But Blackberry's biggest threat may come from itself. As the company's latest quarterly results suggest, there is a gulf between its pricey corporate phones and price-sensitive consumer models that are cutting into margins. When a loyal Research in Motion (RIM) customer such as a corporate IT manager discovers he's paying more than twice the price at work than his 16-year-old daughter is paying at retail, he feels ripped off. That in a nutshell is the crisis RIM faces. Of course, RIM's crown jewel remain its corporate business. Its franchise there stems from the thousands of company network managers who rely exclusively on RIM's e-mail management software to ensure corporate communications are securely delivered to their intended recipients. Companies pay a premium for this reliability. Those investments lock customers into Blackberry services and prevent others from breaking in. But this is changing.
After years of failures, Microsoft and Nokia have secure e-mail systems offering credible alternatives, which they give to clients, putting long-term pressure on Blackberry's corporate franchise.
The success RIM achieved in consumer markets has defied predictions. Eighty per cent of its new users in the first quarter were non-enterprise, retail customers and not corporate clients. The difference between corporate and consumer markets is RIM lacks customer control over consumers it has had in offices.
Ben Wood, an expert on the worldwide handset market at UK-based market research firm CCS Insight, says Blackberry has made huge inroads with teens and young adults by working with operators to market affordable, prepaid phones.
One secret of success of the Blackberry in consumer market is the familiarity of its standard layout keyboard compared to typical mobile phone alphanumeric keypads, making them great for texting, e-mailing or instant messaging. But copycats are rampant. The US carrier offers 20 phones with Qwerty-keyboards, not just from RIM, but from Samsung and other makers. The introduction of touchscreens and other use-friendly features have helped propel RIM stock up 89 per cent to $76.55 (Dh281) in 2009. But that is only half the story. Its Nasdaq-listed stock remains 42 per cent below the year-ago levels as the economy has taken its toll and debate over its consumer ambitions has played out.
Results for its first-quarter showed a 53 per cent jump in sales from the year-earlier quarter as net profit rose 24 per cent. Year-on-year comparisons disguise a quarterly sales decline, as revenue fell one per cent from its quarter ended in February.
Gross margins recovered somewhat during the quarter to 44 per cent, but are well off lofty levels of 55 per cent three years ago and are stuck there. The bigger disappointment was the firm's outlook, which fell short of Wall Street hopes.
The firm faces a flood of competitors this year. At the high-end of the market, Apple releases its new model iPhone. Palm is introducing its comeback phone, the Pre, while a variety of Asian and US phone makers are gearing up to release low-priced Google Android phones.
While making inroads may be hard in corporate markets where Blackberry is king, for individual consumers, these rival phones boast better web browsing. "RIM now has to decide what business it is in," says Wood. "Will the consumer business hurt the corporate one?"
The Blackberry market for kids is calling into question the lucrative corporate franchise RIM has built. It's only a matter of time before the business world questions why it is paying so much and looks to renegotiate. That's creating an opening for Blackberry killers to emerge.
- The author is a Reuters columnist. The opinions expressed are his own.
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