Rivals at door as BlackBerry is tied up with legal dispute

Research in Motion's BlackBerry device dominates the rapidly growing market for on-the-go business communications. But over the next year, its competition will get a lot tougher.

Microsoft is making a major push into the software side of mobile e-mail. Meanwhile, a lot of new hardware is due to hit the market.

Palm, BlackBerry's biggest hardware competitor, launched an updated model of its popular Treo last week that will run for the first time on Microsoft software. And BlackBerry rivals are in the offing from Nokia and Motorola, the world's two biggest makers of mobile phones.

All three will join a Hewlett-Packard iPaq mobile device that went on sale through Cingular Wireless last fall.

Their timing couldn't be better: RIM is locked in a legal battle with NTP over patents, a fight that has threatened to shut down the BlackBerry e-mail system.

Such a court-ordered shutdown is unlikely. But it has created uncertainty for RIM's customers, and thus opportunities for competitors.

"It's giving competitors an instant foot in the door," said Brian Modoff, a stock analyst at Deutsche Bank Securities in San Francisco.

Indeed, Good Technology, probably RIM's biggest competitor on the software and service side of the business, has fielded more than a hundred calls over the past couple of weeks from anxious BlackBerry customers, said Danny Shader, Good's chief executive officer.

"We're sort of everybody's contingency plan," he said.

Shader noted, too, that his California company is buoyed by the scheduled launch this winter of Motorola's Q and Nokia's E61. Both devices feature Qwerty keyboards and are aimed at BlackBerry users.

"We love the Q," Shader said. "We love the Nokia E series."

That's because Good's e-mail system runs on mobile devices made by several manufacturers: The more non-BlackBerry devices in the market, the better for Good.

Opening up

RIM has historically packaged its BlackBerry with its own e-mail system, a proprietary network of servers and operations hubs.

With competition growing, though, RIM has been licensing its system to mobile phone-makers, including Motorola.

The first non-BlackBerry device in this country to run on RIM's network, the Nokia 9300, was launched in November.

Waterloo, Ont.-based RIM, which declined to comment for this story, basically built the mobile "enterprise" market, or wireless communications targeted at businesses.

For the most part, RIM's devices are sold to companies, which parcel them out to employees. Employees can access their work e-mail from the road along with using their BlackBerrys as phones.

RIM "was the first to market with a turnkey solution," said Benjamin Bollin, a stock analyst with FTN Midwest Securities in Cleveland. "It's kind of a one-stop shop."

Package pays off

The company's ability to offer a package has been important to its success, analysts say.

"The service and the device work extraordinarily well together," said Gene Signorini, a wireless-industry analyst at Boston-based market-researcher Yankee Group. "The whole user experience is kind of seamless."

Signorini likened the BlackBerry to another iconic gadget, Apple Computer's iPod portable music player.

The iPod became a huge force partly by packaging a device with a service: Apple's iTunes Music Store, where songs can be downloaded for 99 cents.

As the iPod dominates digital music, the BlackBerry dominates mobile business communications. Analysts estimate that RIM has 70 to 80 percent of the mobile e-mail market.

The company has grown at a torrid pace, too. It has 4.3 million BlackBerry subscribers, up from 1.1 million in February 2004 and just 25,000 in early 2000. In mid-December, RIM reported fiscal third-quarter sales of $561 million, up 53 percent from a year earlier.

As in any business, success breeds competition.

"This is a market a lot of people want to be in," Bollin said.

Like people at Microsoft.

Microsoft, of course, is a huge force in corporate e-mail through its Exchange server software. It wants to better tie servers that run on Exchange to mobile phones that run on Microsoft software.

Push vs. pull

The company earlier this year launched a new version of its phone operating system, Windows Mobile 5.0.

In November it began offering free updates to Exchange that will allow for "push e-mail" on phones.

Push is the type of e-mail system run by RIM and Good. In it, e-mail is sent almost immediately from a server at an office to a mobile device in the field.

In a "pull" system, which is what Microsoft has been offering, mobile devices must effectively request e-mail from office servers (they are able to pull e-mail every few minutes).

Microsoft's e-mail system doesn't require a separate network of servers and operations centers as RIM's does. Essentially, Microsoft houses both an office-based e-mail system and a mobile system under the roof of a Microsoft Exchange server.

"IT departments can manage a single platform," said John Starkweather, Microsoft's group manager for mobile devices. That gives companies a cost advantage, as they don't need to pay for a separate system, he said.

Integrating e-mail systems

But Ken Dulaney, a wireless-industry analyst for market-researcher Gartner, said that some businesses don't mind integrating two e-mail systems.

That's because with RIM's system, companies effectively outsource work, he said.

Messages and phone calls made from BlackBerry devices run through the wireless networks of companies such as Verizon and Cingular. (RIM's own system essentially routes signals through the carriers' networks.)

RIM handles relations with the myriad carriers. With a Microsoft e-mail solution, businesses must deal directly with carriers, Dulaney said.

Plus, wireless carriers have an extra incentive to push BlackBerry, Dulaney said. The service and the devices are resold through carriers, generating revenues for the carriers themselves.

Phones that use Microsoft's push system should be hitting the market. Motorola's Q, which runs on Windows Mobile 5.0, will come out first with Microsoft's pull system, but later with push.

A Q equipped for Good's GoodLink e-mail system also is planned, said Mark Shockley, vice president of seamless mobility for Motorola's wireless phone operations.

Shockley said he eventually expects that Q will be available for use on the BlackBerry system too.

Schaumburg, Ill.-based Motorola is hoping that the Q will score big points on style. It's fashioned in the vein of the Razr, a hot-selling Motorola phone known for its sleekness.

"First and foremost, people are looking at form factors," Shockley said.

"We have that nailed down with the thinness of this device, with the pocketability of this device."

Good looks do help sell phones. But Modoff, the Deutsche Bank analyst, noted that in the business-oriented smart-phone market, performance is paramount.

"It's not just how it looks, it's how it works."