Wireless Propagator: RIM Gets Dinged

Waterloo, Ontario-based Research in Motion (RIM) has been meticulously covered--perhaps plastered--by the press in the last few weeks. And the news has not beenall accolades. Like most new companies that have grown out of startup mode andmade it big, this wireless mobile e-mail leader has been targeted by thosecompanies looking to share a little bit of the upstart's success.

The biggest hoopla has surrounded the three-plus year legal battle with NTP Inc.over patented wireless radio-frequency technologies that NTP claims are in RIM'ssystems. Wrangling started in November 2001 and a jury in 2002 ruled in favor ofNTP, awarding that company damages. RIM appealed the verdict and submitted thepatents to the U.S. Patent and Trademark Office (USPTO) for re-examination, butin March 2005 it reached a $450 million settlement action. Less than three monthslater that deal fell apart after RIM and NTP were unable to finalize settlementdetails based on March's abridged agreement. The movement between upper andlower courts, filings and appeals has been dizzying, but newly appointed U.S.Supreme Court Chief Justice John Roberts last week denied RIM's motion to reviewthe currently suspended injunction. NTP had previously requested that injunction toprevent RIM from providing BlackBerry wireless services to its largest customerbase, found just south of the Canadian border in the United States.

The twist in this ongoing legal escapade is that the USPTO at the end of Septemberissued an initial ruling rejecting all claims NTP made on eight patents, as itpreviously had done with seven other examined claims. NTP is appealing some or allof these rejections, so the final word has not been given, but from a layman'sperspective it seems to undermine the verdict against RIM. In the meantime, NTPcould possibly succeed in enforcing a new injunction based on Justice Roberts'ruling.

All this is just the beginning. A few other past and present concerns continue tolinger for RIM. In September 2005, Eatoni Ergonomics filed a lawsuit against thecompany relating to a patent tying together predictive text and the use of aQWERTY keyboard. Unlike most smartphones, which may use predictive-texttechnology but have only 12 keys, the new BlackBerry 7100 (a narrower version ofRIM's familiar hardware) introduced SureType(TM) technology, which uses two orthree characters per key laid out in QWERTY-like fashion. RIM said it has nocomment on pending litigation.

Another growing pain has been RIM's service outages. On June 17 and 22 of thisyear RIM users were unable to send and receive messages for several hours--not aminor issue for the three million subscribers affected. RIM will surely be beefing upits redundancy and failover plans to avoid future recurrences.

Although these lawsuits and other complaints will continue to make good soundbites, the most intriguing challenge for RIM is in its future: How will the companyfend off the mobile e-mail challenges from Microsoft? How will RIM's hardwareplatform fair in competition with others? How well will the company expand its coremessaging application to non-RIM devices without diluting its own hardware sales?

As others have pointed out, what RIM has is the momentum. It continues to spreadworldwide, with over 3.5 million accounts and recently inked deals with carriers inIceland and Thailand. But Microsoft's enterprise messaging server, Exchange 2003,recently received service pack 2, which includes mobile features specificallytargeted at RIM. The other half of the solution is Microsoft's Messaging & SecurityFeature Pack for Windows Mobile 5.0, scheduled for release in the first quarter of2006. Unless the company executes poorly on this enhancement, Microsoftgroupware users will soon enjoy the same push-based updates to e-mail, calendarsand contacts that RIM users have had for years--without the extra middleware andlicenses. For Microsoft Exchange users, it's an easy way to add additional mobilefunctionality without pulling in another vendor or replacing an existing device withone from a limited hardware line. RIM will need to accentuate the simplicity of itsmessaging application interface, the management tools the company provides withits BlackBerry Enterprise Server and the strong security its platform offers.

A few other well-known vendors also have taken a stab at replicating the RIM formfactor and design. Early next year, Motorola will release its 'Q,' which uses WindowsMobile 5.0 and combines a PDA-like mobile phone with the well-known QWERTYkeyboard. Palm recently announced the Treo 700w, which will now use WindowsMobile 5.0 rather than the Palm OS but is still strongly based on the samesuccessful hardware characteristics of the Treo 600 and 650. Nokia's E61competes with RIM on the hardware but supports third-party e-mail clients such asBlackBerry Connect on top of Symbian's OS 9.1. (BlackBerry Connect is asoftware-licensing program that enables RIM backend connectivity and serviceswhile using a device's own applications.)

The E61 is not the only device from Nokia to use BlackBerry Connect. Cingularrecently made the Communicator 9300 available in the United States.Two weeks ago, Palm announced a licensing deal with RIM to bring the Connect program to the Treo 650.

So can RIM concede some hardware sales to gain revenue on the software side? Thecompany's last quarterly results show that a full three-quarters of its revenuecomes from the handset side. Although RIM easily dominated both parts of thesales equation in the early years, other vendors have imitated its hardware andthen licensed its software. On the software side, mobile messaging gateways(networkcomputing.com/showArticle.jhtml?articleID=165701547 )such as Good Technology and Seven offer real competition across a range ofhardware form factors and operating systems. RIM will need to be extremelyaggressive in its licensing deals and partnerships to grow the software side of itsbusiness before the company's hardware platform undergoes a serious competitivethreat.

In spite of these external challenges, RIM still holds the lead in mobile messaging andit has strong brand recognition and trust with CXOs for its form factor andgovernment types for its security. Other vendors may duplicate the experience, buttime will tell if the stresses of that first mover advantage--such as patent lawsuitsand service-level maturation--will derail RIM's successes or just leave a ding.