Does the BlackBerry have enough juice to survive?

After establishing its BlackBerry mobile email device as the piece of tech that no self-respecting middle manager could be seen without, RIM appeared to be sitting pretty.

The Canadian company seemed to appear from nowhere and steal into a market that should have been Microsoft's or IBM's for the taking. In fact its device has proved so addictive it has earned the nickname CrackBerry in some circles. Email on the move seems like the most obvious killer application for a mobile device but for some reason none of the big players were agile enough to recognise or exploit the obvious need.

This lack of real competition was just the kind of head-start that RIM required to establish its technology as the de facto standard. But after an excellent spell of good luck, the tide appears to have changed for RIM.

Winning big also means you have it all to lose. And RIM stands to lose big-time if an ongoing lawsuit filed by patent-holding company, NTP, in 2002, alleging patent infringement is upheld. NTP is seeking to shut down RIM's domestic US operations, where generate 75 percent of the BlackBerry maker's revenues. The patent-holder won an injunction to that effect in 2003, although this has been stayed pending appeal.

Violation allegations
In August, an appeals court scaled back the ruling against RIM, but upheld some patent infringement claims, although the US Patent and Trademark Office issued a "non-final action" in mid-December 2005 and early January 2006, rejecting seven of the eight NTP patent violation allegations at the centre of the original dispute.

Nonetheless, the US Patent Office's rulings are not seen as final as NTP can appeal and requests by RIM, including a recent petition to US Chief Justice John Roberts, to get the courts to stay the case have failed. This means that the question now before US District Judge, James Spencer, is what effect the appeals court ruling should have on the injunction and damages sought by NTP.

Patent workaround
Both sides have been ordered to file final legal briefs by 1 February and a hearing is expected to follow within a week. But Jim Balsillie, RIM's joint chief executive, says that the organisation has come up with a software-based "workaround" to the patents to "keep our business going as we always have, as we always will".

Richard Edwards, a research analyst at Butler Group, believes, however, that such legal disputes are never positive as they create uncertainty among customers — something that is likely to be particularly marked among the organisation's key business base.

"Anything that distracts people from buying the product is a threat and it's something that a senior manager would pick up on. No one wants to tout a device that could be seen as obsolete and with the greater range of viable alternatives now available, it encourages people to make a more considered choice rather than just a me-too purchase," he says.

Four million subscribers
While Charmaine Egberry, RIM's vice president for Europe, was unable to comment on the case directly but claimed that it had made no impact on sales, with subscriber numbers now having passed the four million mark and expected to hit five million in the fiscal year ahead.

To make life even more uncomfortable for the vendor, however, influential technology analysts Gartner issued a warning at the start of December advising customers to "place mission-critical BlackBerry deployments on hold until RIM's legal position is clarified".

The move followed the court's decision on 30 November to deny a motion for RIM to stay a pending re-examination of its patents by the US Patent Office. At the same time, the court ruled that a $450m term sheet agreement between RIM and NTP, which was ...

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...announced in March and fell apart in June, was not "valid and enforceable".

This led Gartner to re-evaluate its long-held position on the case as it "strongly suggested that unless RIM reaches a settlement with NTP, the court will issue an injunction effectively ending RIM's operations in the US." The court, it added, "appears unwilling to wait for the Patent Office to issue a final verdict on NTP's patent claims – a process that, while it might end in RIM's favour, could take years".

Close US operations
But shutting down the US operations would mean that US customers lose access to messaging — but not voice — services, while international users would likewise be unable to use messaging functionality when in the country.

Although Gartner believes that any long-term negative impact on RIM is likely to be "minimal" if the case can be settled quickly, it sees the situation as being "highly problematical" if it has to implement the workaround.

"RIM claims its workaround is legally sound, but its history in the courts does not inspire confidence. Moreover, end-user validation and implementation would take time, resulting in a temporary loss of service," the Gartner statement explained.

Egberry is dismissive of Gartner's stance. "It's got no special insight or knowledge of the case beyond what is public so it doesn't have all the facts. The matter is before the courts in field records so we can't comment either way and we find it amazing that other people find they can."

BBC ban
She takes a similar line over the BBC's decision to stop its staff from using BlackBerrys after a flaw in RIM's Enterprise Server software meant workers received portions of emails intended for colleagues.

"At the BBC, it was one user in the organisation that was affected and it was the first time anywhere in the world. Why we're successful is because of the way we react and we had the software fix turned out in three hours," Egberry attests. "It's important that people understand the scale of this. It was one person in one organisation around the world and given how quickly we're growing as a company and the number of subscribers, it was the first time we've dealt with something like this. Ever."

A second flaw in Enterprise Server, which was discovered in early January 2006, meanwhile, means that if users open a malicious TIFF image attached to an email, it could block them from viewing other legitimate attachments. RIM plans to release a patch to fix the flaw as soon as testing is complete, but in the meantime, customers are advised to filter TIFF images or disable attachments altogether.

Given this raft of negative publicity over recent times, including the lowering of projections for new subscriber figures three times over the last 12 months, the obvious question becomes, will it be possible for RIM to maintain its leading position in the mobile device market or is this the start of a terminal decline?

According to Butler's Edwards, while the company is still a leader in its field, its "honeymoon period is now well and truly over", not least because the sector is becoming increasingly competitive.

BlackBerry devices, he says, have traditionally been adopted most avidly by senior managers keen to have an easy way to access email, which is pushed to them while on the road. As a result, due to the GPRS-based devices' status as an executive tool, "no one had to go through a big exercise to prove its worth when senior management have said they want it".

Microsoft honing in
Nowadays, however, he points out: "There's a general recognition that smartphones and PDAs are honing in on what in part made the BlackBerry successful and as companies such as Microsoft provide increasingly manageable and easy-to-access mobile email out-of the box and the uptake of wireless increases, the cost model for BlackBerry use can look a bit questionable."

