menu much like the iPhone’s and a full-screen video player. It is part of an aggressive product-rollout campaign initiated by RIM. The firm has incurred heavy operating expenses related to the effort, which has affected near-term earnings, but the vendor’s efforts could have a long-term payoff. “We believe the company is aggressively investing to become a more significant player in the handset market and expect the benefits to materialize this fiscal year,” UBS Securities analyst Maynard Um wrote.

RIM’s HSPA-enabled 9000 Bold model is now shipping as is the Javelin, an update of RIM’s Curve. RIM’s first clamshell device, the Kickstart, or 9100, was announced last month, and another rumoured device is the Seawolf, or 9110, resembling the Kickstart but with GPS capability.

RIM has also teamed up with social network giant MySpace and Microsoft to further strengthen its presence in the consumer market. RIM says that MySpace for BlackBerry will provide instant, push-based messaging to its users, a compelling feature given that one of the more cumbersome aspects of social networks is the separation of numerous inbox accounts.

The deal with Microsoft will make the Redmond software giant’s Live Search the default search engine within the BlackBerry browser. Users will also be able to use Live Search to perform contextual, location-sensitive searches or look for nearby points of interest from inside the BlackBerry Maps application.

RIM’s strategy now seems to have diversified geographically from its stronghold in North America. Over the past few years, sales in the US have accounted for around 70 per cent of RIM’s revenue. However, overseas sales have been accounting for an increasingly larger chunk of its revenue. Two important markets where the company has been developing its presence are China and Japan, which have now been joined by India and Eastern Europe.

RIM now faces growing competition not only from email solution providers but also from handsets with email functionality, many even offering BlackBerry Connect itself. Nokia’s E-Series devices, Palm’s Treo, Samsung’s SGH-i320 and the Motorola Q are just some of the devices that RIM’s handset business will have to compete against. Sony Ericsson also announced out-of-the-box availability of BlackBerry Connect software v4.0 on the Sony Ericsson P1i.

“I think RIM has performed really well in the current climate and have made a good job of moving from business to consumer with their product line-up-some good devices now in,” says David McQueen, analyst, Informa Telecoms & Media. “They probably needed to do this as they’re going to come under some pressure from the Apple iPhone in business, particularly as the new iPhone 3G has Microsoft Exchange,” he says.

For all this talk of consumer offerings RIM is still working hard for its core user base of corporate customers. BlackBerry Enterprise Server software tightly integrates with IBM Lotus Domino, Microsoft Exchange and Novell GroupWise and works with existing enterprise systems to enable secure, push-based wireless access to email and other corporate data. Though RIM faces some hefty competition in this space following the announcement of Microsoft’s System Center Mobile Device Manager 2008, which will enable business IT managers to remotely manage wireless devices in the hands of employees in conjunction with the Windows Mobile operating system.

This week the company took a leaf out of Apple’s book, announcing plans to launch the BlackBerry Applications Storefront in March 2009 – a marketplace which will put developers apps in front of the millions of BlackBerry users worldwide.

The storefront will allow developers to set their own prices for applications, with RIM creaming off 20 per cent of the fee. The Canadian firm is working with PayPal to establish a familiar payment system for users.

Enterprises, one of the biggest BlackBerry user bases, can also use the applications centre to retain control of what can be downloaded to devices within their corporate deployments.

The vendor is also working with carriers to provide customised, on device application centres to help foster after market application downloads. This platform will expand on RIM’s existing on device distribution system for individual software applications, such as Facebook. RIM is also notable for being the only handset manufacturer/having the capabilities to routinely push out updates to its handset users, enhancing security, features and experience.

RIM’s history, post-BlackBerry launch, is characterised by explosive growth and littered with a host of legal tussles. Sadly, the days of booming growth are long gone, fortunately-or rather hopefully-so too are the courtroom battles. As operators move towards all you can eat data tariffs, mobile email will surely gain greater traction in the consumer space and RIM’s brand and heritage will be beneficial, but the firm’s dated designs and hefty operating costs could prove its undoing.

RIM company history

1984 Founded in Waterloo, Ontario. Operates as wide area network enabler.

1995 Working Ventures Canadian Fund led the first venture round with a CA$5m investment.

1998 Raises CA$115m in IPO on the Toronto Stock Exchange.

1999 Lists on NASDAQ and raises a further $258m.

1999 BlackBerry launched.

2001 Sues Glenayre Electronics for patent infringement.

2002 Files suit against Good Technology. Good agrees to a licensing deal.

2002 Sues Handspring over its Treo device. Handspring agrees to a licensing deal.

2003 Files suit against Xerox.

2006 Settles BlackBerry patent dispute with NTP. RIM pays NTP $612.5m in a settlement.

2006 Sued by Visto for infringement of four patents. RIM comes out on top after lengthy dispute.