Email | Print    Type Size  -  +

BlackBerry maker battles back

Apple's iPhone is threatening RIM's dominance in the smartphone market. In response, the Canadian company just launched three new models. Will the gambit work?

By Jessi Hempel, writer
Last Updated: November 14, 2008: 8:00 AM ET

RIM's co-CEOs, Jim Balsillie (left) and Mike Lazaridis, are making a big push to get consumers to buy its smartphones.
Faceoff: 4 top smartphones Faceoff: 4 top smartphones Faceoff: 4 top smartphones
Apple's iPhone may have set the standard for a new generation of smartphones, but plenty of would-be competitors abound. Here are four top picks for the PDA-obsessed.
John Albright (left) and Kevin Talbot run a $150 million fund to make BlackBerry apps more fun.

(Fortune Magazine) -- As the first snow of the season dusts the Research in Motion campus next to the University of Waterloo, an hour southwest of Toronto, Mike Lazaridis polishes a tiny BlackBerry screen, places it on the table, and sends it whipping foosball-style through a sea of smartphone components. The company's co-founder and co-CEO then pulls out a circuitboard and points to an encased chip the size of a Scrabble tile.

"That right there is the most advanced smartphone ever made," he says. "There's no phone that measures up."

RIM (RIMM) may have the smartest chip, but that by itself won't be enough for it to thrive in the increasingly competitive smartphone market. In the decade since Mike Lazaridis first traveled the U.S. handing out BlackBerrys to corporate information officers, RIM has dominated the $12 billion annual U.S. market for smartphones, with a 50% share (see chart). Globally, RIM doubled its share this year, to 14% of the market, while still trailing Nokia, which has 42%.

As customers replace their tired flip phones with iPhones and other PDAs, RIM finds its dominant U.S. market share under siege. The company must protect its enterprise turf, where its BlackBerry is still the favorite tool for e-mail among corporate IT managers, and at the same time compete with Apple (AAPL, Fortune 500), Nokia (NOK), and even Google (GOOG, Fortune 500) in the consumer market, which is growing fast.

The challenge comes at a crucial time for RIM. Its stock is down more than 64% from a 52-week high of $148 a share, similar to the performance of rivals Nokia and Apple. And while fiscal 2008 revenues and profits doubled, to $6 billion and $1.3 billion, respectively, growth is slowing slightly. In the most recent quarter, ended in August, revenues increased 88% compared with a year earlier, and profits jumped 72%.

To woo consumers, RIM has developed three new smartphones. The BlackBerry Pearl Flip looks a good deal like Motorola's Razr; T-Mobile launched it Oct. 13, at $149 with a two-year contract.

The Bold is a souped-up version of the Curve with a larger screen; AT&T brought it out Nov. 4 in the U.S., at $299 with a two-year contract, making it $100 more expensive than the iPhone.

And then there's the Storm, a touchscreen phone commissioned by Verizon to compete in price directly with Apple's iPhone and due out during the holidays.

The Storm is clunkier than the iPhone but, RIM argues, better engineered. It solves many of the problems iPhone users bemoan: Its screen depresses slightly when users type, imitating the sensation of a real keyboard. And its battery is removable, whereas the iPhone's is not.

It's not clear that those features are enough to attract consumers who love the iPhone's rich offering of applications created by independent developers. These include a way to scroll through New York Times headlines and a GPS mapping system.

RIM needs to play catch-up in the consumer market, which is now the fastest-growing segment. Says Jim Balsillie, RIM's co-CEO: "The opportunity has expanded, but so has the level of contention."

Last month the company held its first developers' conference, in Santa Clara, Calif. With 20 million subscribers, RIM found it easy to generate interest. The company was expecting 600 attendees and got 900. At an after-hours party to show off programs, the excitement was palpable.

A 28-year-old software developer named Robert Kao jumped on a makeshift stage and plugged his BlackBerry into the overhead projector to demo a new software program. A hundred guys (and two women) chugged Coronas while Kao explained how his homing software could track lost phones, back up content, and, with the click of a button, obliterate all your e-mails and phone numbers. Think Lojak for your phone. Before he finished, a venture capitalist in the front row piped up, "I'll fund you."

At the event RIM announced an application store, which will open its digital doors next March. Developers can submit their programs for sale the way they can at the iPhone App store, but RIM has promised them 80% of the revenue, vs. only 70% for Apple developers.

Both companies will also need to cope with Google's Android G1, the much-anticipated smartphone that may give software developers an even better deal.

This past spring RIM contributed to a venture fund to spur new software development. The Toronto-based BlackBerry Partners Fund, run by JLA Ventures and RBC Venture Partners, was launched shortly after the creation of a $100 million fund for iPhone applications, which is managed by the Palo Alto venture capital firm Kleiner Perkins.

At $150 million, RIM's fund is bigger. "There is only so far that organic growth can take you in any business," says Kevin Talbot, who is the fund's co-managing partner, with John Albright.

The fund has just announced its first investments: Israel-based MobiMate helps travelers by keeping track of delayed flights. Austin-based Digby helps retailers set up web stores for cellphone screens. In New York City, Buzzd makes a guide that locates users and recommends nearby events.

Even as RIM broadens its focus to the consumer market, it is looking for more ways to make itself indispensable to its corporate clients. The latest: software that lets you seamlessly move between your office phone line and your BlackBerry. A call that starts in the car en route to work can end in the office, and no one will be the wiser. Businesses can save money by routing calls through whichever phone service is cheapest.

The good news for RIM is that many CIOs are wary of the iPhone because of security issues and because it's harder to customize its software for corporate use. After months of testing, several major corporations recently decided to pass on the iPhone.

This gives RIM breathing room to consolidate its lead. Some Apple lovers, however, are already pressuring their IT managers to approve the iPhone for corporate use. An Apple spokesperson says it continues to get a lot of interest from Fortune 500 companies. Watch out, RIM.  To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 32,627.97 -234.33 -0.71%
Nasdaq 13,215.24 99.07 0.76%
S&P 500 3,913.10 -2.36 -0.06%
Treasuries 1.73 0.00 0.12%
Data as of 6:29am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.