As the deployment of Wi-Fi networks becomes more...

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...pervasive, Edwards believes, the issue becomes one of why organisations would want to pay for data to be sent over a GPRS network when they could use quicker wireless connections for free in places such as airports or on trains.

But the advent of Microsoft's Exchange 12 offering could pose another threat, although, initially at least, Edwards expects it to act as more of a challenge to other messaging and collaboration vendors such as IBM's Lotus. Exchange 12 will include a Direct Push protocol to enable emails to appear on users' handsets almost instantaneously in a similar fashion to the BlackBerry.

"As organisations update their corporate messaging systems and find that this is something that they can get out-of-the-box for free, they may question why they need to buy an additional proprietary box," Edwards says.

Loyal customers
Another factor to bear in mind, says Edwards, is that markets such as this do not stand still and although RIM currently has a loyal customer base, "if chief executives see something more appropriate, they won't wait long to replace it".

"If a product has been successful, other vendors look at what has driven that success and emulate it in their own way, which is what we're seeing with the new smartphones and the updates to Windows Mobile," he explains.

But RIM's Egberry makes it clear that she is not cowed by a bit of extra competition and is not worried that the BlackBerry is considered pricey in some quarters.

"For the value of getting urgent email and having a push email experience, people say they'll pay anything in the world," she claims. "But if you're looking at those that have never had the experience, they'll ask what they're paying for on a monthly basis and that's something that the carriers have to focus on. We don't set pricing. It's the network carriers that set the pricing."

One way around the price perception issues of non-users, however, she believes, is to encourage prospects to undertake trials. "It's less about the price on the market and more about understanding the value of the technology," Egberry says.

With regard to any potential threat posed by Wi-Fi, meanwhile, RIM has already released a wireless-based offering in the US to exploit the trend, but so far there is no information on whether it will be launched internationally.

As for Microsoft, Egberry is "not directly worried, no". "Microsoft, Novell and Lotus make up the competition on the enterprise side of the corporate email market and those three together are very substantial players so we focus on all three," she says. "But they're also very important partners. The next year and the year thereafter will be very interesting, but this market has only just started so it's enormous. Less than two percent of people in Europe today use mobile email so there's an enormous upside."

Moreover, RIM maintains the BlackBerry is no longer just a product for "mahogany row" executives, but is being used by other staff members that can obtain "value from having access to information anytime, anyplace, anywhere".

Organ transplant
Customers cited by RIM include West Yorkshire Police, which uses the device for tasks such as issuing warrants, looking up criminal records and checking out vehicle registrations, and Addenbrooke's Hospital in Cambridge, where consultants and organ transplant teams use BlackBerry devices to access patient records.

"This market for us is no longer just about mobile email. We say we've done email and we're not in the email game, but in the...

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...mobile information game," Egberry says.

The change in tack is because some 60 percent of RIM's enterprise customers now use BlackBerry devices not only for email, but to browse the Internet and access corporate applications such as SAP and Siebel. "So we're in the mobile data space and that's our focus going forward," says Egberry.

But Elsa Lion, a wireless software analyst at Ovum, believes that RIM's leading position in the enterprise customer space may not be enough to sustain high growth levels into the future and that it may need to make more of a mark in other user segments.

"The addressable market for RIM is typically the higher end of the organisation. But there's now a gap in the market for something more all-embracing in the form of cheap devices. If it really wants to address consumers and mainstream business users though, the software has to be more affordable and on cheaper devices," she says.

Nokia and Motorola
While Lion acknowledges that the vendor is attempting to make inroads here with initiatives such as the BlackBerry Connect and Built-In third party software licensing programmes for handset vendors such as Nokia and Motorola, she says that success in these new markets has yet to be proven.

But Egberry is upbeat. Although she refused to divulge the revenue splits between the organisation's different product lines, she says that each is of equal importance in terms of priorities.

On top of the Connect and Built-in schemes, other BlackBerry offerings include enterprise services for corporates and small-to-medium businesses, which rely on server software that is run internally, while another option is the Blackberry Internet Service. This enables individuals and small businesses or so-called "professional consumers" to use their own ISP to access email and browse the web without having to purchase an additional server.

"It's about offering choice. The professional consumer base is growing rapidly and I hear what you say about price, but if you look at how quick the business is growing, I'd say that pricing is not an issue," Egberry says, although she refuses to be drawn on growth rate or revenue figures.

Cameras, games, music players?
Michael Gartenberg, vice-president and research director at Jupiter Research, meanwhile, believes that RIM still has work to do in increasing the number of features such as cameras, games or music-playing facilities that BlackBerry devices provide and which are now becoming expected.

"This is more important in the consumer space than the business one, but it's why RIM is going to need to adjust its product set if it wants to go beyond the business space. It's going to be important because, while people may not use them all, they are a checklist item, and on a feature comparison, BlackBerry [devices] can come up lacking," he says.

RIM's Egberry denies this is the case, referring again to the Connect and Built-In programmes, where handset manufacturers are providing all of the functionality that the market demands.

The 'beyond email' experience
"It's becoming a reality for people to do so many things on the move. The beyond email experience becomes people browsing the Internet, doing instant messaging and accessing important applications, and they're coming from all walks of life. This is happening today as people start to realise what they can do with the technology and when I look at the year ahead, I get very excited," she says.

Gartenberg is somewhat more sombre in his outlook. "RIM needs to resolve the legal issues that are creating fear and uncertainty among its core business customers and it needs to ensure that its products stay state-of-the-art. These are formidable things and, while at this point, the company has the ability to continue as a major force in the industry, it will have to work hard to execute against these challenges."